Earnings Call Transcript - XYZ Q2 2021

Operator, Operator

Good day, ladies and gentlemen. Thank you again for your cooperation. Welcome to the Square Second Quarter 2021 Earnings Conference Call. I would now like to turn the call over to your host today, Jason Lee, Head of Investor Relations. Jason?

Jason Lee, Head of Investor Relations

Hi, everyone. Apologies for the delay. We were just experiencing technical difficulties with the conference line. Thanks for joining our second quarter 2021 earnings call during which we will discuss Square's planned acquisition of Afterpay. We have Jack and Amrita with us today. Also joining us on the call is Nick Molnar, Co-CEO and Co-Founder of Afterpay. We will begin this call with some remarks before opening the call directly to your questions. We would like to remind everyone that we will be making forward-looking statements on this call. Actual results could differ materially from those contemplated by our forward-looking statements. Reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC in the investor deck and press release about our planned acquisition on our IR website for a discussion of the factors that could cause our results to differ. Also, note that the forward-looking statements on this call are based on information available to us as of today's date. We disclaim any obligation to update any forward-looking statements, except as required by law. During this call, we will provide preliminary gross profit results for the month of July. These represent our current estimates for July performance as we have not yet closed our accounting financials for the month of July and our monthly results are not subject to interim review by our auditors. As a result, actual July results may differ from these estimates. We may also discuss financial metrics for Afterpay, which are available in Afterpay's public filings. Also, we will discuss certain non-GAAP financial measures during this call. Reconciliations to the most directly comparable GAAP financial measures are provided in the shareholder letter on our Investor Relations website. These non-GAAP measures are not intended to be a substitute for our GAAP results. Finally, we are providing a slide presentation to accompany our commentary on the transaction. This conference call is also being webcast, and both the presentation and the call are available through the Investor Relations section on our website. An audio replay of this call will be available on our website shortly after the conclusion of the call. With that, I'd like to turn it over to Jack.

Jack Dorsey, CEO

Thanks, Jason, and thank you, everyone, for joining us today. Before we discuss our plans to acquire Afterpay, which we announced yesterday, I'd like to first share two highlights from the quarter. Continuing our commitment to expand access to financial tools and services, in July, we launched Square Banking for our U.S. sellers. This new suite of products will help business owners better manage their cash flow and get more out of their money. Square Banking now includes three core products, two deposit accounts, Square savings and Square checking, joining Square's existing lending products now called Square Loans. By offering central banking tools that integrate seamlessly with seller solutions like payments and Square Payroll, sellers now have a unified view of their payments, balances, expenses, and financing options. We also announced the launch of a new business at Square. Its name is CBD, which will focus on building an open developer platform with the goal of making it easy to create non-custodial, permissionless, and decentralized financial services. Our primary focus is on Bitcoin, driven by our belief that Bitcoin has massive potential to level the playing field for all. We're going to make our development process completely transparent to the public. We plan to share updates publicly in real time as we have them. Now on to yesterday's acquisition announcement. Today is an important day for Square, for Afterpay, and for what we can do together to better serve our customers. Through this transaction, we will be uniting two companies with a shared focus on economic empowerment and financial inclusion and taking the important opportunity to connect our two largest business units, Seller and Cash App. By integrating Afterpay into Seller and Cash App, we plan to combine complementary businesses while also accelerating even stronger connections and driving more commerce across both ecosystems. Increasingly, we're seeing strong demand for Buy Now Pay Later for both merchants and consumers, and rapid adoption amongst both, especially among younger consumers. This new financial service gives more control to individuals and merchants and is one that we want to make part of our combined ecosystem. It's a simple idea to enable our sellers' customers to pay for purchases later interest-free without having to use traditional credit sources, while helping to drive more omnichannel sales to the seller. Afterpay has built this out as a seller tool and combined that with a flexible, responsible payment method for consumers that also includes merchant discovery. As of June 30, Afterpay served more than 60 million consumers and nearly 100,000 merchants globally, with huge opportunity for growth on both sides, and growth in one helps the other, just like the rest of our ecosystem today. Beyond the compatibility of our businesses, we've been drawn from the start to Afterpay's founder-led entrepreneurial team. Afterpay's Co-Founder and Co-CEOs, Nick and Ant, have built an authentic, thoughtful, and visionary team focused on economic empowerment. It's been incredible to witness how effortlessly our conversations flowed around shared ideas and vision. Every conversation has raised the bar on what we can all do together, and our strong collaboration will well serve our integration process. I'm thrilled that upon closing, Nick and Ant will join Square and help lead Afterpay's respective merchant and consumer efforts as part of Square's Seller and Cash App teams, and I'm excited to see what we can build together.

Nick Molnar, Co-CEO & Co-Founder of Afterpay

Thank you very much, Jack. Hi, everyone. It's an absolute pleasure to be here today back in the U.S. and just in time to come announce the next phase of our incredible journey. I'm here today because of my Co-Founder and Co-CEO, Anthony Eisen, who only a few years ago, sat down with me over some veggie mutton on toast around his kitchen table to discuss how we could improve the financial well-being of the next generation, to empower them to spend responsibly without having to revolve in debt, interest payments, or service fees. I'm thankful every day that Ant and my paths crossed in that way, and our families have had the privilege to go on this journey together. It's been an incredible six odd years since, ending our fiscal year 2021 nearly doubling our business year-on-year, building a loyal base of Afterpayers who love the product and a network of more than 100,000 merchants who see increased retail opportunity through our partnership, notwithstanding the recent challenges in the global economy. I couldn't be more proud of what we've achieved so far, and I know that with yesterday's announcement, there is so much more to come. We've been long admirers of the Square team and in many ways have lived parallel journeys as entrepreneurs focused on creating financial empowerment for consumers and businesses alike. As we've gotten to know each other better, the scale and shape of our businesses, the synergies in our products, and our shared purpose, it's abundantly clear that we're at the start of an amazing partnership. And I know our team across the globe will share my excitement and enthusiasm for the opportunity to come. We started Afterpay having met by chance as neighbors in Sydney. Both Ant and I were passionate about developing an alternative to traditional finance and credit products. Having seen firsthand the impact of the global financial crisis and knowing that many millennial and Gen Z consumers were looking for an alternative to traditional credit, we saw a way to empower consumers to responsibly buy what they wanted with their own money while providing incremental value to merchants. Since then, Afterpay has become a leader in the global Buy Now Pay Later space. We have flipped the traditional credit model on its head to drive significant value to both merchants and consumers. Our product and approach is simple: sign up within minutes, make your first purchase via in-store, online, or app, and repay in four equal installments. When you sign up for Afterpay, we don't conduct a credit check or ask you to jump through any hoops. Our model is based on trust. You start with a lower spending limit that increases over time and reflects good repayment behavior. Afterpay consumers share a deep loyalty and affinity with our product and brand. They frequently pay for their purchases across many retailers and verticals. It's this frequency with which our consumers use Afterpay that truly differentiates us and shows the power of our products and platform. On average, our top 10% of consumers globally used Afterpay more than 30 times in the U.S. and 60 times in Australia in the fiscal year 2021. And for merchants, whether they're large enterprises or small to medium-sized businesses, we genuinely partner to help grow their business. We have driven higher average order values, greater basket sizes, and additional new and repeat customers often within 24 or 48 hours of going live. Above the value of our core payment proposition, in FY 2021, Afterpay generated over 1 million leads on average per day and has become a key marketing customer acquisition channel for our global retailers in attracting this highly valuable next-generation consumer. As Ant and I have gotten to know the Square team better, what's become clear is how aligned we are not just in our business but in the way we think, live, and breathe our mission. In almost every conversation, we've been focused on creating a better way for people to spend, save, and do business, with the intent of building greater financial well-being. The brilliant thing is that both of our companies share this commitment. By bringing our platform together with Square, we know we can leverage our combined strength to continue to connect both sides of the economic equation, so that everyone shares in the great outcomes. As we look forward, there are several ways in which our businesses can achieve shared and even greater success. Our businesses are highly complementary across segments, products, channels, and geographies. This combination will further expand our combined opportunity across small, medium, and enterprise businesses, consumer banking and financial services, wider retail categories, and both online and in-person commerce. Both Square and Afterpay resonate strongly with millennials and Gen Z consumers, and we're excited at the opportunity for the Afterpay product to be offered to a growing base of more than 70 million annual active Cash App customers whose lifestyles, preferences, and views resonate with us. These consumers will increase the reach for our retail partners and the marketing value we can drive to their businesses. Likewise, our merchant bases are very complementary to the millions of sellers that use Square to run and grow their businesses today. We believe we can introduce a number of upmarket and global sellers to the Square business. As merchants and consumers increasingly look for seamless in-store and online experiences, I am confident that together we can maximize the strength of our omnichannel offerings, complementary technology, and expertise. Yesterday's announcement marks the start of an incredible opportunity to unlock the next phase of growth in our business. The compelling transaction provides our shareholders with the opportunity to participate in the future growth of an innovative company aligned with our vision. Importantly, our Australian Afterpay shareholders will still be able to maintain exposure to the growth and value creation of the combined company through owning Square shares or CDIs. I know both Ant and I are incredibly excited to join the Square team upon completion of the transaction and help lead Afterpay's respective merchant and consumer efforts as part of the Square Seller and Cash App efforts. Thank you to the Square team for picking up a conversation with two Aussie entrepreneurs and seeing the combined opportunity. I can't wait to see where we take this. And now over to Amrita.

Amrita Ahuja, CFO

Thanks, Nick. We believe this is a transformative opportunity for our combined companies. There are three topics I'd like to cover regarding the proposed Afterpay acquisition: First, the strength of the Afterpay business; second, the complementary aspects of our merchants and consumer ecosystems; and third, the profound growth opportunity we see together. Afterpay has distinguished itself as a category leader in Buy Now Pay Later with a product that is well positioned for secular shifts among merchants and consumers. First, greater consumer and merchant adoption has enabled Afterpay to deliver remarkable growth, with revenue up approximately 4x over the last two years. We see several levers to help drive continued growth for Afterpay, first, in terms of ongoing secular growth in Buy Now Pay Later in e-commerce; and second, in terms of Afterpay's future growth adjacencies. Second, Afterpay's business has strong cohort economics, providing a durable foundation for growth across its merchants and consumer base. Afterpay has delivered positive GMV retention and increased purchase frequency over time, with strong paybacks and returns on acquisition spend. These fundamentals mirror the dynamics in our Cash App and Seller ecosystem around growing engagement and strong returns. Next, we're excited by our compelling cross-sell opportunities. By integrating Afterpay directly into our Cash App and Seller ecosystem, we can expand each brand's customer base, strengthen each other's products, and build connections. On the consumer side, the addition of Afterpay embeds commerce more directly into Cash App. Afterpay's merchant base will have access to four times more consumers, and Cash App will have access to 16 million Afterpay consumers who represent a complementary demographic base. On the merchant side, we'll introduce Square Sellers to Afterpay's Buy Now Pay Later offering, which expands Afterpay more deeply into new verticals and in-person commerce. Turning to the financial impact from the deal, we're excited about the meaningful growth opportunity Afterpay will add. With year-over-year gross profit growth of 96% in the last 12 months ended June 30, we expect Afterpay to be accretive to gross profit growth in the first year after closing. Afterpay is a younger business and is earlier in ramping its profitability, so we expect a modest decrease in adjusted EBITDA margins in the first year after closing. Historically, our investments behind strong cohort economics have driven compounding profitable growth. We similarly intend to invest behind Afterpay's strong return to unlock the significant synergies we see ahead. Under the terms of the agreement, Square will acquire Afterpay for approximately US$29 billion, where Afterpay shareholders will receive a fixed exchange ratio of 0.375 shares of Square Class A common stock for each ordinary share of Afterpay they own. The transaction is expected to close in the first quarter of 2022, subject to customary closing conditions, including regulatory approval and approval by shareholders of both companies. Of course, the stock-based consideration of this transaction not only strongly aligns management's incentives but also enables shareholders of both Square and Afterpay to participate in future upside opportunity. We believe the combination of Square and Afterpay will benefit our customers and the long-term profitable growth of our company. I'll now provide a brief overview of Square's financial results for the second quarter before we take your questions. In the second quarter, our ecosystems delivered gross profit of $1.14 billion, an increase of 91% year-over-year, which was our strongest quarterly gross profit growth as a public company. On a two-year compound annual growth rate, or CAGR basis, which helps normalize for the impact of the pandemic on 2020 results, this was an increase of 57%, a slight improvement from the first quarter. Net income was $204 million, and adjusted EBITDA was $360 million. Taking a look at performance for each ecosystem, Cash App generated gross profit of $546 million, an increase of 94% year-over-year or 128% on a two-year CAGR basis. Growth in the quarter benefited from Cash App's growing and engaged base of customers. We ended the quarter with 40 million monthly transacting actives in June, with nearly two-thirds of our monthly actives being weekly actives, an engagement figure we've seen increase over time. We also saw a significant increase in annualized gross profit per monthly active user, which was $55 in the second quarter, up 2.5x from two years ago and up a third from two quarters ago, primarily driven by growth in inflows. Now for our Seller business, which generated gross profit of $585 million, an increase of 85% year-over-year or 30% on a two-year CAGR basis. Even as we saw regional reopenings and a strong recovery in card-present volumes during the quarter, GPV from online channels has continued to remain strong, growing nearly 50% in the second quarter. We also continue to make progress driving growth with larger sellers. In the second quarter, mid-market GPV doubled from the same period in 2019, representing more than one-third of total seller GPV. Next, we wanted to share trends for both ecosystems in July. For Cash App, we expect gross profit growth of greater than 110% on a two-year CAGR basis or approximately 20% year-over-year. Remember, July is our toughest year-over-year comp for Cash App this year. On a two-year CAGR basis, we saw some moderation in Cash App growth from 128% in the first quarter, and this may continue to normalize in future quarters depending on how consumer spending power trends. For Seller, we expect gross profit growth of more than 45% year-over-year and a two-year CAGR of 29%, roughly in line with the 30% from the second quarter. Seller GPV trends have continued to vary by region. Although the world has experienced rising COVID cases in certain regions, particularly outside of the U.S., we haven't seen this impact overall GPV trends materially through July. We'll continue to track it in real-time, and we recognize further regional restrictions could affect our business performance. Finally, on where we're focusing our investments in 2021 on the back of strong momentum in gross profit growth, profitability, and encouraging trends on investment returns in the first half of 2021, we intend to increase our investments in the second half of the year. Across 2021, we now expect to invest an incremental $1.1 billion to $1.2 billion in non-GAAP operating expenses, excluding risk loss, which is growth of 55% year-over-year at the midpoint. In summary, with the momentum we've seen in the first half of 2021, we are very excited about the opportunities that lie ahead, not only for Cash App and Seller ecosystems but also for the opportunities we have by integrating Afterpay across them. We believe together we can make more meaningful connections between our consumer and merchant ecosystems that ultimately serve our communities. With that, I'll turn it over to questions.

Operator, Operator

Thank you. Lisa, please open your line. Your line is open.

Lisa Ellis, Analyst

Terrific. Thank you. Can you hear me? Congratulations, and thanks for taking my question. There's a number of successful BNPL players globally, and Square also has historically built a lot of capabilities in-house. Can you just talk about what factors led you to decide that Afterpay specifically is the best fit for Square versus alternative BNPL players or doing organic investments? Thank you.

Jack Dorsey, CEO

Yes, absolutely. Thanks, Lisa. So as you mentioned, this space is getting more and more crowded, and obviously, there are a lot of different services and solutions out there. We started with what Nick and Ant have built and how ambitious, entrepreneurial, and innovative they've been; they were extremely early in this space, helping to define a lot of it and really raise the bar on what everyone else is doing. So we are impressed by the vision, their ambition, and probably their entrepreneurship. I think the other big thing for us is making sure that we've talked on this call a lot about how to connect it to our two biggest ecosystems, Seller and Cash App. This was a clear fit in the way they built their model out, a simple marketing tool, and some incredible discovery for consumers. For consumers, Afterpay offers truly interest-free products that don't require any credit history, something vastly different from what we've seen with other Buy Now Pay Later products. This allows broader access to consumers while helping them spend much more responsibly, so that goes towards our purpose of economic empowerment. And for merchants, Square has always asked the question of how we can help our merchants make more sales. That was exactly the question that Afterpay has been asking, providing them a way to generate leads through the Afterpay app, which has helped them improve conversion rates, increase their transaction sizes, and led to repeat purchases and repeat customers. Afterpay has reached more than 60 million consumers and 100,000 merchants globally. So looking at the deal, this was an obvious connection between the Seller and Cash App. Ant and Nick built on top of an ecosystem model. There's a clear fit into our model that makes it even stronger for us. The team they've built is incredible, creative, innovative, and ambitious. We just saw this as a perfect move for both companies.

Lisa Ellis, Analyst

Thank you, and congrats again.

Amrita Ahuja, CFO

And Lisa, I'd add to that as well. We've been really impressed with the strong business fundamentals that Afterpay has demonstrated. Of course, we look at the combination of growth and cohort economics. What we see here in the cohort economics is growing engagement amongst consumers. After onboarding, customers transact more frequently each year they're on the platform, with some of the older cohorts from Australia and New Zealand transacting 30 times per year. We also look at the international expansion that this team has executed and demonstrated. Afterpay has shown an ability to grow quickly in new regions, including the U.S., which has been its fastest-growing market to date. The alignment of Afterpay's Buy Now Pay Later product can help strengthen our existing ecosystems, and we can help Afterpay expand with small- and medium-sized businesses in in-person and additional verticals. These volume metrics that we've seen from Afterpay with merchants, whether it's a 25% uplift in transaction size, a 20% uplift in conversion rates, and purchase frequency with the lead generation they've demonstrated for merchants, with 1 million leads per day as Nick said, these are stats of a healthy foundation on which we can build together to accelerate growth across both Afterpay's ecosystem as well as Cash and Seller.

Lisa Ellis, Analyst

Thank you, and congrats again.

Operator, Operator

Thank you. Our next question comes from Tien-Tsin Huang from JPMorgan. Tien, please go ahead. Your line is open.

Tien-Tsin Huang, Analyst

Thanks so much, and definitely congrats on the deal here. A lot of synergies to think about. So I was hoping to get – Nick, good to have you on the call. Nick, your perspective on what synergies you're most excited about. And then maybe same thing from you, Jack, what are you excited about from a synergy standpoint, if you could rank the top things. And I'm just curious how long the Afterpay founders will stay in the deals; we're thinking about integration here. Thanks.

Nick Molnar, Co-CEO & Co-Founder of Afterpay

Yes, absolutely. Thanks, Tien-Tsin. Nice to hear from you. From an Afterpay perspective, Square absolutely helps us accelerate our priorities of long-term growth, particularly in the U.S. If you think of both sides of the equation, the Square Seller business can help us drive a more diverse set of retail verticals beyond just retail, where we're primarily oriented. To have millions of sellers on one side of the equation will help us expand further into in-person commerce and serve SMB merchants; that is a critical focus for us on the merchant side. When you think about the Cash App consumer side of the equation, Cash App brings a highly engaged customer base with annual transacting of 70 million. That broad ecosystem allows us to really lean into how we drive value for both our consumers and our retailers. As Amrita mentioned before, Afterpay on average has delivered 1 million leads per day, thanks to 16 million annual active consumers over the last 12 months. To have a partner like Cash App with a significantly larger consumer base, we firmly believe we can drive significantly increased value to our retailers beyond what we do today. Now, regarding Ant and myself and I hope Ant kindly speaking on his behalf, we're just increasingly excited as conversations progress. We're as excited today as the day we started the organization. I really think that's a testament to Jack, Amrita, Brian, Alyssa, and the whole Square team; the alignment of mission, vision, culture, and values was just imminently apparent the more we got to know each other, and can't wait to take this partnership well into the future.

Jack Dorsey, CEO

From our side, I think, as I said in my last answer, we get this question all the time on this call, like, what are some ways that you are all thinking about connecting the Seller and the Cash App ecosystem. This one is massive and also obvious. We think from a seller perspective, the most obvious point is that this is yet another tool to help drive more sales to a seller and also help us reach sellers that we have not been able to serve in the past. That includes larger, more enterprise global retail sellers. For us to be able to scale from the smallest of shops in your neighborhood up to the largest retailers in the world with one solution that brings people to the rest of our ecosystem is exactly in our ecosystem strategy, and this gives us a lot of fuel to continue to expand that. On the Cash App side, this is a new payment capability. So adding more capabilities to Cash App customers so they can choose how they're interacting with the economy is pretty incredible. Given that a lot of the consumer side will focus on discovery, this will give Cash App a way to provide more daily value, something that people want to open up every single day to check out what's new and to see our entire ecosystem with services within the Cash App as well. Combining these two gives a strong connection between ecosystems; even if they weren't connected, we still have strengths from each ecosystem. I think the true value of our company over the long term is how we connect all of these systems and ecosystems together, starting with Seller and Cash App, but obviously it goes bigger than that years ahead.

Tien-Tsin Huang, Analyst

Yes. Grateful for the comments. Congrats again.

Operator, Operator

Thank you very much. Our next question comes from Darrin Peller from Wolfe Research. Darrin, please go ahead; your line is open.

Darrin Peller, Analyst

All right. Thanks, guys. Congrats on this. You clearly outperformed getting Cash App gross profit, and it was pretty clear at every engagement level when you look at the comments you made about two-thirds of users transacting every week. When we consider that and now the combination with Afterpay, if you could just touch on what's really driving that incremental engagement on the Cash App side; how much more room it has; and then probably more importantly, as you think of integration with Afterpay and what that can mean. Afterpay's revenue per user is even higher, I think. Can you just touch on, a, the work ahead to integrate the two together, what we can envision, and the timing around it? Then what that means for engagement opportunities between the two.

Amrita Ahuja, CFO

Thanks, Darrin. I can kick us off on this one. I'll start by sharing a bit more about that growing engagement we've seen on Cash App and then share more about what that means in integration with Afterpay. From a Cash App perspective, we've seen that as we've added weekly and daily utility with additional products and features in the Cash App, our customers have exhibited growing engagement with us. Weekly actives have steadily increased as a percent of monthly actives over time, with nearly now two-thirds of our 40 million monthly actives using Cash App each week on average in June. This engagement has, in turn, driven monetization as inflows and product adoption have increased. Gross profit per transacting active was up 2.5 times compared to two years ago in the quarter, and up 1.5 from just two quarters ago. Historically, we've seen that the average customer who adopts two or more products in Cash App generates 3 to 4 times the gross profit compared to the average peer-to-peer customer. We believe that integrating the Afterpay app into Cash App has the opportunity to drive that commerce discovery that Jack was speaking to, to drive further consumer engagement while also benefiting merchants in the form of lead generation. This means that consumers will be able to browse merchants, purchase goods or services within Cash App, and use Buy Now Pay Later at the checkout, allowing the consumer to pay for their installments directly from Cash App, again driving that recurring engagement. We see this as a natural extension of Cash App's current ecosystem around spending and rewards. Obviously, from a spending perspective, we've seen strong adoption with Cash Card at 10 million monthly actives as of March and 7 million weekly actives, with spend per customer increasing over time. From a rewards perspective, Boost is currently an engagement and merchant marketing tool and could be used at scale as a compelling acquisition tool for Afterpay's enterprise merchants while also providing increased utility for Cash App customers. We see the potential in the integration of Afterpay into Cash App to drive greater utility for our customers and ultimately greater lifetime value and ARPU for us over time.

Operator, Operator

Darrin, does that answer your question? Okay, we’ll move on to the next question. Thank you. Our next question comes from Timothy Chiodo from Credit Suisse. Timothy, please go ahead.

Timothy Chiodo, Analyst

Great. Thanks a lot for taking the question. I want to dig in a little bit on an area of synergy that you highlighted a few times in the prepared remarks and also in the letter last night, but the – or the slides around the larger seller opportunities, so the opportunity to introduce the Square ecosystem to those larger merchants that work with Afterpay. Maybe we could just bring that to life a little bit more, what type – what aspects of the ecosystem might be most appealing and what that roadmap might look like?

Jack Dorsey, CEO

Yes. Thanks for the question, Tim. This is obviously an area that gets us really excited because the more we can expand the boundaries of what types of merchants and sizes of merchants we can offer our products to, the better off our ecosystem is. So there are millions of seller seeds spread around the business. Today across large to small e-commerce sites, restaurants, and things pickup and delivery, we have a larger in-person presence than Afterpay has today and $60 billion of interest in volumes with $80 billion in omnichannel volumes growing quickly. However, Afterpay can provide access to a number of, as I have said in my previous answer, enterprise and retail merchants with a global presence, where sellers can help move to omnichannel and expand to more in-person commerce. A big part of our thesis and strategy around our ecosystem is making sure that we have a service and feature of our products that the seller can hire, and it may be specific to them, but that allows the door to open to the rest of our ecosystem. We want to ensure that all our products and services and features scale from the smallest to the very largest. It doesn't matter how they come in; we want to ensure that once they do come in, they see everything else we have to offer, and they're hiring us for multiple jobs, not just the one that they came into the system for. We have a similar play on the consumer side with Cash App, but this on the seller side gives us a greater tool to sell to enterprise, larger global merchants in a way that we just haven't had in the past. Again, why that matters is because we can introduce them to the larger ecosystem as well.

Timothy Chiodo, Analyst

Excellent. Thank you, Jack.

Jack Dorsey, CEO

Thank you.

Operator, Operator

Thank you. Our next question comes from Bryan Keane from Deutsche Bank. Bryan, please go ahead.

Bryan Keane, Analyst

Hi, guys, congrats on the deal from me as well. Thinking about this space, there are lots of large players entering the attractive BNPL sector, like PayPal, Amex, and even Apple. So how does Afterpay/Square differentiate its solution versus the competition and make sure that overall in the industry we don't see further competition pushing the take rate down? Thanks.

Jack Dorsey, CEO

I can start with this. First and foremost, we believe we're most differentiated by our combined ecosystem strategy. We see a lot of competitors with a seller ecosystem or a consumer ecosystem, but there are very, very few that have both together. As you look at the market, having the ability for a seller to come in for Buy Now Pay Later but also have the entire suite of tools they need to run the rest of their business is pretty magical. It saves them a lot of time, and they don't have to spend it connecting different vendors. They can focus on just building the business. While this is important for smaller companies, it's even more critical for larger companies, including enterprise global retailers. Our model and strategy are focused on this fundamental principle of having two ecosystems at scale serving both sides together. The more we can connect them to be seamless, the more value we can create for the merchants, individuals, customers, and for our company as well. Maybe Nick can add to this as well.

Nick Molnar, Co-CEO & Co-Founder of Afterpay

Yes, absolutely. Thanks, Jack. From my perspective, we've differentiated ourselves over the years by providing value to the retailer. Naturally, our retailers see value in our core payment platform, which delivers higher average order value, increased return rates, lower return rates, increased conversion rates. However, the essential aspect of how retailers assess us is whether we can drive new business to their platform. Can we act as a customer acquisition channel for the retailer? As I mentioned before, we generated an average of 1 million leads per day over the previous 12 months, showing that we can perform beyond just the core payment platform and add value directly. Coupling that with 16 million annual active consumers and a combined Cash App customer base provides a greater opportunity for value to our retailers, making me excited about this partnership and the future ahead.

Bryan Keane, Analyst

Got it. Very helpful. Thanks so much.

Operator, Operator

Thank you very much. Our next question comes from Ramsey El-Assal from Barclays. Please go ahead; your line is open.

Ramsey El-Assal, Analyst

Hi, thanks for taking my question. I wanted to ask about how Afterpay kind of advances the Square international market strategy. Can we expect you to build out a broader presence for Square, for example, Square products, and global markets where Afterpay may already be operating or where Square isn't? Any color around international strategy would be appreciated.

Amrita Ahuja, CFO

Sure. Thanks for the question, Ramsey. Maybe I can kick off, and Nick, you can add in. Global expansion has been a top priority for Cash App and Seller, and we see our geographic presence as complementary with Afterpay. Afterpay has driven strong growth across Australia, New Zealand, and, more recently, the U.S. and Canada, and the UK with recent launches across Europe, in Spain, France, and Italy. Afterpay has grown both its consumer and merchant presence in these markets. We see that this growing global presence allows for easier entry into new markets and help us potentially expand in markets where we already exist but have a smaller presence, as well as potentially those new markets. The vast majority of Cash App and Seller GPV is from the U.S. today, but we're already building on that pathway to grow in existing markets. Sellers in markets outside the U.S. are achieving close to U.S. payback levels on investment. We're closing the product parity gap, and we're seeing growth rates in those markets at twice the rate of the U.S. We're now launching in new markets, most recently in Ireland and with the France beta as well. So Afterpay's footprint and expertise can further enable our expansion in geographies where we're both present, as well as in new geographies together. The opportunity to strengthen our combined product offering and acquire new customers together is profound when you think globally.

Nick Molnar, Co-CEO & Co-Founder of Afterpay

And from an Afterpay perspective, we've been focused on global expansion as well. Since launching in North America just three years ago, we've seen very strong growth in the region, especially in the U.S., which now represents our largest consumer base from any country in fiscal year 2021. The U.S. has been our fastest-growing geo on a volume basis. We want to focus more investment in the U.S., which is why we see such a strategic opportunity to join Square. The combination with Cash App and Seller provides the two sides of the equation and creates a significant opportunity as we explore global growth together.

Ramsey El-Assal, Analyst

Great. Thanks so much.

Operator, Operator

Thank you. Our next question comes from Jason Kupferberg from Bank of America. Jason, please go ahead.

Jason Kupferberg, Analyst

Great. Good morning, guys. Thanks for all the color here. I wanted to follow up on the earlier question just about buy versus build, and maybe if you can talk more specifically about the pros and cons that you may have considered of entering the BNPL space by buying as opposed to building. I'm wondering if you actively considered the latter options, and Square obviously has a strong legacy of organic innovation.

Jack Dorsey, CEO

Yes. I mean we're always considering the options we have before us. But in this particular case, it really came back to Nick and Ant and the team and how innovative they've been; how early they were and how strong their ambition is and how much it complements our strategy. It allows us to move much faster and achieves a number of our goals in terms of expanding the types and sizes of merchants that we can reach. There was just an obvious connection into our current ecosystem that made us stronger. I think we gain a lot of wisdom, knowledge, and customer understanding by going this route. This will set us up for a much stronger future, where we can move much faster than if we were to just start from scratch, and we get two incredible leaders into the company to continue to build out not just Afterpay, but have input on the rest of our business as well and continue to raise the bar on what we're able to do.

Nick Molnar, Co-CEO & Co-Founder of Afterpay

From Afterpay's perspective, we're at the early days for Buy Now Pay Later, with a 2% penetration of e-commerce and even less of the overall credit card spend. The combination of our companies aligns with our long-term objectives of financial inclusion. Our teams live and breathe our mission of economic empowerment and financial inclusion, which was incredibly clear during our conversations. We see a huge opportunity for our combined organizations to accelerate our shared mission and long-term vision and growth. We're excited about this announcement today; it's truly meaningful for shareholders from both companies.

Jason Kupferberg, Analyst

Thanks, Jack. Thanks, Nick.

Operator, Operator

Thank you. That's the time for the questions we'll be taking today, so I'll hand back over to the management team for any closing remarks. Many thanks.

Jason Lee, Head of Investor Relations

Thank you, everyone, for joining our second quarter earnings call. And that concludes this call. Thank you.

Operator, Operator

Thank you all for joining the call today. Have a lovely rest of your day. You may now disconnect your lines.