Block, Inc. · NYSE:XYZ
Block — Q2 2022 Earnings Presentation
68 slides from Block's earnings presentation, Nov 28, 2022
Slide 1: Q2 2022 Investor Presentation
Q2 2022 Investor Presentation investors.block.xyz
Slide 2: Forward-looking statements
BLOCK 2 Forward-looking statements This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact could be deeme
Slide 3: We've grown our ecosystems and expanded the audiences we serve
BLOCK 3 Square Messages Ireland We’ve grown our Subscriptions API France Spain ecosystems and expanded BNPL as payment method Square for Restaurants Square for Restaurants Reader SDK the audiences we serve Reader SDK Square Installments Square Installments Square Terminal Square Terminal In-App Paym
Slide 4: Strong growth at scale
BLOCK 4 Strong growth at scale Gross Profit >50% CAGR over the past five years Caviar gross profit has been excluded for all periods. Compound annual growth rate (CAGR) represents the compound annual gross profit growth rate from 2017 to 2021. Please see Appendix for non-GAAP and other reconciliations.
Slide 5: Market Opportunity
BLOCK MARKET OPPORTUNITY → Market Opportunity
Slide 6: We have expanded our addressable market over time and are less than 3% penetrated
BLOCK MARKET OPPORTUNITY → 6 We have expanded our addressable $120B market over time and are less than 3% 2022 penetrated today 2020 $100B 2022 $70B 2020 $60B 2017 $60B 2017 2015 2015 2010 Cash App Square Previous Addressable Market estimates were provided in prior Block Investor Day materials. 2022
Slide 7: Square represents a ~$120B gross profit opportunity
BLOCK MARKET OPPORTUNITY → 7 SQUARE Square represents a ~$120B gross profit opportunity $ 81 B+ $ 16 B+ $ 25 B+ U.S. Commerce U.S. Banking International $ 120 + B Opportunity Integrated Payments Square Loans Integrated Payments Software Financial Services Software Financial Services Sources: Square i
Slide 8: With SMB and mid-market sellers representing an attractive target opportunity
BLOCK MARKET OPPORTUNITY → 8 SQUARE With SMB and mid-market sellers representing an attractive target opportunity Seller Size U.S. Sellers U.S. Gross Receipts (Gross Receipts) Enterprise $100M+ 25K $8.5T $20M – $100M 51K $1.7T Mid-Market $1M – $20M 1.0M $3.7T SMB $250K – $1M 2.9M $1.3T Micro <$250K
Slide 9: Less than 1% penetrated in the mid-market segment today
BLOCK MARKET OPPORTUNITY → 9 SQUARE Less than 1% penetrated in the mid-market segment today 2021 gross receipts as % of addressable opportunity 0.5% 13% 4% Micro SMB Mid-Market Sources: Square internal company data, 2017 U.S. Census, U.S. Bureau of Labor Statistics. Seller sizes from the U.S. Census
Slide 10: Multiple strategies to expand addressable market
BLOCK MARKET OPPORTUNITY → 10 SQUARE Multiple strategies to expand Global expansion addressable market Financial services Growing upmarket Enhancing omnichannel capabilities $ 120 B+ Circles are illustrative of opportunities to expand addressable market, but are not proportional or to scale.
Slide 11: Cash App represents a ~$70B gross profit opportunity in the U.S.
BLOCK MARKET OPPORTUNITY → 11 CASH APP Cash App represents a ~$70B gross profit opportunity in the U.S. $ 28 + $ 40 + $ 3 + 70 + B B B $ Community (P2P) Financial Services Bitcoin B (Consumer Trading) Opportunity Business accounts Cash App Card Instant Deposit Buying and selling bitcoin Sources: Cash
Slide 12: Opportunity to expand on strong growth with digital natives
BLOCK MARKET OPPORTUNITY → 12 CASH APP Opportunity to expand ~260M Potential Customers on strong growth with digital natives U.S. Age Mean Cash App Cash App Population Income % of Monthly Actives % of Inflows Generation Z ~56M 13 – 25 $39K 34% 27% Millennials ~72M 26 – 41 $85K 38% 44% Generation X ~6
Slide 13: Reaching less than 20% of the U.S. population today
BLOCK MARKET OPPORTUNITY → 13 CASH APP Reaching less than 20% of the U.S. population today Cash App monthly actives with demographic data (% of U.S. population) 20% 17% 10% 4% Gen Z Millennials Gen X Baby Boomers Represents Cash App monthly actives as of 3/31/22 as a percentage of the U.S. populatio
Slide 14: Multiple strategies to expand our addressable market
BLOCK MARKET OPPORTUNITY → 14 CASH APP Multiple strategies to expand our Global addressable market Bitcoin Credit Commerce Engagement $ 70 B+ Circles are illustrative of opportunities to expand addressable market, but are not proportional or to scale.
Slide 15: Investing in emerging ecosystems with meaningful long-term potential
BLOCK MARKET OPPORTUNITY → 15 TIDAL BITCOIN Investing in emerging ecosystems with meaningful long-term potential Creators Consumers Bitcoin Developers Bitcoin Bitcoin TIDAL TBD Spiral Wallet Mining
Slide 16: Square Ecosystem
BLOCK SQUARE ECOSYSTEM → Square Ecosystem
Slide 17: The Square solution: a cohesive ecosystem
BLOCK SQUARE ECOSYSTEM → 17 SQUARE Staff Crew Timecards Payroll Team Mgmt Customers The Square solution A cohesive ecosystem Next Insurance WhenIWork Schedulicity TipJar Guideline Simply Insured On-Demand Delivery Seller-Powered Delivery of integrated software, hardware, and financial 7Shifts Homebas
Slide 18: Multi year transformation: Gross profit by product area
BLOCK SQUARE ECOSYSTEM → 18 SQUARE Multi year transformation Gross profit by product area 80 ~ % of gross profit in 2021 generated from software & integrated payments, banking, and international Excludes hardware gross profit losses. We view hardware as an acquisition tool and not a profit center for ou
Slide 19: Gross profit mix by ecosystem adoption
BLOCK SQUARE ECOSYSTEM → 19 SQUARE Multi year transformation Gross profit mix by ecosystem adoption (# of monetized products that a seller uses) 40 % of gross profit from sellers that use 4 or more monetized products Includes only monetized products and excludes hardware devices. Bundle products treat
Slide 20: Square sellers represent a diverse range of industries
BLOCK SQUARE ECOSYSTEM → 20 SQUARE Square sellers represent a diverse range of industries 9% Home & 10% Repair Other % of Square Gross 29 % Payment Volume (GPV) by industry in 2021 10 % Healthcare Food & Drink & Fitness 10 % Beauty & 20% Personal Care Retail 13% Professional Services
Slide 21: Efficient paybacks and positive retention drive customer lifetime value
BLOCK SQUARE ECOSYSTEM → 21 SQUARE Efficient paybacks and positive retention have driven strong customer lifetime value and return on investment > 3 X returns over 4 years For definition of Square “return on investment (ROI)” please see Appendix. Each line represents quarterly cohorts from Q2 2012 to
Slide 22: Positive dollar-based retention has led to recurring revenue streams
BLOCK SQUARE ECOSYSTEM → 22 SQUARE Positive dollar-based retention has led to recurring revenue streams Gross Profit by Cohort Positive gross profit retention for each annual cohort from 2012 to 2021 For definition of Square “gross profit retention” please see Appendix. Each of our quarterly and annual
Slide 23: Product adoption can enhance cohort economics
BLOCK SQUARE ECOSYSTEM → 23 SQUARE Product adoption can enhance cohort Annual gross profit based on an actual Square seller economics Gross profit could increase by 3.5x as a seller adopts more products and expands into new channels Seller example: Gross profit opportunity for an individual seller. Ret
Slide 24: Growing omnichannel
BLOCK SQUARE ECOSYSTEM → 24 SQUARE Growing omnichannel Gross profit from omnichannel sellers 6 X gross profit growth from omnichannel sellers since 2015 Note: Omnichannel seller defined as a seller who has taken both an in-person payment and an online channel payment in a given quarter. Annual values a
Slide 25: Global expansion
BLOCK SQUARE ECOSYSTEM → 25 SQUARE Global expansion Gross profit from international markets > 60 % international annual growth rate since 2015 Note: Square gross profit does not include hardware gross profit losses. We view hardware as an acquisition tool and not a profit center for our business. 1 Rest
Slide 26: Upmarket progress
BLOCK SQUARE ECOSYSTEM → 26 SQUARE Upmarket progress Gross profit from larger sellers 19 X gross profit growth from >$500K sellers since 2015 Note: Seller size defined as annualized GPV based on the last quarter of the period. Gross profit excludes hardware and Starbucks data from 2015-2016.
Slide 27: Cash App Ecosystem
BLOCK CASH APP ECOSYSTEM → Cash App Ecosystem
Slide 28: Our services work together cohesively to build the Cash App ecosystem
BLOCK CASH APP ECOSYSTEM → 28 CASH APP Inflows Our services work together cohesively to build the Cash Paper Checks Direct Deposit Cash-In Taxes App ecosystem Paper Money Borrow P2P Deposit BTC Balance Outflows Instant Deposit ATM BTC P2P Cash App Card Stocks Revenue streams
Slide 29: We operate Cash App through the inflows framework
BLOCK CASH APP ECOSYSTEM → 29 CASH APP We instrument and operate Cash App’s business through the inflows framework Actives x Inflows per Active = Gross profit x Monetization rate
Slide 30: Growth across a diversity of services and revenue streams
BLOCK CASH APP ECOSYSTEM → 30 CASH APP We have driven growth across a diversity of services and revenue streams Gross profit by category Community (P2P) equals gross profit from Instant Deposit, business accounts, and P2P transactions funded with a credit card. Financial Services (Cash App Card) equal
Slide 31: We have driven greater weekly and daily engagement
BLOCK CASH APP ECOSYSTEM → 31 CASH APP We have driven greater weekly and daily engagement ~ 80 M annual actives on average in March 2022 ~ 46 M monthly actives on average in March 2022 ~ 27 M weekly actives in March 2022 (~2 in 3 monthly actives) ~ 11 M daily actives in March 2022 (~1 in 4 monthly a
Slide 32: Levers to grow and monetize inflows
BLOCK CASH APP ECOSYSTEM → 32 CASH APP With a number of levers to grow and monetize inflows From 2017 to 2019, gross profit was driven primarily by growth in actives From 2019 to 2021, inflows per active became the primary driver of gross profit growth For definition of Cash App “active” please see Appen
Slide 33: Product adoption has driven greater inflows and monetization
BLOCK CASH APP ECOSYSTEM → 33 CASH APP Product adoption has driven greater inflows and monetization Inflows multiplier by product actives For definition of Cash App “active” please see Appendix. Represents monthly actives in March 2022 and total inflows for Q1 2022, except for Cash App Taxes actives whe
Slide 34: Broad-based utility with Cash App Card through everyday purchases
BLOCK CASH APP ECOSYSTEM → 34 CASH APP Consumers have found broad-based utility with Cash App Card through 14% everyday purchases 13% Gas & Auto Other Retail Cash App Card spend at top 20% 10% 250 merchants in Q4 2021 Restaurants Grocery 9% Travel & 21 % Entertainment Big Box & Discount Retail 9% Te
Slide 35: $10 acquisition cost is a fraction of industry benchmarks
BLOCK CASH APP ECOSYSTEM → 35 CASH APP $10 acquisition cost is a fraction of industry benchmarks Cash App’s acquisition cost vs. industry $300 - $600 $30 - $50 $10 Source: Internal Cash App data, Unifimoney article: “A No CAC Bank?”, and competitor transcripts.
Slide 36: Cash App sales and marketing includes acquisition spend and non-discretionary expenses
BLOCK CASH APP ECOSYSTEM → 36 CASH APP Cash App sales and marketing includes acquisition spend Cash App sales and and various non-discretionary marketing expense (2021) expenses 28% Acquisition spend we use to calculate our $10 cost of acquisition 63% P2P expenses we deduct from gross profit in our c
Slide 37: Efficient paybacks and positive retention drive customer lifetime value
BLOCK CASH APP ECOSYSTEM → 37 CASH APP Efficient paybacks and positive retention have driven strong customer lifetime value and return on investment > 6 X returns over 3 years For definitions of Cash App “return on investment (ROI)” please see Appendix. Each line represents the average monthly cohort
Slide 38: Strong gross profit retention has led to recurring revenue streams
BLOCK CASH APP ECOSYSTEM → 38 CASH APP Strong gross profit retention has led to recurring revenue streams Gross Profit by Cohort >125% gross profit retention for each annual cohort over the past four years For definition of Cash App “gross profit retention” please see Appendix. Each of our annual Cash Ap
Slide 39: Product adoption can enhance cohort economics
BLOCK CASH APP ECOSYSTEM → 39 CASH APP Product adoption can enhance Annual gross profit for an ideal Cash App active cohort economics Gross profit could increase by >10x as an active adopts more products and expands share of wallet Illustrative Cash App active example: Gross profit opportunity for a tr
Slide 40: Investing in seven key development pillars
BLOCK CASH APP ECOSYSTEM → 40 CASH APP Investing in seven key development pillars → Community → Financial Services → Crypto → Operating System → Trust → Commerce → Global
Slide 41: Afterpay: Connecting the Square and Cash App Ecosystems
BLOCK AFTERPAY → Afterpay: Connecting the Square and Cash App Ecosystems
Slide 42: Afterpay is a connection between Block's ecosystem of ecosystems
BLOCK AFTERPAY → 42 AFTERPAY Afterpay is a connection between Block’s ecosystem of ecosystems >140k Active Sellers Millions AfterPay Building Stronger 80M Cash Incremental sales connections of Square and growth through commerce engagement App annual active sellers and payments and frequency actives
Slide 43: Afterpay complements Square with strong merchant retention
BLOCK AFTERPAY → 43 AFTERPAY Afterpay complements Square with strong merchant retention Gross Merchandise Volume (GMV) by Afterpay Seller Cohort Positive Afterpay seller GMV retention for each annual cohort from 2016 to 2021 Afterpay Gross Merchandise Value or GMV is a measure of the total order val
Slide 44: Afterpay complements Cash App with strong consumer retention
BLOCK AFTERPAY → 44 AFTERPAY Afterpay complements Cash App with strong consumer retention Consumer GMV by Cohort Positive Afterpay consumer GMV retention for each annual cohort from 2016 to 2021 Afterpay Gross Merchandise Value or GMV is a measure of the total order value processed on the Afterpay p
Slide 45: We have improved risk loss in each region over time
BLOCK AFTERPAY → 45 AFTERPAY We have improved risk loss in each region over time Risk loss by region since launch > 90 % Quarters since launch, risk loss of Afterpay customers use debit as a percentage of GMV UK Risk intervention 95 % UK Post COVID pressure US Post US Risk COVID Intervention ANZ COV
Slide 46: Our integration priorities
BLOCK AFTERPAY → 46 AFTERPAY Our integration priorities Live in Market Medium-Term Underway Longer-Term → Afterpay and Square Online → Launch Cash App Pay to → Expand Square’s enterprise integration (AU & U.S.) Afterpay active sellers (existing presence, cross-sell commerce and new) ecosystem with A
Slide 47: Investments & Profitability
BLOCK INVESTMENTS & PROFITABILITY → Investments & Profitability
Slide 48: Driving growth at scale
BLOCK INVESTMENTS & PROFITABILITY → 48 Powerful business model → → → Driving Compelling Attractive growth unit structural at scale economics profitability
Slide 49: Our largest ecosystems have achieved strong profitability
BLOCK INVESTMENTS & PROFITABILITY → 49 Our largest ecosystems have achieved strong profitability 2021 Adjusted Fully- Burdened Profit Margin (as % of Gross Profit) 34 % 12 % Square Cash App For these purposes, corporate overhead is allocated by cost center to each ecosystem based on a driver selected t
Slide 50: Attractive structural profitability
BLOCK INVESTMENTS & PROFITABILITY → 50 And benefit from attractive structural profitability Fixed Costs Variable Costs Product investments: Acquisition and growth: → Engineering, data science, → Marketing expenses and design teams → Sales teams → Software and data Corporate overhead: Ongoing variable:
Slide 51: Square has benefited from high structural margins
BLOCK INVESTMENTS & PROFITABILITY → 51 Square has benefited from high structural margins, which have remained relatively stable over time Structural Margin 1 - (variable costs as a % of gross profit) 69 % Structural margins in the 60% to 70% range from 2021 2018 through 2021 For these purposes, corpor
Slide 52: Cash App has achieved strong structural margins
BLOCK INVESTMENTS & PROFITABILITY → 52 Cash App has also achieved strong structural margins, which have improved significantly in recent years Structural Margin 1 - (variable costs as a % of gross profit) 37 % Structural margin expansion over time from 2021 4% in 2018 to 37% in 2021 For these purposes
Slide 53: Driven leverage from our fixed expenses
BLOCK INVESTMENTS & PROFITABILITY → 53 While for our overall company, we have driven leverage from our fixed expenses Block Fixed Costs (as a % of gross profit) Please see Appendix for a reconciliation and information on expense categories. Fixed expenses include fixed personnel expenses (G&A and produ
Slide 54: Discipline around investments in emerging TIDAL and bitcoin ecosystems
BLOCK INVESTMENTS & PROFITABILITY → 54 Maintaining discipline around our investments into our emerging TIDAL and bitcoin ecosystems 3 % Evaluating investments based on: < → Team and strategy → Product roadmap of 2022 non-GAAP → Business model and growth potential operating expenses Represents aggreg
Slide 55: Strong and healthy balance sheet provides optionality around funding
BLOCK INVESTMENTS & PROFITABILITY → 55 Strong and healthy balance sheet provides optionality Free Cash Flow around funding $ ~ 7 B in available liquidity on our balance sheet For definition of “free cash flow” please see Appendix. “Free cash flow” is a non-GAAP financial metric. Please see Appendix for
Slide 56: Balance sheet provides optionality around funding
BLOCK INVESTMENTS & PROFITABILITY → 56 Strong and healthy balance sheet provides optionality around funding Product Performance attributes Near-term funding Longer-term intent Duration Loss rates Sell majority of loans to Sell majority of loans to Square Loans <12 month <4% loss rate third-party inv
Slide 57: Appendix
BLOCK Appendix
Slide 58: Our ecosystems become more powerful as we build connections between them
BLOCK 58 Our ecosystems become more powerful as we build connections between them
Slide 59: Appendix
BLOCK 59 Appendix Slide 7 Slide 11 “U.S. Commerce” gross profit opportunity is a combination of U.S. Payments, U.S. ACH, “Community (P2P)” gross profit opportunity is calculated based on the approximate gross and SaaS opportunities. U.S. Payments opportunity is calculated by aggregating the gross profi
Slide 60: Appendix
BLOCK 60 Appendix Slide 21 Slide 31 Slide 37 Square “Return on investment (ROI)” measures the “Transacting active” or “active” is a Cash App account that Cash App “cohort” represents the new actives onboarded to effectiveness of sales and marketing spend. ROI is calculated has at least one financial
Slide 61: Appendix
BLOCK 61 Appendix Slide 42 Slide 45 Slide 46 “Square active sellers” are defined as processing more than “ANZ” refers to Australia and New Zealand. “Lead generation” is a referral for an Afterpay seller, such as a 5 payments over the last four quarters. search, click, or purchase within the Afterpay
Slide 62: Appendix
BLOCK 62 Appendix Slide 55 Slide 56 “Free cash flow” is defined as net cash provided by (used in) “Turnover”, or “turnover of receivables”, or “accounts operating activities adjusted to eliminate for the effects of receivable turnover” is the number of times per year that settlements receivables, cust
Slide 63: Reconciliations
BLOCK 63 Reconciliations Discussion of financial results excluding Caviar (in thousands) ($ in thousands) 2015 2016 2017 2018 2019 2020 2021 Total gross profit 345,195 576,038 839,306 1,303,700 1,889,685 2,733,409 4,419,823 Less: Caviar contribution to total gross profit (462) 6,967 15,578 36,369 41,59
Slide 64: Cash App Margins - Reconciliation to GAAP
BLOCK 64 Cash App Margins - Reconciliation to GAAP Variable expenses are investments that we incur to drive the next dollar of gross profit growth, and these typically scale with gross profit. These include discretionary expenses such as sales & marketing investments and teams, customer success teams,
Slide 65: Square Margins - Reconciliation to GAAP
BLOCK 65 Square Margins - Reconciliation to GAAP Variable expenses are investments that we incur to drive the next dollar of gross profit growth, and these typically scale with gross profit. These include discretionary expenses such as sales & marketing investments and teams, customer success teams, a
Slide 66: Fixed Expenses
BLOCK 66 Fixed Expenses Variable expenses are investments that we incur to drive the next dollar of gross profit growth, and these typically scale with gross profit. These include discretionary expenses such as sales & marketing investments and teams, customer success teams, as well as non-discretiona
Slide 67: Reconciliations
BLOCK 67 Reconciliations Discussion of Square financial results excluding Hardware and Starbucks (in thousands) ($ in thousands) 2015 2016 2017 2018 2019 2020 2021 Square gross profit 345,283 564,022 776,633 1,072,496 1,390,427 1,507,831 2,316,671 Less: Hardware contribution to Square gross profit (14,
Slide 68: Free Cash Flow - Reconciliation to GAAP
BLOCK 68 Free Cash Flow - Reconciliation to GAAP We define free cash flow as net cash provided by (used in) operating activities adjusted to eliminate for the effects of settlements receivables, customers payable, settlements payable, and PPP loans less purchase of property and equipment. We believe t