Square (SQ) Q2 2020 Earnings Call Transcript

Square (SQ 5.04%)
Q2 2020 Earnings Call
Aug 05, 2020, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Square second-quarter 2020 earnings conference call. I would now like to turn the call over to your host, Jason Lee, head of investor relations. Please go ahead, sir.

Jason Lee -- Head of Investor Relations

Hi, everyone. Thanks for joining our second-quarter 2020 earnings call. We have Jack and Amrita with us today. We'll begin this call with some short remarks before opening the call directly to your questions.

During Q&A, we will take questions from our customers, in addition to questions from conference call participants. We would also 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, and reported results should not be considered as an indication of future performance. Please take a look at our filings with the SEC for a discussion of the factors that could cause the 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 growth results for the month of July. These represent our current estimate 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. Also, we will be discussing 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.

Additionally, in the second quarter of 2020, we changed our operating segments to reflect how we review and assess our operations and began reporting on seller and cash app as separate segments As such, we introduced additional disclosures in the shareholder letter on our Investor Relations website, as well as our quarterly report on Form 10-Q, for the quarter ended June 30, 2020, for revenue and gross profit for our seller and cash app operating reporting segment. As a reminder, we discontinued the use of adjusted revenue in the third quarter of 2019, following the receipt of and comment letter from and discussions with the SEC. Our statement of operations continues to disclose total net revenue, transaction-based costs, and bitcoin costs determined in accordance with GAAP, which are the key components of adjusted revenue. There are no changes to any other GAAP or non-GAAP metrics.

We have posted a spreadsheet on our Investor Relations website with our historical financials and additional details related to our income statement. Finally, this call in its entirety is being audio webcast on our Investor Relations website. An audio replay of this call will be available on our website shortly. With that, I'd like to turn it over to Jack.

Jack Dorsey -- Chief Executive Officer

Good morning, everyone, and thank you for joining us so early today. Due to the media's early release of our quarterly financials, we moved up our investor call to this morning. We're conducting an investigation into this early release in consultation with both internal and external counsel. COVID-19 continues to be at the top of our minds as economies close, reopen and close yet again.

This has been extremely hard on the people we serve: our sellers, their employees and all the individuals who use cash app. Folks right now are struggling to keep their businesses open, pay their employees, pay rent and even buy food for their families. We're doing our best to learn and build to support our customers, but this is obviously much bigger than us at Square. Parts of the world lack a coordinated strategy to get out of this crisis, and that hurts more people every single day.

It's up to all of us to take whatever action we can to end this from wearing a mask to protect ourselves and our families, to using whatever platform we have to demand that our elected officials coordinate better. I just can't wait for an election day. On top of that, the fear, pain and suffering our Black customers, employees and neighbors have felt every day for the past hundreds of years due to racist systems and policies must be acknowledged and fixed. We're seeing a bit more acknowledgment but not nearly enough change.

This also can't wait for an election day. We're taking action as an employer. We're investing in Black and racial and ethnic minority communities, and we're looking for ways to drive racial justice through our business and products. I will also be personally putting more funds into organizations driving policy change through the Start Small initiative I announced months ago.

We are always open to feedback and ideas on ways we can do our part on these issues. Please let us know if you have any. And now some updates on our business before I turn to Amrita and your questions, starting with the cash app. In June, cash app had more than 30 million active customers transacting on our service.

And in July, we expect to achieve gross profit growth of more than 200% year over year. We saw our customers increasingly use their cash card as their primary spending device. seven million people paid with their cash card in June, double compared to last year. We also saw an increase in people using direct deposit for recurring paychecks, strengthened by stimulus and unemployment checks and tax refunds.

Cash app is culture and continued to show this with creative approaches to marketing. We announced we ride with Bubba Wallace, and you'll see his cash-app-designed car and uniform throughout the NASCAR season. And we partnered with Hood by Air, a phenomenal streetwear brand, to create a limited edition HBA cash card you can purchase with proceeds going to Black and LGBTQ communities. As I mentioned earlier, our sellers have had to navigate an immense amount of uncertainty and challenges.

They've used our ecosystem to reach their customers in new ways. And in the second quarter, GPV from online channels was up more than 50% year over year. One in three new online sellers onboarded in the second quarter were entirely new to Square, and many of these sellers adopted other parts of our ecosystem, including in-person commerce. For example, the Coffee Tree Roasters in Pittsburgh joined Square by launching an online store, previously never having a website.

This quarter, they converted their five locations to Square hardware for their in-person point-of-sale system. We're also seeing an increase in contactless payment as customers don't want to use paper cash during -- due to COVID risk. In March, one in 12 of our sellers were cashless. And by the end of June, that shifted to one in four of our sellers operating cashless.

We launched on-demand delivery functionality, which enables sellers to take control of their fulfillment process by offering delivery to their customers directly from their websites. And our sellers gained the benefit of Square's scale by retaining more of the economics compared to using a third-party delivery service. During the quarter, we facilitated Paycheck Protection Program loans, providing a financial lifeline to more than 80,000 small businesses around the country for a total of $873 million in PPP loans. Through the program, we reached traditionally underserved sellers.

The average PPP loan through Square Capital was less than $11,000 or one-tenth the average small business administration loan. And finally, we're saying goodbye to Aaron Zamost, our head of communications and people, who's been helping us, not only with this call since our IPO, but has been helping us build Square for close to nine years. Aaron made us better every day. We love Aaron, and we thank you.

Amrita?

Amrita Ahuja -- Chief Financial Officer

Thanks, Jack. There are three topics I'd like to cover today: first, a look at our performance in the second quarter, where trends for both cash app and seller improved each month during the quarter; second, an update on our business in July, where seller showed signs of stability and cash growth further improved; third, the compelling opportunity we see to invest in each of our ecosystems. Overall, in the second quarter, gross profit was $597 million, up 28% year over year or 32% growth, excluding Caviar. Net loss was $11 million, and adjusted EBITDA was $98 million.

Let's take a look at performance of each ecosystem in the quarter. For cash app, we saw strong growth with gross profit of $281 million, increasing 167% year over year as our teams continue to focus on network growth and driving engagement. As Jack mentioned, we saw an uplift in customer acquisition with more than 30 million monthly transacting active customers in June. In the second quarter, these customers were transacting more than 15 times per month on average or every other day, which is up nearly 50% from a year ago.

We saw customers join cash app for our ecosystem of products and features. In the second quarter, new cohorts of cash app customers had higher attach rates to products beyond peer-to-peer payments, such as cash card, Boost, direct deposit and bitcoin investing. This adoption has driven higher lifetime value. Customers who use two or more products generated two to three times the revenue of customers who only use peer to peer for our seller ecosystem.

Gross profit was $317 million down 9% year over year. Seller GPV trends improved sequentially each month from April through June. Three factors to call out here: First, we've invested in building out our omnichannel capabilities over the past two years and have seen sellers utilize our broader ecosystem, particularly in these dynamic times. Our online strategy includes a variety of channels that serve sellers of all types and sizes, connecting them with buyers through web and mobile.

In the second quarter, GPV from online channels was up more than 50% year-over-year and made up more than 25% of our Seller GPV, up from 14% of Seller GPV a year ago. Second, while card-present volumes were down 38% year over year in the quarter, we saw significant improvement in card-present volumes sequentially each month as certain states relaxed shelter-in-place restrictions. Third, our contactless hardware has empowered our sellers to adapt to social distancing measures and has been an important differentiator for our ecosystem. Beginning in mid-May, we offered promotional pricing on our hardware and saw a significant uplift in unit sales per Square Register and Square Terminal through the end of the quarter.

These products continue to serve as an important acquisition tool, bringing in new sellers to Square. Adjusted EBITDA of $98 million was primarily driven by a stronger recovery than anticipated in our seller business and outperformance in our cash app business. Adjusted EBITDA in the quarter also benefited from the release of transaction loss provisions or reserves for risk loss, primarily related to transactions in our seller business during the first quarter, which trended more favorably than our provisions had assumed. As a reminder, our overall company profitability margin profile is driven in part by the mix of our business.

The seller business has high-margin revenue streams, and changes in growth can have an outsized impact on profitability, whereas cash app is still early in its profitability ramp as we began monetizing cash app only four years ago. We recognize there can be a wide range of outcomes for our financial results during the remainder of the year, depending on regional restrictions of business reopenings and government stimulus efforts. Therefore, we are not providing third-quarter or full-year financial guidance at this time. Instead, similar to last quarter, we wanted to share with you what we are seeing in real time.

In July, we saw impressive growth in cash app and signs of stability in our seller ecosystem. Cash app, we saw gross profit growth, as Jack said, of more than 200% year over year in July, showing continued momentum from the second quarter. The strength in our cash app business in July was broad based, including growth in our network with our highest monthly increase in net new transacting actives and an increase in new product adoption. We also saw an uplift in monetization with our highest monthly volume per active customer across peer-to-peer payments, cash card and bitcoin investing.

While we're encouraged by these results, we recognize government stimulus programs contributed to the uplift in growth and spend per customer. If stimulus programs are either reduced or not renewed or if we see an impact to customer -- consumer spending, we would not expect cash app's growth to sustain at these levels. There is a lot that is unknown here, and growth could normalize. As a reminder, pre-COVID, we saw cash app gross profit growth of more than 100% year over year in the first quarter.

In July, we expect our Seller ecosystem to achieve gross profit growth of more than 5% on a year-over-year basis. Looking at the main drivers, Seller GPV was up 5% year over year in July, which was a modest improvement compared to results in June. In the U.S., we saw a step-up around the fourth of July. But excluding this holiday, GPV was relatively flat on a year-over-year basis, and trends were relatively stable from June to July.

In our international markets, we saw strong GPV growth of 40% year over year, which improved moderately compared to June. Regional trends have continued to vary depending on the extent for shelter-in-place restrictions, and we expect variability given the ongoing uncertainty. Seller subscription and services gross profit was down year over year in July, primarily driven by Square Capital's pause of core flex loans. While Square Capital revenue was immaterial in July, in the past few days, we reopened core flex loans under stricter eligibility criteria.

Given we have insight into real-time data, we are closely watching trend, and we believe we are taking a conservative approach to relaunching this product. Seller subscription and services-based revenue from our other products achieved positive growth year over year in July. We allowed sellers to pause their subscriptions starting in May. And at the end of July, less than 10% of our sellers with subscriptions had elected to pause.

Finally, we believe now is a compelling opportunity to invest in both of our ecosystems. Compared to the second quarter, we're investing an incremental $100 million in the third quarter across non-GAAP operating expenses for product development, sales and marketing, and general and administrative expenses. The significant majority of this investment will be on sales and marketing. As we have continued to be encouraged by recent acquisition trends and see a compelling opportunity to acquire new customers, we intend to closely track performance to be dynamic with our spend, including increasing spend if we see strong results.

Across both ecosystems, we have historically seen strong returns on our acquisition spend of at least three times within three years of acquiring a cohort. For cash app, we'll look at new and creative marketing strategies to reach more customers and further engaging existing customers as we continue to rapidly scale the network. For seller, incremental investment will primarily focus on brand and ecosystem awareness marketing campaigns and adding to our sales and account management teams. In the second quarter, we saw strong trends in our acquisition as new seller cohorts generated higher gross profit in their first five 5 weeks post onboarding compared to new seller cohorts in the prior-year period.

We're making a deliberate decision to invest given the recent momentum we've seen. This is a unique moment to reach new customers with our differentiated products, and we believe this approach will drive long-term, sustainable growth for Square. I'll now turn it back to the operator to start the Q&A portion of the call.

Questions & Answers:

Operator

[Operator instructions] And your first question comes from Tien-Tsin Huang with J.P. Morgan.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hi. Thanks. Hope you can hear me. Thanks for the remarks and the July update.

I wanted to ask on the sustainability of cash app. I heard the 200% growth in July and the 100% obviously was running at before, so I know the sustainability question is really hard to answer given stimulus and the uncertainty there. But anything else to help maybe unpack the thinking if stimulus isn't extended? What might happen? Then the 30 million users, how sticky do you think that number is? You acquired them. How do you expect to retain them and monetize that given the various scenarios that are out there?

Amrita Ahuja -- Chief Financial Officer

Tien-Tsin, thank you so much for the question. Let me start off here by saying, as you noted, we drove impressive growth in the second quarter, gross profit up 167% year over year on cash app. Each month since March, we saw improvement in gross profit growth and expect over 200% year-over-year gross profit growth in July. There's three key drivers I'd call out on cash app's growth.

Stimulus likely benefited all three of these drivers. Let's unpack that a little bit. First, as you noted, customer acquisition which remains a top priority for cash app, and we continued to rapidly expand our network here. In June, we had over 30 million monthly active, which is up approximately 25% just in the past six months, and this was followed in July by our highest month of net new actives added.

And we're continuing to keep those customers engaged by my second point, which is product adoption. We've increased adoption across our seven cash app products in the second quarter, cross-selling at low incremental costs. And we're driving -- we're focused here on driving daily utility for our customers. In the second quarter, as we noted, cash app monthly active had an average of over 15 transactions per month essentially every other day here, which was up 50%, nearly 50% from a year ago.

Third, the driver was increased volumes per active customers across key products in the second quarter, and you saw the strong monetization flow through. Revenue on a per-customer basis neared $45 on an annualized basis in the second quarter of 2020, excluding bitcoin, which is up three times since 2017. So as you noted, stimulus is a factor that likely benefited all three of the drivers. Cash app was well-positioned to help our customers access -- to make use of these government stimulus funds and unemployment benefits in the second quarter.

Obviously, these are wide-ranging programs with extensive reach. 165 million individuals qualified for CARES Act stimulus payments, and nearly 18 million were unemployed as of June. From the stimulus, we've seen increased inflows into our ecosystem: a portion from direct deposit, which is still early but a more meaningful uplift from customers simply having additional funds in their wallet. As customers are pulling more funds into cash app, that drives further engagement and network effects, and they're able to send money to others through peer to peer, spend their funds through cash card, invest in stocks and more, which we saw with new customer cohorts doing that at a higher rate in the second quarter.

This resembles -- what we saw here resemble the uplift from inflows we've seen in the February, March time frame historically around tax refund. There is a lot, as you noted, that's unknown around stimulus going forward and the impact to our business. Cash app growth could normalize in the back half of the year. The variability we may see here is one of the reasons we're not providing guidance on the second half of the year.

And instead, we're focusing on understanding and tracking our trends in real time.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Got you. No. It's really interesting and pretty impressive, so thanks for the update.

Amrita Ahuja -- Chief Financial Officer

Thank you. 

Operator

And your next question comes from Dan Perlin with RBC.

Dan Perlin -- RBC Capital Markets -- Analyst

Thanks, team, and good morning. And I agree, very impressive results here. I had a question about really the cash app and cash card attachment rates. Given that this is clearly one of the major drivers of the monetization strategy, at least today, so it looks like it's running still in the low 20s.

I'm wondering how we should be thinking about that expectation and opportunity longer term. And maybe specifically, what are some of the key factors and attributes that you're doing in order to drive that rate higher? Thanks. 

Amrita Ahuja -- Chief Financial Officer

Maybe I'll start off on the attachment rates, and then Jack can cover on the product strategy. From an attachment perspective, as you've seen, our customers are increasingly using cash card as an everyday spending tool. At the end of June, we had over 7 million monthly active cash card customers, which doubled year over year from 3.5 million, which we had shared with you last June. And we're continuing to increase that attach rate over time.

Today, we sit at about one in four customers, cash app customers, who have a cash card with cash card actives growing faster than our overall network. The majority of these 7 million monthly active cash card customers are spending on their cash card an average of five times per week, so again, that focus on daily utility here. And our customers are increasingly using cash card as a primary spending tool as the average spend per customer has also increased over time. As you also saw, we've been able -- cash card has been resilient in the second quarter.

We've been able to drive strong growth here with spend up nearly 50% quarter over quarter compared to -- for the industry, U.S. cards have been down about 8% across several card issuers quarter over quarter. We believe it's still early and want to continue driving adoption here with both new and existing customers.

Jack Dorsey -- Chief Executive Officer

Dan, this is Jack. So first and foremost, like the basis of everything we do around cash app starts with the utility of peer to peer, and then we're looking for the most critical financial services that people haven't had access to in the past as a way to build out our ecosystem. So a big part of our strategy is making sure that we have very credible, easy inflows into the service, such as direct deposit, which people are hooking their payroll to, they're hooking their tax refunds, stimulus check, unemployment checks to. And then using the peer to peer, where they send money to friends or family or request money, which gets us an entirely new customer as well.

So there's an incredibly efficient network effect built in the cash app. And then what makes it stick, to also answer some of the previous question, is all the other services within the app itself. So the fact that I have a cash card and I can now purchase cards as well, one by Hood by Air for $20. And yesterday, we launched a glow card, which glows in the dark for $5, which allows people to customize.

I can buy equities through our investing products. I can buy bitcoin, and I can utilize all this in my day to day. So we continue to look, as we look forward to the road map, for those critical financial elements that people haven't had easy access to in the past, and we believe we can bring to them with the cash app. But it all begins with the peer-to-peer aspect and the viral nature of the service itself.

Dan Perlin -- RBC Capital Markets -- Analyst

Fantastic. Thank you. 

Jack Dorsey -- Chief Executive Officer

Thank you.

Operator

Your next question comes from Josh Fulgham with Evans Meats.

Josh Fulgham -- Evans Meats -- Controller

Hi there. Thank you for taking my questions. You were able to start using the online Square store in a matter of hours at the start of the pandemic. And after that, we were able to seamlessly using Square hardware for on-premise sales.

We found it to be easy, straightforward and just a super transition. Now I'm wondering if you plan to take that same approach and emphasize ease of use with any of your planned new features and updates, areas like reporting.

Jack Dorsey -- Chief Executive Officer

Hey, Josh, first of all, thank you for being our customer. I appreciate you and appreciate all the challenges that you and others are going through this time. There's a lot of uncertainty. We want to make sure that every aspect of our service from the payment itself to inventory to reporting is remarkable, and remarkable for us is something that ultimately gives time back to you and making sure that as we think about any new feature, we look for making it intuitive.

We make it fast and easy because, ultimately, like if we're doing that, we're giving time back to you, the owner or your employees and you can use that time to focus on your customer which will grow your business and also grow ours. So we think we have really good alignment there. And if there's anything in particular that you feel is weak or a gap, please let our account managers know, our sales team, customer support, and we'll get on it. But thank you so much.

Josh Fulgham -- Evans Meats -- Controller

Thank you.

Operator

Your next question is from Timothy Chiodo with Crédit Suisse.

Timothy Chiodo -- Credit Suisse -- Analyst

Thank you for taking the question. My question -- so around the cash app but also on an SMB angle. So cash app is clearly the leading consumer digital bank or neobank in the U.S., but there seems to be an opportunity that isn't really discussed as much around neobanks or digital banks for small businesses. It seems like it could potentially have better LTV and monetization dynamics relative to consumer neobanks.

And when I think about all the components that could be there for an SMB digital bank, Square already has accounts: Square Card for business, credit offerings through Square Capital. But if it was sort of tied all together with a digital wallet, it would start to look like an SMB neobank. You could potentially layer in payroll and other things like AP automation, and I wanted to just explore this a little bit to see if it's something that could be a longer-term potential opportunity for Square.

Jack Dorsey -- Chief Executive Officer

Thanks, Tim. Are you looking for a role as a product manager as well?

Timothy Chiodo -- Credit Suisse -- Analyst

Yes, please.

Jack Dorsey -- Chief Executive Officer

It's a great idea. It's a great idea, and I completely agree that we have a huge opportunity here. We've taken -- if you look at our seller ecosystem, you'll see a number of parts that are connected together. And I think we have a lot of the parameters in place to do exactly what you said.

Square Card is a great opportunity for us and gives our sellers the ability to actually store money with us and spend that money without having to go to a bank branch to open their business, which is phenomenal for them. Square Capital allows us to offer loans and instant deposit. All these tools connected in the right way will mirror, I believe, what we have been able to do with the cash app but also for sellers. And that is, ultimately, our intention is to save more and more of our customers' trips to a traditional bank branch, so they can just get running in business and building that up.

Amrita Ahuja -- Chief Financial Officer

And Tim, to your point on, yes, cash app sort of economics relative to neobanks and other sort of digital banks out there. What we've seen with Cash App so far is strong unit economics, a strong business model. What -- some of the things that we feel differentiate the business model we've got around cash app is strong network effects, which leads to efficient acquisition. These network effects obviously come from the peer-to-peer aspect of the service where cash app can acquire new customers for a fraction of the cost of other banks or a financial services company, and that's really enabled us to scale this network of active customers rapidly and efficiently now at 30 million monthly active and growing.

And then also, from a unit economic standpoint, cash app has historically had a payback of less than 12 months on these new monthly cohorts, similar to seller. And in less than three years, returns from these cohorts have been over three times on our acquisition spend. And it's because of that suite of products that we have around financial services and centered around peer to peer that we can efficiently cross-sell, as noted, driving ARPU up on a per-customer basis three times since 2017 to nearly $45 on an annualized basis in 2Q. And so those monthly actives become more valuable actually over time as they adopt more products within the cash app ecosystem.

So we're excited of the potential here as cash app continues to grow and expand, and we see the opportunity to drive higher lifetime value, higher engagement by growing the base by cross-selling our existing products and eventually launching new products over time as well.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thanks a lot.

Operator

Your next question is from Darrin Peller with Wolfe Research.

Darrin Peller -- Wolfe Research -- Analyst

All right. Thanks. Nice job. Spend from the online channels being up over 50%, making up 25% of the GPV, obviously helped quite a bit, especially during the pandemic.

But if we break that down a bit, just wondering what you see as a differentiation around the online store and I think perhaps just other online offerings, enabling uses for on-demand delivery or like buy online, pick up in store. Can you just give us a little more color where you plan to invest further online and just really where this can go long term? What's the product set differentiation around CNP and where you see it headed, guys? Thanks a lot. 

Jack Dorsey -- Chief Executive Officer

Yes. Thank you, Darrin. If you look at any one part of online commerce and you compare it or a version of it to others, I don't think you see a lot of differences. But if you take them in concert with each other, that's where our strength is.

So we -- our strategy of building an ecosystem of tools that work out of the box immediately and continue to unfold as a seller gets more and more sophisticated with their business and with their approach to customers is what sets us apart from everything else. So there's various aspects that have been important, especially during this time with COVID for sellers. Square Online Checkout has been notable, so the businesses can transition online without building a complete website. Our online store has served very well as an acquisition tool for us.

As I said in my opening remarks, one in three of our new online store sellers onboarded in the second quarter were new entirely to the Square ecosystem, and that's increased in July. And then tools like on-demand delivery, giving our sellers access to third-party delivery apps, but also making sure that they can keep more of their sales has been important. We had a good example here, a little kebab shop and chain in Texas and California started using on-demand delivery. And they -- what drew them was being able to provide customers with flexibilities on fees and delivery minimums, which helped them remain competitive at a cost they could afford.

So it's not any one part that really sets our strategy apart. It's the cohesiveness. It's the flexibility that sellers have to shift even the economics around so that they can really serve their customers and build the business that they want, especially in a time of uncertainty.

Amrita Ahuja -- Chief Financial Officer

And, Darrin, I would just add that these trends that we're noting on online channels, up 50% year over year to 25% of Seller GPV, this is really a continuation of hard work that the team has been doing for some time now. These trends are actually fairly consistent with pre-COVID. For the past six quarters, our online channel GPV has sustained similar levels of growth of over 50%. But obviously, during this time, we're seeing unique use cases and that increasing importance of adapting quickly and serving -- our sellers serving their buyers where they are.

And then the last one I'd share is that, just to Jack's point about Square online store being increasingly an acquisition tool. We've also seen these online channels be a front door to Square, where new sellers who joined our platform through Square online store in the second quarter were using more of our ecosystem. And as much as half of their GPV actually came from in-person transactions as well, showing that obviously, these sellers are working hard to sell through multiple channels, both online and in person, which underscores the points around omnichannel.

Darrin Peller -- Wolfe Research -- Analyst

Right, right, right. That makes sense, guys. Thank you.

Operator

Your next question is from Lisa Ellis with MoffettNathanson.

Lisa Ellis -- MoffettNathanson -- Analyst

Hi. Good morning, guys. Thanks for taking my question. Following up on Darrin's question, I wanted to drill in a bit on the recovery in seller GPV, which was pretty amazing from -- I think it was running down 40% or so in April when businesses were closed and then now up growing 5% in July.

That recovery far exceeds the economic recovery, which I believe means you must have a lot of new sellers joining Square during this trying time. Can you drill into that a little bit and just dimension, quantify the uptick you're seeing in new sellers, how sustainable you think that growth rate is and maybe provide a little bit more color on what's different or new about these types of sellers and maybe other sources of new GPV you're seeing come in, if it's not just from new sellers joining the ecosystem. Thank you. 

Amrita Ahuja -- Chief Financial Officer

So, Lisa, thanks for the question. So in the second quarter, GPV was down 15% year over year. Those year-over-year trends improved each month from April to July, whereas we noted, seller GPV was up 5% year over year.There's kind of a couple of key drivers I'd point out, and I'll come to customer acquisition by the end of it. So first key driver, obviously, COVID restrictions starting to ease in the second quarter.

And as that happened, we saw related improvement in GPV. We obviously had variability in regions related to reopenings and retrenchments. Specifically in July, that modest improvement we saw from June was largely due, for us, to international growth as U.S. volumes trended at similar rates since June, especially when you exclude the bump that we saw around the fourth of July holiday.

So in the U.S., states that have had prolonged restrictions have been more affected in terms of GPV. In particular, states like California and New York are still well below those pre-COVID levels. On an international basis, seller GPV grew by 40% year over year in July, which is an improvement from June with particular strength in a couple of markets, Australia and the sharp recovery that we saw in the U.K. Second point I'd make here is around retention.

As seller GPV trends improved, we also saw improving trends around retention of our existing sellers. So the overall seller GPV dollar-based retention in July was down approximately 10% to 15% year over year. This is a significant improvement, while still down year over year, a significant improvement from being down 50% in late April. So this GPV retention looks at the cohorts of our existing sellers from July of last year and the year-over-year change in the GPV generated by those sellers in July of this year, including churn, but excluding acquisition, which I'll come to in a moment.

Across verticals, we saw better retention in services, in food and drink, and in retail, while beauty and health and fitness were more impacted. And then when you look at GPV retention by seller size, in the second quarter, micro sellers were generally less impacted than larger sellers. So finally, new customer acquisition. As you heard, this is an area where we saw growth in terms of new cohort size in aggregate and on a per-seller basis in the second quarter.

And we want to lean in here, as you heard, behind the strong ROIs of over three times over three years. We're encouraged by some of these trend lines, obviously, but recognize that we could continue to see variability in the trends depending on easing or retrenchment of restrictions and depending on stimulus, whether the PPP or consumer-driven stimulus. So we'll remain watchful of our up-to-date trends.

Lisa Ellis -- MoffettNathanson -- Analyst

Thank you. Thanks a lot. Pretty fantastic recovery, so thank you.

Amrita Ahuja -- Chief Financial Officer

Thank you.

Operator

Our next question comes from Harshita Rawat with Bernstein.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Hi. Good morning. Thanks for the update on monthly active users on cash app. So you added 6 million users between December and now.

Can you give some more color on the evolving demographics of these cash app users? Are they skewed toward unbanked and underbanked or digital native? And I -- also, I know you gave an update for the user TAM per Square cash app at your investor day update in March, but the world has changed in the last three months. So in light of the traction you've seen, what, in your view, could evolve to be cash app's total addressable user base? Thank you.

Jack Dorsey -- Chief Executive Officer

Yes. Thank you for the question. So we do believe cash app has reached a mainstream scale, and that's with over 30 million monthly active customers in June. And these are monthly active customers, not overall accounts.

In terms of demographics, we continue to see strong growth from folks under 35, and we're also seeing a rising share of new customers over the age of 35 as well. In terms of geography, cash app continues to have a strong presence in the South but has also seen growing traction in the Midwest and both on the East and West Coast. As we look forward, we want to continue to reach more folks through innovative and inventive marketing, which we continue to excel around. And one of our top priorities as a cash app team is to expand outside the United States and the U.K.

and to be a global service. So that's really important to us and something that we're going to learn a lot about this year and will help inform our next moves. But happy to say that cash app continues to see mainstream adoption, and we're definitely broadening the base of people that we can actually reach.

Amrita Ahuja -- Chief Financial Officer

And Harshita to draw back to some of the TAM numbers you were referencing back in March, what we had said back then was we believe cash app's ecosystem addresses over 100 million people in the U.S. with a target age between 15 and 39. And that represented a $60 billion opportunity in the products we serve today. Since then, obviously, you're hearing from us that we've had traction in age groups above 35.

And obviously, we made a small acquisition internationally as well, Verse in Europe, still very early days there. But we see opportunities to grow this addressable market through expanding our service to serve everyone and outside of the U.S. as well as in the U.S. and eventually over time, expanding the addressable market through product launches over time as well.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Great. Thank you very much.

Operator

Your next question is from Josh Beck with KBCM.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Thank you for taking the question and all the update. So I wanted to ask about Boost. It just seems like with the scale that you're establishing with cash app that you could be getting more perhaps of the attention of the advertisers that might want to look at that platform. So would love an update there.

And then with direct deposit, it seems like it had a really nice uptick tied to the stimulus payments. Any sense of maybe the follow-through and seeing it in a more traditional employment direct deposit use case as well?

Jack Dorsey -- Chief Executive Officer

Yes. Thank you, Josh, for the question. So in terms of Boost, we do believe there's a real platform there, and we're really excited about its potential. And we're learning as quickly as we can as to how to construct the right Boost for the right customers.

But we do think there's a ton of opportunity there, so you're right. And we're taking all of our learnings and building it into the service itself. But this is definitely a bright star and something that as we add more capabilities like locations, it gets even more and more attractive to businesses looking to shine more attention on their services and products. In terms of direct deposit, as I said in an earlier answer, direct deposit is a priority for the cash app team.

We see that direct deposit customers are some of the most engaged on the cash app and typically carrying much higher balances and using more products across the ecosystem. The cash card customers who use direct deposits spend two to three times more than any other card actives. We've done a lot of work recently to improve the awareness, customer awareness of direct deposits. So we brought it up in the interface, maybe a lot easier to plug into your payroll system or your tax refund system or for your stimulus check or unemployment check.

And this continues to be an incredible inflow for us and I think represents just the validation that cash app is becoming more and more part of the fabric of individuals' lives and that they're paid -- they're using their card to spend everywhere, including online, and of course, going back to peer to peer, bitcoin, and investing. So it really is a great entry point for the ecosystem and something we continue to want to strengthen and build up.

Amrita Ahuja -- Chief Financial Officer

Josh, I would just add on direct deposit. At the end of the first quarter, we mentioned that we had over 14 million customers with direct deposit accounts, which has obviously grown since then, meaning that they had account routing numbers. Obviously, the number of actives receiving direct deposits each month is well below this, but what we've seen in second quarter was continued strength in direct deposit adoption and steady growth in those paycheck deposits, to your question, in April to May to June. And we're really focused on increasing that penetration of paycheck deposits as we look to the back half of the year.

We know these customers pull more funds into cash app, store higher balances, adopt more products. They spend more, all of which obviously drives monetization and lifetime value. We see that strong correlation with funds pulled into cash app and with revenue. And we saw also in the second quarter that stored funds in cash app were over $1.7 billion, up 86% quarter over quarter here.

So obviously, continuing to make steady progress and focused on the back half of the year doing that as well.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very helpful. Thank you, guys.

Operator

Your next question is from Jason Kupferberg with Bank of America.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey. Thanks, guys. Good morning. I know that one of your peers mentioned that they estimated about 40% the year-over-year increase in their card volumes in the quarter was attributable to stimulus.

Does that number resonate at all with you guys? I know it's difficult to precisely measure the uplift but just wanted to run that by you. And then I was also just curious on the cash app gross profit growth in July. Obviously, fantastic, north of 200%. But how did that compare with the month of June? Thank you. 

Amrita Ahuja -- Chief Financial Officer

On the last part of your question, first, Jason, we saw growth through each month, month over month, and we saw improvements each month in that year-over-year growth rate for cash. So July was an improvement from what we saw in June in terms of that year-over-year growth rate for cash app. But again, as you noted, stimulus is a key part of why we believe we saw increased inflows in our ecosystem from April through July, a portion from direct deposit, which we just talked about, and a more meaningful uplift, just in terms of customers simply having additional funds in their wallet. We recognize that stimulus probably had impact on both ecosystems here in terms of customers having additional funds in their wallet as buyers.

We don't have a specific number to share in terms of how much of that uplift was driven. We do believe that there's -- as I mentioned on the seller ecosystem, we saw that GPV dollar-based retention down 10% to 15% in July, compared to down 50% in April, and we saw that strong improvement through the second quarter. And with cash app as well, we've seen improvements throughout the quarter, which we're going to try to capitalize on longer term. But obviously, watchful here as there's a lot that's unknown as stimulus is potentially reduced or ended.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. Thanks, Amrita.

Amrita Ahuja -- Chief Financial Officer

Thank you. 

Operator

Your next question is from Bryan Keane with Deutsche Bank.

Bryan Keane -- Deutsche Bank -- Analyst

HI, guys. Good morning, and congrats on the results. I just want to ask about the investments, how you guys are thinking about it. And the return on those investments, it sounds like it's going to be an incremental $100 million.

And just trying to think about the EBITDA, how that's going to look, the cadence in the third and the fourth quarter. Thanks so much.

Amrita Ahuja -- Chief Financial Officer

Sure. Thanks for the question, Bryan. It's a unique time for us, as we said, to invest here. We believe both the seller and cash app businesses are well-positioned to help our customers, both during COVID and beyond, and so we see an opportunity to invest in the back half.

As we noted in Q3, we'll see a step-up we expect of at least $100 million compared to Q2. In Q4, we expect non-GAAP opex, excluding risk loss, to be relatively flat to slightly down versus the step-up in Q3. The significant majority of this $100 million step-up in Q3 will be sales and marketing investments across both ecosystems. For cash app, we've got a focus on our paid marketing channels.

And given the strong growth that we've seen here, we intend on reinvesting the majority of the outperformance that we've seen in the back half of the year with that focus on paid marketing channels. Again, the viral acquisition on peer-to-peer network effects has helped us sustain a relatively low and stable acquisition cost at a fraction of what many others in the financial services space have to pay. And so we see an opportunity now to further enhance those network effects with paid marketing. And that strong engagement and monetization that you see with our cash app customers can help grow customer lifetime value over time, which leads to strong ROI on that acquisition spend.

From a seller perspective, we believe our omnichannel ecosystem, as you've heard so much today, is well-positioned to acquire new sellers. And as you heard in the second quarter, despite the turbulent landscape that we've got, we achieved positive growth in gross profit from these sellers. And these seller go-to-market investments contemplated in the back half of the year really just bring us back to what we'd originally planned to do for 2020, entering the year with a focus on awareness marketing campaigns, as well as building out our sales and account management teams. With respect to EBITDA, obviously, with these investments, you could see some quarter-to-quarter variation in profitability, but we remain as ever focused on the long term here, and we see a unique opportunity to invest.

Bryan Keane -- Deutsche Bank -- Analyst

OK, sounds good. Great. Thanks so much for taking the question.

Amrita Ahuja -- Chief Financial Officer

Thank you. 

Operator

And your last question comes from the line of George Mihalos with Cowen.

George Mihalos -- Cowen and Company -- Analyst

Hey, good morning, guys, and thanks for taking my question. I just wanted to circle back on the direct deposit side and the opportunity there. I can appreciate you're coming at it from sort of the consumer perspective. And certainly, a user can take their bank account routing number, make it available to an employer for paycheck deposit.

I'm curious. Is there an opportunity to pursue another angle and going from the employer perspective to sort of partnering with employers, or for that matter, platforms that have users or contractors and making cash app available that way? And then Amrita, just quickly, as it relates to the $873 million of PPP loans, how should we think of that financial impact for 2Q and kind of going forward?

Jack Dorsey -- Chief Executive Officer

OK. George, thanks for the question and the idea as well. I do think there's an opportunity. We have definitely tested this on our seller side with our payroll product, where employees can actually opt in to get paid via the cash app.

And the goal here is that we have more and more employees, especially a lot of part-time workers who might be working multiple jobs or multiple shifts going from seller to seller, driving the seller to use the payroll product so that we can actually -- they can actually get paid in cash app, which allows them to get access to their money much faster than a traditional payroll provider. So we do think there's more opportunity there, certainly in our ecosystem and beyond and certainly going to look for it.

Amrita Ahuja -- Chief Financial Officer

And, George, on closing out on your PPP question. PPP, for us, is just -- it's a powerful example of how Square can play a meaningful role in disbursing stimulus funds as our sellers and their communities have been facing economic uncertainties. So as you noted, second quarter, $873 million of loans across 80,000 sellers. This is fairly significant scale for us, representing almost 40% or 4.5 months of our capital loan volume from 2019 that we got done in about six weeks.

Regarding the mechanics of the economics, we used a bank partner to originate these PPP loans. The agencies we receive are capped at 1%, and the economics beyond that are based on whether we bring the loans on our balance sheet or sell the loans in the secondary market. In either of those categories, we earn lower revenue on these PPP loans than we would have on the typical core flex loan as the overall fees were capped by the SBA. For the loans we sold to investors, we shared in the economics and recognized most of the revenue upfront in the second quarter.

And for loans that we held on balance sheet, that $466 million, we retained a greater portion of the economics and recognize revenue over the life of a loan. There'll be a modest sort of quarterly contribution from those loans as we look forward.

George Mihalos -- Cowen and Company -- Analyst

Great. Thank you.

Operator

I'd now like to turn the call back to the company for closing remarks.

Jason Lee -- Head of Investor Relations

Thank you, everyone, for joining our call. I would like to remind everyone that we will be hosting our third-quarter 2020 earnings call on November 5. Thanks again for participating today.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Jason Lee -- Head of Investor Relations

Jack Dorsey -- Chief Executive Officer

Amrita Ahuja -- Chief Financial Officer

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Dan Perlin -- RBC Capital Markets -- Analyst

Josh Fulgham -- Evans Meats -- Controller

Timothy Chiodo -- Credit Suisse -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

George Mihalos -- Cowen and Company -- Analyst

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