Block, Inc. (SQ) Q4 2021 Earnings Call Transcript

Block, Inc. (SQ 5.04%)
Q4 2021 Earnings Call
Feb 24, 2022, 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 Block fourth quarter 2021 earnings conference call. I would now like to turn the call over to your host, Mr. Nikhil Dixit, head of investor relations. Please go ahead, sir.

Nikhil Dixit -- Head of Investor Relations

Hi, everyone. Thanks for joining our fourth quarter 2021 earnings call. We have Jack and Amrita with us today. We will 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. 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 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 growth results for the month of January and February.

These represent our gross profit growth results for January and our current estimate for February performance as we have not yet closed our accounting financials for the month of February, and our monthly results are not subject to interim review by our auditors. As a result, actual January and February results may differ from these estimates. We will also provide preliminary unaudited financial results for Afterpay in the second half of 2021. These results have not yet been audited or reviewed by our auditors.

Actual results for Afterpay may differ materially from these preliminary results. Our remarks discuss losses on consumer receivables for Afterpay. Losses on consumer receivables represent an assessment of expected credit losses over the term of the receivables, which is 14 to 56 days. We believe losses on consumer receivables is comparable to Afterpay's previously reported metric of gross losses.

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, this call in its entirety is being audio webcast on our Investor Relations website.

An audio replay of this call will be available shortly on our website. With that, I would like to turn it over to Jack.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Thank you for joining us today. We wanted to start by acknowledging what's on everyone's minds, the Ukrainian people. Our thoughts are with them, our employees and customers tied to the area and all those affected by war. Turning now to our quarter.

2021 was a busy year for us. We found new ways to connect our Square and Cash App ecosystems through the acquisition of Afterpay. We added new ecosystems with TIDAL to serve artists and TBD to serve bitcoin developers. And we announced two new hardware projects to advance bitcoin as a native currency for the internet, a noncustodial hardware wallet, and a bitcoin mining system.

We've been wanting to dedicate the Square brand to our Seller business unit for some time, so we made that move, too, and we named the overall company Block. Block now contains four business units: Square, Cash App, TIDAL, and TBD. And now, for some updates on our business. In Cash App, we saw strong engagement and adoption from both new and existing customers.

In the fourth quarter, we added to the peer-to-peer functionality that has made Cash App so popular with an update that lets customers send fractional shares and bitcoin from their Cash App balances to friends and family. We're also launching new features to position Cash App as a platform that can serve all of our customers' financial needs. In January, we introduced Cash App Taxes, where customers can file for free from a phone or a computer and can receive their tax refund up to two days early if deposited through Cash App. Historically, we have seen customers bringing their tax refunds into Cash App.

And with Cash App Taxes, we hope to encourage customers to bring more inflows into our ecosystem and expand awareness of our direct deposit capabilities. Turning now to Square. We delivered on our priorities of expanding internationally, growing upmarket, and building out our omnichannel capabilities to create cohesive experiences between sellers and their customers. For example, we know that photos are crucial for selling successfully online, but many sellers struggle with the time and costs required.

To address this, in the fourth quarter, we introduced the Square Photo Studio mobile app, which makes it easy for sellers to take high-quality photos and directly sync them to their catalog or online store. Between both ecosystems, in January, we closed our acquisition of Afterpay and introduced Afterpay Buy Now Pay Later for Square online sellers in the U.S. and Australia, an offering that's been long requested by sellers and customers. Looking ahead, we intend to integrate Buy Now Pay Later more deeply in our ecosystem over time, and we believe Afterpay will accelerate the connections between our Square and Cash ecosystems.

We have a strong foundation to build upon in 2022. And we want to share more with all of you during the Investor Day we plan to host on May 18 where we'll go deeper into our mission, products, strategy, and long-term goals. We'll share more details as we get closer to the date. And with that, here's Amrita.

Amrita Ahuja -- Chief Financial Officer

Thanks, Jack. There are a few topics I'm going to cover today: first, the strong growth from our Cash App and Square ecosystems in 2021 and the compelling cohort economics driving those results; second, Afterpay's financial performance in the second half of 2021; third, a look at our growth trends and investments in the first quarter and into the rest of 2022. Our business delivered strong growth in 2021 with gross profit of $4.42 billion, up 62% year over year. With gross profit growth at 53% on a two-year CAGR basis, we've more than doubled the scale of our business since 2019 and further diversified our product.

In 2021, Square had six revenue streams that generated approximately $100 million or more in gross profit. And Cash App had four revenue streams with more than $200 million in gross profit. We delivered over $1 billion in adjusted EBITDA and generated meaningful free cash flow during the year, demonstrating strong unit economics and incremental margins, which I'll come back to in a moment. In the fourth quarter, gross profit was $1.18 billion and grew 47% year over year or 50% on a two-year CAGR basis.

Adjusted EBITDA was $184 million. Let's look at the drivers for Cash App and Square. Cash App generated gross profit of $518 million in the fourth quarter, up 37% year over year or 90% on a two-year CAGR basis behind strong engagement and inflows. We grew Cash App's network to 44 million monthly transacting actives as of December for a growth of 22% year over year.

Our active base is highly engaged, and we've seen growing adoption of Cash Card, which reached more than 13 million monthly actives as of December, a 31% attach rate to our monthly active base, up from a 22% attach rate two years ago. As we've grown our overall base of customers, we've also seen growing usage for Cash Card customer. In the fourth quarter, spend for Cash Card actives increased year over year as actives used Cash Card for a diverse range of everyday purchases from fast-food restaurants to big-box retailers to gas stations and more. This broad reach has allowed Cash Card to gain meaningful scale, generating nearly $0.5 billion in gross profit in 2021, up nearly two times compared to the prior year.

As we look at the overall Cash App ecosystem, inflows or the amount of money customers pulled into their Cash App accounts, totaled $45 billion in the fourth quarter, which grew year over year and quarter over quarter even as most government disbursement programs ended by September. This represented more than $1,000 per monthly transacting active, which was relatively stable on a quarter-over-quarter basis and increased year over year. As actives adopt more products, they typically inflow more money into Cash App, which we've seen leads to greater monetization. You can see the power of this dynamic with Cash Card customers.

In the fourth quarter, Cash Card actives generated approximately five times more gross profit per active as compared to actives that only use peer-to-peer. Turning now to our Square ecosystem. Square generated gross profit of $657 million in the fourth quarter, up 54% year over year or 32% on a two-year CAGR basis, an improvement from the third quarter. Our strategic priorities is building omnichannel products, growing upmarket, and expanding globally continue to drive growth.

Our upmarket sellers have achieved strong growth and have adopted the products over time. Square gross profit from end-market sellers grew significantly faster than the overall Square business, up 73% year over year in the fourth quarter or 47% on a two-year CAGR basis. We continue to believe our Square ecosystem is differentiated due to our integrated and cohesive set of products across hardware, software, payments, and financial services, serving seller needs in a more comprehensive way. We are making progress in surfacing incremental product adoption to serve our sellers across multiple vectors with the goal of creating a more retentive and valuable relationship.

As our mix has shifted to larger and more complex sellers, we've seen an increase in product adoption. In 2021, 80% of Square gross profit came from sellers using two or more products, and 38% came from sellers using four or more products, with these sellers generating more than 10x the gross profit compared to those only using one product. Our Square ecosystem has also resonated across our global markets. Gross profit from Square's markets outside the U.S.

grew faster than the overall base of 60% year over year and 63% on a two-year CAGR basis in the fourth quarter despite various periodic lockdowns as we continue to achieve strong acquisition of new sellers and increased product parity with the U.S. market. Now, shifting to the strong cohort economics that have enabled efficient growth for our Cash and Square ecosystem. Starting with Cash App's acquisition, retention, and returns on investment.

In 2021, even as we scaled our marketing investments, Cash App spent approximately $10 to acquire a new transacting active. And we've seen early monthly cohorts maintaining a payback period of less than one year as gross profit per monthly active was $47 in the fourth quarter. For existing customers, increased product adoption and engagement has enabled annual gross profit retention of more than 125% each of the last -- of the past four years, which has driven strong returns on investment of 6x or greater over three years for historical cohorts. Square has also driven attractive cohort economics.

In 2021, Square again onboarded its largest annual cohort of new sellers on a gross profit basis. With a greater mix of investments toward long-term strategic areas like international and brand campaigns, Square's 2021 sales and marketing spend is pacing toward an estimated six-quarter payback. Beyond growth in new seller acquisition, we saw encouraging recovery within our existing base this year. Each of our existing annual cohorts achieved positive gross profit retention in 2021 compared to 2019 and in aggregate grew 10% over this period.

Square's 2020 and 2021 cohorts are pacing toward compelling returns on investment of 3x over four years. With these cohort economics, we delivered incremental adjusted EBITDA margins of 32% in 2021, which was driven by ramping profitability in both Square and Cash App and illustrates the potential structural profitability in our business that we're investing behind. Next, an update on Afterpay. We completed the acquisition of Afterpay on January 31, 2022.

Since we announced the transaction in early August, our teams have been focused on closing the transaction and planning for the sizable integration of our two companies. Despite the significant work and management focus required here, on Day 1, we executed on a meaningful integration of our Square -- into our Square ecosystem. We're excited about the early progress and also recognize we're embarking on a multiyear effort to deliver the shared vision we have for our customers. Although Afterpay did not contribute to our fourth-quarter results, we wanted to share trends on Afterpay's business since their last reported financial results.

Looking first at Afterpay's growth drivers in the second half of 2021. Gross merchandise volume or GMV was up 54% year over year and up 84% on a two-year CAGR basis. Revenue and gross profit each grew by approximately 53% year over year and by approximately 73% on a two-year CAGR basis. Afterpay continued to grow acquisition across its merchant and consumer base in the second half of 2021.

At the end of December, Afterpay had more than 122,000 annual active merchants, up 64% year over year, and more than 19 million annual active consumers, up 47% year over year. As we look toward integration, we see a powerful opportunity to expand and reinforce both our seller and consumer relationships by connecting Afterpay with our Square and Cash App ecosystems. Turning to Afterpay's consumer losses in the second half of 2021, an area that Afterpay has been deliberate in managing. Losses on consumer receivables were 1.17% of GMV, an increase of 8 basis points compared to the first half of 2021 driven by seasonality around holidays and a greater mix of volumes from newer products and regions.

We have historically seen loss rates improve with more time after we launch in the market as customers transact more frequently and our data model become more robust. We have seen this trend in our older markets of Australia and New Zealand, and North America and the United Kingdom are following a similar path for our core Buy Now Pay Later product. We saw healthy consumer repayment behavior as 98% of installments were paid on time in the second half of 2021, consistent with the first half of 2021. On a full year 2021 basis, Afterpay delivered $19.7 billion in GMV, up 74% year over year.

Revenue growth was approximately 71% year over year, and gross profit growth was approximately 75% year over year. Finally, turning to trends in the first quarter and our expected investments. Similar to prior years, we wanted to provide -- prior quarters, we wanted to provide an update on trends so far in the quarter. Excluding Afterpay across Cash App and Square, we expect gross profit growth of 33% year over year or 43% on a two-year CAGR through January and February.

By ecosystem, for Cash App, for the months of January and February, we expect gross profit growth of 21% year over year or 71% on a two-year CAGR basis. For Square, for the month of January and February, we expect gross profit growth of 45% year over year or 28% on a two-year CAGR basis. We experienced a moderation in gross profit growth for both our Cash App and Square ecosystems in January before growth improved in February. We believe the moderation in January growth was driven in part by the impact of the Omicron variant as both businesses were more impacted in regions with pronounced increases in COVID cases.

While Cash App saw impacts in January network volumes across peer-to-peer and Cash for Business, Cash Card continued to deliver strong growth year over year and on a two-year CAGR basis. Square GPV growth was more impacted in verticals like food and drink, retail, and beauty, which saw a trough in mid-January before improving in the subsequent weeks. In February, we have seen trends in each ecosystem improve compared to January. Through the first three weeks of February, Square GPV growth on a two-year CAGR basis was approximately at fourth-quarter levels.

For Cash App, we expect gross profit to increase month over month in February compared to January as inflows through the first three weeks of February are trending ahead of January levels and back near December levels. We completed the acquisition of Afterpay at the end of January, so Afterpay will only contribute to February and March results in the first quarter. For the month of February, we expect Afterpay GMV growth to be between 25% and 30% year over year, with revenue growth in a similar range. Now, looking ahead with the remainder of the first quarter.

In the first quarter, we expect the gross profit two-year CAGR for both Cash App and Square to modestly improve compared to trends through January and February, driven by an expected improvement in the two-year CAGR in March. On a year-over-year basis, we expect slower growth in March compared to January and February as the prior-year comps get tougher. Recall that we benefited from a strong growth in March 2021 behind government disbursements during that month. As we look ahead to 2022, beyond the first quarter, we believe Cash App's year-over-year gross profit growth rate will improve in the second half of the year compared to the first half as the comps become more favorable and as we introduce new product innovations across our commerce and financial services priorities and make pricing adjustments in certain areas.

As we look at 2022, we expect to sequentially grow gross profit each quarter across Cash App and Square throughout the year, assuming the macroeconomic environment remains stable. Moving to our planned investments for the first quarter and full year 2021. For the first quarter, we expect to increase overall non-GAAP operating expenses by $180 million compared to the fourth quarter or $40 million when excluding Afterpay. For the full year 2022, we expect to increase overall non-GAAP operating expenses by $2.3 billion, including Afterpay's expected operating expense base of approximately $1 million this year.

Excluding Afterpay, we expect to increase overall non-GAAP operating expenses by $1.3 billion or approximately 38% growth year over year, which is consistent with what we shared in November. Given the pacing of our investments during the year, we expect to deliver greater adjusted EBITDA in the second half of 2022 compared to the first half of the year. We expect that our four emerging initiatives, TIDAL, TBD, the hardware wallet, and Bitcoin mining, will represent approximately $140 million in non-GAAP operating expenses or 2% to 3% of the overall company's investments. As always, we will actively manage our investments, adjusting them based on the top-line growth and returns we see.

At our upcoming Investor Day on May 18, we are excited to share more with you about where we are and where we're headed. We see a compelling long-term vision, a large and growing total addressable market, pressing customer needs that we'll continue to focus on, and strong unit economics in our business. We hope to tell you more about the potential with Afterpay and how we will work to connect our growing Square and Cash App ecosystems. In the meantime, we will be disciplined and adapt in this dynamic environment as ever.

I'll now turn it back to the operator to start the Q&A portion of the call.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Tien-Tsin Huang at JPMorgan. Please ask your question.

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Thank you so much. Really appreciate the incremental margin comments. It's really encouraging. I thought I'd ask, if you don't mind, just on the operating expense investments.

And I mean, you talked about it. Up over 50% last year, you spent another $1.3 billion, like you said back in November this year. So, I'm curious, have your investment priorities or visibility in spending changed in any way with respect to getting adequate returns that you've been talking about? I saw that the CAC on Cash App is now $10. So, just curious if your priorities or your general thinking here has changed, whether it be growing users or ARPU or just spending priorities.

Thank you.

Amrita Ahuja -- Chief Financial Officer

Sure, Tien-Tsin. Thanks for the question. So, first, let me say what we delivered in 2021 in terms of our adjusted EBITDA margins of 32% year over year versus 2020 really showed the ramping profitability and underlying structural profitability potential across our businesses, across both Square and Cash App. And that's what we're investing behind here.

Now that, coupled with the unit economics is what we look at on a dynamic basis throughout the year to assess the investments that we're making. And I think it's important for us to unpack that a little bit to look at the quality of these cohort economics to understand the investments that we're making. With Cash App specifically, I think there are four factors that we look at. And each of those four factors that I'll go through has attractive fundamentals, and they've traced over time.

So, first, customer acquisition. Cash App's strong network effect has driven efficient acquisition historically. But even as we've scaled our investment in the past year with paid marketing to target new audiences that help us drive both brand awareness and engagement with higher product adoption and, ultimately, ARPUs even with that incremental marketing investment, we increased our CAC to only $10 to acquire a net new active customer in 2021 versus the historic $5, which frankly, you could argue was too efficient. We believe this is lower.

That $10 is still lower than other neobanks and a fraction of what a traditional bank would spend to acquire a new customer, and that's really supported by the efficiency of the model with peer-to-peer embedded within the app. Then you look at the returns on the investment here with Cash App. Our focus in these investments is measuring returns on investment because we've seen growing ARPU over time. And what we've achieved historically is an ROI of over six times over three years for historical cohorts.

And even again, in 2021, as we increased marketing spend by 3x and CAC by over 2x, we've seen our early 2021 cohort trend toward a payback of less than a year. And we onboarded our largest annual cohort on both variable profit and gross profit basis here in 2021. Then you look at engagement, and to your point, ARPU. Gross profit per monthly active was $47 based on fourth-quarter gross profit, which increased 13% from the prior year, showing increasing engagement of our customers over time.

And we believe we're still early in this cross-sell journey, especially when you think about the power of a product like Cash Card, which is still at only just over a 30% attach rate to our total active base. And Cash Card really driving more inflows and more spend and more engagement on the platform. So, we see a meaningful opportunity here to grow ARPU, both with products like Cash Card and with other products like investing, direct deposit, etc. And that's a meaningful focus for us as part of our go-to-market strategy to drive ARPU.

And then finally, retention. We increased engagement and monetization for our customers over time, and that's led to strong gross profit retention of over 125% year over year in each of the last four years. That means once the cohort onboards, on average, they generated at least 25% more gross profit in their second year and at least 25% more in their third and fourth years, net of any churn. So, these are the dynamics that we're investing behind in our key focus areas, which really haven't changed given the health of these fundamental metrics that we're looking at as we make these investments.

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

That was good, though. Thank you.

Operator

Our next question comes from the line of Darrin Peller from Wolfe Research. Please ask your question.

Darrin Peller -- Wolfe Research -- Analyst

All right. Thanks, guys. Nice job on the results. Maybe just a bit of a follow-up.

It's obviously great to hear the strong trends in January and February, especially around the Cash App gross profit. When we look at the conviction in your Cash App organic growth potential from here, it sounded constructive at the acceleration you're talking about in the second half. Perhaps if you could just give us more color on expectations for active user growth relative to the 4 million to 5 million semiannual adds you've had before versus that ARPU. And then just, Jack, maybe you can give us some more understanding on what you anticipate building out in terms of new products that can drive that ARPU and engagement that either we've seen so far, expanding more or yet to come and what do you have in mind? Thanks, guys.

Amrita Ahuja -- Chief Financial Officer

Thanks, Darrin. Jack, maybe I can start, and then you can take the second part of the question. So, just to ground you in what we're seeing so far for Cash App, Darrin, is gross profit growth ultimately driven by, as you called out, network reach, engagement, and inflows, which we shared at $45 billion in Q4 was up quarter over quarter and year over year. When we unpack a little bit of what we've seen so far this year, in January, we did see some moderation in the gross profit growth rate for Cash App, which we believe was related in part to Omicron.

We saw resilience though in certain parts of the ecosystem, for instance, Cash Card, which is more resilient and continue to drive strong growth. In February, we expect gross profit to increase month over month as inflows in those first three weeks of February are trending ahead of January levels, nearly back to December levels. We also expect year-over-year gross profit growth to improve in February. And when you look throughout the rest of the quarter, we expect that two-year CAGR to modestly improve for Cash App from the 71% we had in January, February, based on an expected improvement in March.

And again, we would anchor you to the two-year CAGR here for Q1 just given the comps around the year over year from March of 2021 last year with the government disbursement. Looking to the remainder of 2022, as we think about growth levers, we see room to scale with recent product launches, with Cash App Pay, Families, Taxes, which are still early in scaling in the second quarter. And obviously, we've got the pipeline around Cash App Borrow and integration products with Afterpay and with the commerce opportunity there. So, as a result, as you noted, we expect Cash App year-over-year gross profit growth rate to improve in the second half versus the first half behind these new products, behind some pricing changes, and as we begin lapping a more normalized macro environment in the second half of the year.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

And, Darrin, I think your question was around just new products for Cash App. The strongest and greatest thing about Cash App that we found is how it creates network effects. We started with that early on. So, if you look at how we launched the app, the peer-to-peer aspect has always been our strongest driver of usage.

So, me being able to get paid and then also request money from my friends or send money for my friends, creating another account and another customer. But as we look forward, some of the features that Amrita mentioned also have the benefit of enhancing those network effects. So, any product that either creates new network effects or strengthens the one we already have, we're going to look to see it. We have a lot today that, I think, positively reinforces one another.

And a lot of it creates even more opportunity for people to keep their money with us. And as we see people keeping their money with us, we see them doing more activities that we offer, such as bitcoin or stocks or the Cash Card. Or obviously, Direct Deposit and Taxes are part of that. So, there's a whole suite of financial tools that Cash App has access to that we're really excited about.

And we'll do it in a way that we've always done it, make sure that we get down to the simplest bare essentials that people can use immediately. And I think that's what sets us apart from our competitors and especially the neobanks and some of the others that you all have brought up is that we're not just focused on one aspect. We have an entire ecosystem that positively reinforces one another for our customers and do that for us as well. And then you bring in the Square side, the seller side, I think the most exciting thing for us going forward is how we connect these two ecosystems even more.

And Afterpay is one such example of a massive connection that we're really excited about. We're excited to be finally past the integration, so we can focus on building, especially on the Cash App side. You've only seen the Square Seller side, but we did this as a connection between the two, and we're super excited about what it brings to Cash App customers.

Darrin Peller -- Wolfe Research -- Analyst

Thanks, gentlemen.

Operator

For our third question, we have Karen Campbell, a Cash App customer. Please as your question.

Unknown speaker

Yes. Hi. Thank you again. I definitely enjoy using Cash App.

And the question that I have, I normally receive my paycheck direct deposited into Cash App. And while I do enjoy receiving my checks two days earlier, I just wanted to know down the line on your guys' road map, do you see my paycheck being Cashed App into -- converted into bitcoin by any chance down the line?

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Yes. I can take that. Thank you, first and foremost, for being a customer. Obviously, we're really excited about bitcoin.

We wanted to make it more accessible to everyone. I love your interest about automatically converting your paycheck into bitcoin as well. We're seeing a lot of -- and we're partnering with a lot of athletes to do exactly this. Obviously, we want to bring it to everyone.

You can do it today effectively by direct depositing the Cash App and then doing an auto-buy on the bitcoin tab so you can effectively set Cash App to buy bitcoin for you every week or two weeks or whatever time period you want from your direct deposit of your paycheck. But we think there's opportunities to make that even more seamless, so we're definitely looking at that. And thank you so much.

Unknown speaker

Thank you again for the opportunity.

Operator

Our next question comes from the line of Timothy Chiodo from Credit Suisse. Please ask your question.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thanks, everyone. Thank you for taking the question. I wanted to touch on Cash App Taxes, given the inflows are right around the corner here over the next few weeks.

Really, I think about this as two types of benefits. There's near term and long term. On the near term, you have obviously the tax refund inflows and monetization. And then longer term, it's sort of a shot on goal to bring on more users, to reduce churn, more Cash Card, more Direct Deposit, etc.

Maybe you could just help talk about both of those, both the near term and the long term, and how it might play out.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Yes. I mean, I think that's a great way to think about it. Certainly, we definitely see a lot of opportunities in the near term to look at the customers using Cash App already today for core taxes through direct deposit. But ideally, we want to be known as the simplest way to handle all of your personal finances.

No matter what you have to do, no matter how creative they become, we want to make sure it's simple and straightforward. And that was the idea behind creating and launching Cash App Taxes. And we think there's a long road map ahead that is very fulfilling for our customers and also for us definitely over the long term. We still see a lot of complications in taxes and filing taxes, a lot of hidden costs that are unnecessary that we can take away.

And we're going to follow our history and remove any insecurity of information that we've seen in the financial industry and get it closer to customers, which has them -- that we see has been using our services a lot more because it's much more transparent and much easier. So, we're really excited about this as a platform. But more importantly, we're excited to remove one of its complexities so that people can get on with their lives.

Amrita Ahuja -- Chief Financial Officer

And, Tim, I'll just add that what we see with our tax product is we want customers to view Cash App as really a preferred banking platform and expand awareness around Cash App's Direct Deposit capabilities. As Jack mentioned, historically, we see more inflows around tax season, customers bringing in their tax refunds to Cash App. But now with this integrated tax product, we can make those deposits even easier and faster. Customers using Cash App Taxes can receive their refund up to two days early if it's deposited to Cash App, which we believe can drive more inflows in the Cash App.

And ultimately, our focus, as we level up, is on driving more inflows obviously through adding that utility to our customers. And we believe Cash App Taxes can act as both an acquisition and an engagement product for Cash App by being that simplified free tax tool. I would note that there's a number of levers that we have, right, for driving inflows. And one of them around recurring paycheck deposits, we are also seeing traction on.

We've seen growth in recurring paycheck deposits with volumes up two times year over year in the fourth quarter as we've made improvements to that direct deposit experience by allowing customers to directly log into their employer or their payroll provider from the app and also as we invest in marketing and boost incentives to drive awareness of those products and features. So, part of a broader strategy that we have around ultimately the utility to our customers and inflows into Cash App.

Timothy Chiodo -- Credit Suisse -- Analyst

Excellent. Yes. We noted that partnership with Pinwheel there, so thank you for both of those updates, Jack and Amrita.

Operator

Our next question comes from the line of Lisa Ellis of MoffettNathanson. Please ask your question.

Lisa Ellis -- MoffettNathanson -- Analyst

Terrific. Thanks, guys. Now that the Afterpay acquisition has closed and you've had a few months working with that team, can you just provide an updated perspective on the primary sources of synergies from the deal and how you expect the synergies to maybe even start to affect Block in 2022? Thank you.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Yes. So, first, we're thrilled to be over the hump and finally closed. As you all can imagine, integrations are quite challenging and distracting for both Afterpay, for Square, and Cash App with -- we knew going into this, but we believe in the outcome fully and the future of it. This is a huge connection between our two largest ecosystems: Square and Cash App.

On the Square side, this is something that our customers have been asking for, for quite some time. On the -- both for themselves as sellers but also for their customers. Their customers are driving some of this adoption. The interesting thing about Afterpay is it gets us much closer to much, much larger retailers, continuing to go down our omnichannel strategy, making sure that we are meeting our customers wherever they are in whatever size merchants that they wanted to shop at.

For Cash App, there's a long road map ahead. We haven't seen much of this. We'll talk more about this during our Investor Day. But this is, to me, where the -- a lot of the real excitement lies is now we have an opportunity for a whole lot more discovery on the Cash App side and giving Cash App customers entirely new capabilities that they haven't had certainly in a Cash App before, but I don't think in any financial instruments.

So, we're still happy to be through this integration. It was tough and challenging, but I'm really proud of the fact that we're able to launch something Day 1 of close and then customers could use it right away. So, expect us to continue that momentum and continue to push and expect a lot more on the Cash App side.

Amrita Ahuja -- Chief Financial Officer

And I'd just add, Lisa, obviously, we've only just completed the acquisition a few weeks ago, so we'll have more to share about how we expect to unlock deeper integration points and synergies between the businesses, as Jack said at Investor Day, but we really see a meaningful cross-sell opportunity between our Square sellers, Afterpay customers, both merchants and consumers, and Cash App and plan to leverage that overlap and consumption behavior as we develop these integration points further. Just to dig in a little bit more on the Cash App side, Afterpay's retailers have shown a lot of excitement about a potential integration opportunity being developed right now with Cash App, including the combination of Buy Now Pay Later with Cash App Pay, which, as you know, we just launched a few months ago. We've also built in Cash App an initial search page for customers where they can discover Buy Now Pay Later offers within Cash App. Similar to how you might discover a Boost offer within your Cash App, customers can click through the search icon to discover Afterpay merchants, along with other peer-to-peer network and Boost functionality.

That's the first time we've enabled commerce for customers to buy through Cash App. And it's early days. We continue to iterate here on this product, but we've already seen over 100,000 leads going out from Cash App to Afterpay merchants since late December when we enabled this. So, this is something that we think will continue to evolve and become more and more prominent as we further integrate Afterpay offers into Cash App, as well as further integration obviously, in the Square, broadening out the rollout of Buy Now Pay Later in-person sellers.

And we look forward to updating more as we make progress.

Lisa Ellis -- MoffettNathanson -- Analyst

Exciting. Thank you.

Operator

Our next question comes from the line of Harshita Rawat from Bernstein. Please ask your question.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Thank you for taking my question. So, I want to ask about affluent user expansion for Cash App. Driving monetization for appoint users is an area where some of your peers like Venmo have struggled, partly because these individuals are relatively well served by traditional financial institutions. So, as you increase your marketing spend on Cash App, which I recognize is still very low on a CAC basis, what are you seeing in terms of engagement and user behavior for affluent customers? Thank you.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Well, I'll say that I think our biggest constraint right now is just how we think about building Cash App's risk and compliance efforts, everything that we see around fraud. We want to make sure that we are building a system that is scalable that allows for limits for customers who might have more resources at their disposal and want to use Cash App for more and more things such as -- as they would treat their normal bank. So, we have limits in place to manage all these things, and a big goal for us is to make sure that we're looking for opportunities to increase those and to, at the same time, maintain all of the risk controls and fraud and continue to do what we've done so well over the years. And not just on the Cash App side, but on the Square side, keep it in our business forever.

So, as we look at inflows in deposits, especially, this is a huge opportunity for us, especially for higher-net-worth individuals who want to use the Cash App. The marketing, I think, generally appeals to a very broad-based mainstream and that is always going to be our intention. We want to make sure we're building a brand that number one, people can trust. So, they see it as simple.

They see it as solid, trustworthy. And that matches their experience when they demo the app. They get in, everything works immediately. They can access all the features, that there's very, very simple ways to provide more information, to get higher limits in place.

So, like I think the marketing, as we continue to look for opportunities to go even more mainstream, as we support a stronger audience, our marketing will certainly reflect the uniqueness of the brand, which should serve really, really well, especially when you consider the competition that we have in other banking services and how dry and somewhat boring now in comparison. So, we're very excited to bring a lot more life to this and certainly a lot more trust and a lot more fairness for our customers as well, which is a big part of why we're doing what we're doing.

Amrita Ahuja -- Chief Financial Officer

Great. And, Harshita, I'd just add, to underscore Jack's point, Cash App at 44 million monthly active, growing 22% year over year, was the No. 1 downloaded finance at in the U.S. in 2021 and the No.

4 downloaded app overall in the U.S. in 2021 on iOS. So, we are reaching mainstream scale and want to continue to enable broad-based utility, as Jack was saying, around deposits and limits. But as you see through the strength of our cohort economics, with growing ARPU $47 in the fourth quarter, up 13% year over year, with strong gross profit retention of over 125% year over year for each of the last four years and with strong ROIs at 6x over the last three years.

And now, with four monetization streams at $200 million or more in gross profit, there is a diversity of customers that we're reaching and a diversity of use cases that we're helping to address for our customer base. And that work continues. And with that work, we believe we'll be able to reach greater diversity of demographics and use cases over time.

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Very helpful. Thank you.

Operator

Our next question comes from the line of Josh Beck from KeyBanc Capital Markets. Please ask your question.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Thank you so much taking the questions. I wanted to go back a little bit to this topic of commerce discovery. Certainly, the 100,000 leads right out of the gate is impressive. And Afterpay had certainly really good momentum on building out this affiliate model.

So, I'm just curious, as you play this forward, how do you see this evolving? Is it maybe a case where you start to build out adtech capabilities and have much deeper conversations with the advertising community to really kind of monetize some of the commerce discovery aspects of the platform? Just curious strategically how you're approaching that.

Amrita Ahuja -- Chief Financial Officer

Sure, I can jump in here. What we see with the combination of Afterpay in both of Cash and Square is a true differentiator, frankly, when you look at the landscape of commerce and financial services and specifically differentiator related to Buy Now Pay Later as we connect and integrate these platforms. Specifically, with Cash and Afterpay, we see strong potential to deepen the engagement across millions of younger consumers, frankly, who are immersed in online and omnichannel commerce. Longer term, we also see an opportunity to bring Cash App's financial tools, including money transfer, stock, bitcoin, Boost, etc., to Afterpay customers as well.

So, we see that crossover across financial services. But specifically with commerce, as you noted, Afterpay has a history of being able to drive lead generation to merchants because prior to the acquisition, they were driving over 1 million leads per day in the back half of 2021, with 38% of those referrals from consumers searching within Afterpay for specific brands and 46% of referrals from browsing on Afterpay's app homepage. And now, when you combine that with the scale of Cash App, 44 million monthly actives, that's an even greater opportunity for us to really add value both to the merchants who are looking for more quality consumers and to the consumer who are looking for more opportunities and more offers. So, we see a significant opportunity there.

The other thing that I'd say is that when you think about the integration with Square, obviously, we've launched the Square Online integration. Day 1 was encouraging early results. But we've got a much more fulsome further rollout to come across the broader ecosystem of in-person and online in coming months. And what we've seen with Afterpay is the growing importance of their omnichannel presence.

And the more mature markets like Australia and New Zealand, in December they drove over 30% of their GMV in-store. And those omnichannel consumers transact four times more compared to online-only consumers. And we saw that in both the U.S. and Australia and New Zealand last year.

So, really, the integration across both sides of the ecosystem for consumers in both merchants, we see as a tremendous future opportunity.

Josh Beck -- KeyBanc Capital Markets -- Analyst

Very exciting. Thank you.

Operator

Our next question comes from the line of Pete Christiansen from Citi. Please ask your question.

Pete Christiansen

Thank you. Good evening. Jack, I want to touch upon your networking comment you made earlier. I could tell you that, certainly at my son's school, Cash App for teens is definitely buzzworthy, particularly among -- if you think about everyone's favorite bank, Bank of Mom and Dad, who also need to download the app.

Just wondering if you've seen that early signs of that networking effect as it relates to Cash App for teens. And then a quick follow-up, Amrita, just wondering if you could just give some color on the success of user migration from Karma to Cash App. I know that the Karma app has been directing users to download Cash App. Just wondering how are you viewing that progress, and how do you figure that into CAC? Thank you.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Yes. So, to answer your question, yes, we have seen encouraging adoption by teens joining our platform and really strong demand for the broader ecosystem, especially Cash App. I do think the -- I think the marketing applies -- I think the marketing like really speaks to this group of people. It speaks to youth, but the simplicity and the control speaks to the parents as well.

So, I think we've found a really good mix, and we see a very long road map ahead for that initiative for teens and for families and friends. So, we're definitely excited about that and bringing more of our -- of the ecosystem to it as well. Amrita?

Amrita Ahuja -- Chief Financial Officer

Yes. Pete, just to finish up on that first point with Cash App for families, 20 million teens in the U.S. today represent a large portion of spend in coming years. And we know they're early on in their financial journey, we can grow with them, and they're typically -- teens are typically underserved by traditional financial services, obviously relying mostly on cash.

So, this is an opportunity, to your point, to drive network effects, as well as to grow with next-gen consumers. The second part of your question, I think you are referring to Credit Karma CAC and our ability to -- now that we have an integrated Cash App Taxes product to bring on new customers. Was that your question, Pete?

Pete Christiansen

Yes, yes.

Amrita Ahuja -- Chief Financial Officer

Yes. Certainly, we do see an opportunity, both from an engagement standpoint with our current customers who are looking for a free and relatively simple tax filing service. We're seeing an opportunity to go deeper with them to provide that utility around our integrated tax product and making those deposits easier. So, it's an integration -- sorry, an engagement opportunity for us as we've integrated.

It is also an acquisition opportunity for us. It is also an opportunity to bring new people in the Cash App who maybe haven't tried some of the other offerings within Cash App. But as they learn more about Cash App through Cash App Taxes, we have the opportunity to make them aware of our other products and services across the ecosystem. It's still early for us.

We're still relatively early in the tax season, and we're still in Year 1 in terms of this integrated product, but we're encouraged by the early results that we're seeing here.

Pete Christiansen

That's good to hear. Thank you both.

Operator

[Operator instructions] Our last question comes from the line of Ramsey El-Assal from Barclays. Please – please ask your question.

Ramsey El-Assal -- Barclays -- Analyst

Hi. Thanks for squeezing me in here. I was wondering if, Jack and Amrita, you could give us your updated thoughts on the road map to roll out Cash App in more international market. I'm trying to think of what the value proposition might look like internationally relative to the U.S.

and sort of the timing around when we might see an expansion of Cash App in other geographies.

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Yes. So, this remains a major focus for the team. We intended the Square business to be global and we intend for the Cash App business to be global as well. We have made some moves here.

But the biggest strategies that we're exploring today for expansion is, number one, with our products. We launched the ability to send funds between the U.S. and U.K. and have seen steady growth for the U.K.

customers in transaction frequency over the past year. And the second is through M&A. We recently acquired Verse, which is a European financial mobile app based out of Spain, where we've been learning more about peer-to-peer behavior in Europe. And this will definitely be an opportunity for us to learn about how we move next around the world.

So, we will both continue to expand our products globally and take the right product features to launch first and then expand those, and then also look for opportunities to make acquisitions in different markets that have similar behaviors or attributes that we have found to be valuable in Cash App.

Amrita Ahuja -- Chief Financial Officer

And, Ramsey, I'd just add that this is another one where Afterpay certainly comes into play. When you think about that 19 million consumer base as of the end of last year, about 65% is in the U.S., but obviously, a significant portion that sits outside of the United States where we can grow together from a consumer standpoint, and certainly, as you think about Australia where there's a significant opportunity to leverage the flag that Afterpay has already planted so well for Cash App. So, we see an opportunity for the future here as we build upon the skill sets and the footprint and the consumer base that Afterpay brings into Block.

Ramsey El-Assal -- Barclays -- Analyst

Got it. OK. Thanks so much.

Operator

[Operator signoff]

Duration: 71 minutes

Call participants:

Nikhil Dixit -- Head of Investor Relations

Jack Dorsey -- Co-Founder, Chairman, President, and Chief Executive Officer

Amrita Ahuja -- Chief Financial Officer

Tien-Tsin Huang -- JPMorgan Chase & Co. -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Unknown speaker

Timothy Chiodo -- Credit Suisse -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Harshita Rawat -- Sanford C. Bernstein -- Analyst

Josh Beck -- KeyBanc Capital Markets -- Analyst

Pete Christiansen

Ramsey El-Assal -- Barclays -- Analyst

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