Block, Inc. (XYZ) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Square Investor Update Call. I would now like to turn the call over to your host, Nikhil Dixit, Investor Relations. Please go ahead.

Hi, everyone. Thanks for joining our Investor Update call today. Today, Jack and Amrita will share intro remarks; and Jackie Reses, who led our ILC effort and is our Square Capital Lead, will join for the Q&A that follows. First, we wanted to remind everyone of the format of our call today. We published a press release today after the market closed as well as a post investor presentation on our Investor Relations website. The investor presentation reflects information about Square's historical performance that we had planned to share with you during our originally scheduled Investor Day. While we feel the information is important to provide, it will not form the basis of this call. We will begin this call with some remarks before opening the call to your questions. 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. Our historical reported results and trends we have seen during the first quarter of 2020 should not be considered as an indication of future performance. We will be discussing on this call some of the assumptions we are making and the factors that could cause our results to differ from our forward-looking statements. In particular, the evolving situation with respect to the impact of COVID-19 on the economy is difficult to predict, has been changing rapidly and could materially impact our forward-looking statements. Please take a look at our filings with the SEC, and the information we post to our Investor Relations website for a discussion of other 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. Also, during this call, we will discuss certain non-GAAP financial measures. Reconciliations to the most directly comparable historical GAAP financial measures are provided in the fourth quarter 2019 shareholder letter or the investor presentation, both of which are available 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 on our website shortly. With that, I would like to turn it over to Jack.

Hello, everyone, and thanks for joining us today. Hopefully, you're all staying home to keep yourselves and others safe. We initially planned on hosting an Investor Day in March, but in light of recent events, we're going to take the next hour and give you an update on the business and actions we're taking in the face of the coronavirus pandemic and answer any questions you might have. From the start of the coronavirus outbreak, we've been focused on our employees, our customers, our local communities and our business. Over 3 weeks ago, we asked our employees to work from home, making us one of the first companies to proactively take steps to mitigate spread of the coronavirus. We were able to do this immediately because of our existing focus on decentralizing our workforce. With remote workers and cross-functional teams and offices around the world, we have existing tools and processes in place to support a decentralized model. As you all know, we have 2 very different customer ecosystems, Seller and Cash App. We're investing to support both. The biggest problem sellers are facing right now are around shifting to no-contact commerce and managing cash flow. These 2 areas are subsets of our existing strategic priorities of omnichannel and financial services. We've accelerated several road map items and taken some additional immediate steps to help sellers. We expedited and launched curbside pickup features, Seller power delivery and no-contact delivery. These features can be used with Square's free online store and point-of-sale software to manage order taking and fulfillment. Sellers have been able to create an online store and start receiving online orders in less than a day. We already offered 3 customizable e-mail marketing campaigns and seller can use this -- sellers can use this tool to let their existing customers know what they are doing in response to COVID-19, promote their electronic gift cards or drive online ordering. Square automatically builds mailing lists using e-mail addresses collected previously at checkout, no prior planning required. Later this week, we'll be launching a public web-based directory, where consumers can purchase electronic gift cards from their local sellers to help improve seller cash flow. We created a resource hub with information, advice and guides for businesses to navigate the current environment. And we're also starting a webinar series with advice from other sellers, with the first one kicking off this week. We have refunded software subscription fees for sellers for the month of March. And finally, we're offering delays on minimum payment obligations for Square Capital. Over the longer term, we have confidence in the flexibility and durability of our ecosystem model. We will continue to accelerate our progress on omnichannel so that sellers can make the sale wherever the buyers are. For the Cash App, we're reprioritizing our work based on the trends we're seeing from our customers who have been using the service in unique ways. We're seeing the emergence of an online giving and entertainment economy on social platforms. Many individuals, including public figures, are using Cash App for social giving to spread some love by sending money through social media for fundraisers and for online tipping. As one example, DJ D-Nice used Cash App to gather tips during his widely streamed set earlier this week. By serving new use cases with our cash tags and by engaging with our community on social media, we are also driving new acquisition for Cash App with a record number of first-time active customers last week. We're offering instant 10% off Boost for critical functions, like grocery and convenience stores. And new Boost will be increasingly focused on online purchases like delivery, gaming and e-commerce. And we're seeing strong engagement and volume for Bitcoin and investing throughout this. As we look forward, our purpose of economic empowerment has never been more important. Our 2 ecosystems give us a unique perspective into both the consumer and business sides of the economy. Small businesses are still the backbone of the global economy, and they're adapting in real-time to these new challenges. There's a few examples of how our sellers have adapted. Tinhouse Brewery in Vancouver created an online store with Square in 1 hour to enable online purchases for delivery. Stay Golden in Nashville launched curbside pickup to sell survival packs with coffee drinks and local eggs from the café. And Revive Wellness, a psychotherapy practice in Conshohocken, Pennsylvania has begun moving their appointments online over video. And individuals are adapted -- adapting with creativity and compassion. We're seeing a lot of people send money to friends and strangers via the Cash App. While these times are trying for all of us, we have confidence our customers and Square will emerge stronger, and we're working hard to ensure that. And now, over to Amrita.

Thanks, Jack. I wanted to share 4 key items with you all today before taking your questions. First, an update on recent trends in our business during the first quarter; second, actions we are taking to reprioritize our investments and reduce our risk; third, our updated outlook for Q1; and fourth, our key assets that we believe will serve us and our customers for the long term. Turning to what we see in our recent business results. During January and February, and prior to the impact of COVID-19 in the U.S., we achieved strong growth with gross profit of 47% year-over-year or 51% year-over-year, excluding Caviar. Gross profit was ahead of our expectations by 2%, driven by outperformance across both Seller and Cash App ecosystem. Through February, gross profit for our Seller business grew 32% year-over-year, while Cash App gross profit grew 118% year-over-year. In the weeks since, with the U.S. and other nations responding to COVID-19, we have seen a decline in Seller gross processing volumes. While the beginning of March was relatively in line with our expectations, over the past 10 days, we have observed a 45-point deceleration in our Seller GPV growth rate compared to early March. In other words, GPV over a trailing 10-day period has been 25% lower than this period last year, with even greater decline in recent days. The timing of this deceleration coincides with the implementation of social distancing and mandatory shelter-in-place measures. These are blended rates across a diversity of geographies, where we have seen a variety of outcomes so far. Larger cities like New York, San Francisco and Seattle have seen greater declines in GPV than areas outside of metropolitan cities. We recognize the situation is changing daily and do expect more areas will adopt the shelter-in-place orders we've already seen play out in larger cities. These are also blended rates across the diversity of sellers and transaction types. We're seeing the greatest impact so far to our food and drink and retail verticals and more generally, in-person transactions. Less impacted areas include certain services verticals, like home and repair and professional services, which comprise around 25% of our GPV as well as omni-channel products like invoices and virtual terminals. GPV growth in these areas has slowed less than overall GPV because they are not as reliant on in-person commerce. As a reminder, roughly 1/3 of our GPV comes from card-not-present transactions. As we've launched additional features like curbside pickup and seller power delivery to help our sellers, we have seen strong early results from Square Online Store, with daily activations accelerating and daily GPV up approximately 3x since the launch of these features. We believe it is too early to understand how Cash App trends will progress given the evolving situation, but we wanted to provide some information around what we have seen thus far this quarter. Peer-to-peer volumes were strong in January and February and have been growing relatively in line with expectations to date in March, with similar trends across all geographies. Cash Card spend is seeing some softness with growth decelerating in the last few days, particularly in metro areas with shelter-in-place measures. Adoption and engagement of fractional equity investing in Bitcoin has accelerated in recent weeks given recent market interest and volatility. We're being nimble with the Boost program to add value to customers where it counts, for example, at pharmacies and grocery stores, while also actively managing our costs. We believe we are uniquely positioned to help our Cash App customers take advantage of any potential government stimulus funds individuals receive, which we expect could be similar to the seasonal benefit Cash App sees from tax refunds, during which we experience increases in P2P volume, direct deposits, storage funds and Cash Card spend. While we wanted to give you a snapshot of recent trends we are seeing in our business, the economic landscape is continually evolving in response to the impact of COVID-19, and these trends could change significantly over time. Turning to actions we are taking to reprioritize our investments and reduce our risk. We have developed discipline over time to invest in areas with compelling returns and shift resources as we see appropriate. Given that we are seeing -- given what we're seeing in our business right now, we have made adjustments in real-time to reprioritize our investments. First, we are postponing our go-to-market investment focus in the Seller ecosystem. We've decided to defer our ecosystem and brand awareness marketing campaigns originally intended to launch in April. While we believe we have a strong message to share with sellers, this is not the right time, as potential customers are heads-down managing their own business operations. Instead, we are focusing our investments and product road map on helping our existing and potential customers get through this uncertain time as best we can. Second, we have tightened eligibility for Square Capital loans, both in response to updated real-time signal in our models as well as proactive adjustments to increased credit standards. We expect this to slow origination growth in the latter half of March. To help our sellers through this time, we are working with sellers who need payment relief on existing capital loans outstanding. As a reminder, the vast majority of our capital originations to date have been sold to our third-party investors, most of whom are long-term investors under contractual agreements. Third, we have assessed the large portion of our operating expense base that is discretionary and have decided to pull back in a few areas. In particular, hiring for many nonessential positions as well as other discretionary spend, such as travel and expensive facility expansion. We are tracking real-time business performance, and we can act quickly to pull additional levers where appropriate in the coming weeks and months. On these cost levers, we want to be balanced, nimble and deliberate in the near term, but still long-term oriented so we are well positioned as markets recover. Our purpose of economic empowerment is more urgent than ever, and our long-term strategy remains unchanged across our ecosystems. We're focused on building remarkable products, efficiently expanding our reach to new customers and adding greater utility that increases product adoption within our growing ecosystems. Turning now to guidance. There are 3 areas to call out which impact our updated expectations for the first quarter of 2020. First, the overall slowdown in consumer spending has an impact on the growth of our business. Second, as Jack mentioned, we are making investments in our customers, both sellers and individuals, to help them during these times, including a refund on software fees in March, and offering products like curbside pickup and local delivery for free for the next 3 months. So creating a near-term impact for us, these moves are the right thing to do for our customers. Third, we are actively shifting our investment priorities and managing our discretionary operating expenses as needed. Incorporating these factors for the first quarter of 2020, we are lowering our top line expectations and now expect total net revenue between a range of $1.30 billion to $1.34 billion, which is a reduction of $20 million at the high end and $40 million at the low end of our range versus our prior guide. We expect gross profit between the range of $515 million to $525 million, which is a reduction of $35 million at both the high and low end of the range versus our prior guidance. This range assumes a further deceleration on overall GPV through the last week of March beyond even the levels we have seen in recent days. We expect first quarter profitability to come in below our prior outlook due to the slowdown of higher-margin seller gross profit during the last 2 weeks of the quarter. And given that the majority of our cost reprioritization efforts were initiated on the same time line. With the uncertainty surrounding the ongoing impact of COVID-19, we are withdrawing the full year 2020 outlook we previously provided and hope to update you further during earnings in early May. Let me end by sharing our key assets that we believe serve us today and in the long term. First, we have a strong and flexible balance sheet. We raised another $1 billion in a convertible notes offering earlier in the quarter and now have $3.1 billion in liquidity available across cash and equivalent and our revolver. We believe even in a prolonged downside scenario, this positions us with sufficient liquidity to weather volatility over the next 2 years. Second, Square has built a growing and increasingly diversified business in service of our customers, one that was born out of the last downturn 11 years ago, and has proven a strong business model since. The Seller business has expanded its breadth and depth across verticals, channels, seller sizes and product offerings. Even at our scale, I've been encouraged to see that our teams can thoughtfully and quickly reorient product road maps to take swift action in support of our customers in the hardest hit areas as they have over the past few weeks. Cash App is an entirely separate ecosystem with performance untethered from our Seller ecosystem, which helps individuals manage their money across a broad set of daily utilities, sending, spending and investing. We believe Cash App has the ability to differentially support customers in various economic environments. After market closed, we posted a presentation to our Investor Relations website that details the long-term potential for Seller and Cash App. We outlined the sizable market opportunities that we are addressing with our existing products and markets today. The presentation also details unit economics in our Seller and Cash App ecosystems through the fourth quarter of 2019, which as you can see, has been strong and have improved over time. In a normal consumer spend environment, we believe each of our ecosystem has the ability to achieve positive revenue retention, 4-quarter paybacks or less, and strong ROIs on investments, which you saw us deliver through 2019 for both ecosystems. We look forward to rescheduling our Investor Day down the road to take you through our long-term vision, strategy for each ecosystem and detailed metrics. Finally, in these uncertain times, our focus remains on the health and safety of our employees and community and on supporting our customers. I'll now turn it back to the operator to start the Q&A portion of the call.

[Operator Instructions] Our first question comes from Tien-Tsin Huang with JPMorgan.

I guess I want to ask just on your ability and your willingness to protect the bottom line should revenue get pressured here for an extended period. I heard what you said around deferring the brand awareness and freezing travel and nonessential hiring and stuff, but what if -- should things continue here, what other levers can you pull? Can you give us some examples there?

Sure. I'm happy to take that, Tien-Tsin. In these volatile times, there's a lot we don't know. What we're focused on right now is what we can control, which are the levers that affect our customers and the levers in how we run our business. So let me start by giving you a sense of our financial priorities as we manage the company through this time. First, we're focused on supporting our customers in this time of need and that includes quickly and thoughtfully reprioritizing investments, especially in building products, which are critical for them now more than ever. And you heard us mention some of those in our opening remarks, in particular features related to our Square Online Store, the e-gift card directory and unique boost with Cash App and there are more things to come. Secondly, we have a strong balance sheet, and with this balance sheet, we have the ability to invest to be well positioned for the recovery and beyond. Relative to many competitors, we believe that our scale and the diversity of our business across seller types and transaction types, business models, et cetera, coupled with our strong liquidity positions us very well compared to smaller entrants, frankly, in the payment space. So once there is line of sight to recovery, we want to emerge even stronger on our front foot to scale and grow our ecosystems, and we're focused on the investments that help us do that. Third, coupled closely with that is pulling back in previously planned investments where we no longer generate results. We've done some of this already to an extent, as you mentioned, by deferring our ecosystem marketing campaign and by pulling back on nonessential hiring, and we'll continue to monitor our returns here to be vigilant with our spend. More broadly, as we think about our OpEx expense base, in 2019, our OpEx base was about $1.5 billion. Approximately 50% of that is discretionary expense across the 2 ecosystems and across corporate overhead. About 20% of our OpEx base is related to acquisition spend and go-to-market spend. And about 30% of our OpEx base is related to corporate overhead, platform infrastructure, customer success in certain headcount areas, which we also have levers around. So we believe we have numerous levers at our disposal to act quickly across each of our ecosystems. We also have an operating model, which equips us to make fast decisions. And we've identified and are evaluating a range of levers, both in supporting customers and in reprioritizing our expense base and have the ability to deliberately pull on those levers as the environment changes.

Your next question comes from Darrin Peller with Wolfe Research.

Look, I think there's going to probably be other questions on the Seller side. I want to touch on the Cash App side of the business. I know you mentioned it was showing relative stability and actually good traction in this environment. If you can give us a little bit more detail on the types of downloads we're seeing now, the types of user engagement levels now. It just seems like this could be an area that can come out on the other side of this, potentially as a more integral part of every user's everyday life in this sort of virtual economy we're getting through. So any more color on what you're seeing there, what kind of revenue-generating opportunities that could be, even through this type of environment?

Okay. Thanks for the question. Maybe I'll get us started with some granularity about what we're seeing today as well as pointing you to a couple of the highlights in the slides that we launched -- that we just published to our website that shared some of the last few years of data of how we've managed this business and unit economics and the attributes of the business model that we think are compelling. On the near term, we've seen a more muted impact on Cash App's growth and performance in March than what we've seen in the Seller business. We can break down a couple of the pieces there. Peer-to-peer volumes, which are a core engagement driver for the cash ecosystem continue to perform relatively in line with expectations to date in March and with similar trends across the various geographies that we serve. Obviously, this is something we want to continue to watch going forward. Bitcoin and equity investing have seen strong volumes and adoption given the buying opportunity that some of our customers perceive in the market. Cash Card spend. This is a key growth area for us. Historically, with Cash App, it's our second biggest and fastest-growing revenue stream, so an important watch area for us. We are seeing some softness in this area with growth decelerating in the last few days particularly in metro areas with shelter-in-place measures. And we've seen a mix shift in spending categories here towards, as you can imagine, more grocery stores and pharmacies versus bars and restaurants, in addition to an uptick in online commerce. And I think it's also worth underscoring what we've seen here that Jack mentioned, which is that Cash App last week, set an internal record for us in terms of customer acquisition with a record number of new actives in the week, primarily from organic acquisition, a lot of that coming out of the creative use cases that we're seeing in social media, as Jack was mentioning. And we do think, again, from a near-term perspective that any government stimulus package for individuals has the potential to benefit Cash App, and Cash App has the potential to provide a lot of value to those individuals, similar to what we see with tax refunds, which was part of what led to our seasonally strong February and early part of March, drives direct deposits, stored funds, cash card spend, et cetera. With respect to the longer-term on cash, I do want to highlight a couple of things, which, hopefully, at a later point this year, we can go into more detail on with you at an Investor Day. What you see in the slides that we published on Cash App, which is really our first chance to tell you the broader Cash App story, is strong unit economics through 2019. And while the landscape for 2020 is uncertain, we believe these fundamentals position us well over the long term. Those sort of key things that I -- 3 key things that I'd call out for you are efficient acquisition. With network effects on P2P, cash has acquired new customers for a fraction of the cost of banks or other financial institutions. And as a result of that, we've tripled our monthly active customers over the past 3 years to 24 million at the end of December 2019. Secondly, daily utility. With the growth of products across the Cash App ecosystem, we've increased the daily utility of the app and have driven engagement even higher than what we've done with a monthly active base of customers, 80% up year-over-year in the fourth quarter of '19. And then strong monetization. Over 50% of our quarterly actives within Cash App are monetized today and revenue per customer at over 30 -- at $30 is up 2x since 2017. All of those things have led to the strong unit economics that we see, payback of less than 12 months on monthly cohorts similar to the Seller business, and ROIs, after 2 or 3 years on those cohorts of between 4 and 8x, from a historical perspective. So we believe that these are healthy attributes from the Cash App business through 2019, and we believe going forward, Cash App has a very relevant service for our customers, no matter the economic environment.

Your next question comes from Lisa Ellis with MoffettNathanson.

The survival rate of Square's sellers, once the COVID-19 restrictions are lifted, is likely one of the critical drivers of your performance later this year and into 2021. Given the unique insight and visibility you have into your sellers, do you have even a ballpark sense of what that survival rate might look like? And what top factors might influence, such as like, the duration of closures or some of the stimulus propositions that are on the table around loans, et cetera?

Lisa, thanks for the question. I think it's really hard to say right now. It's so early, and this is so new to the global economy, and we're still trying to learn as fast as possible about what's happening. I think as Amrita said in her opening remarks, we're really focused on what we control and specifically, what we can control for our sellers. I think the benefit that we have in providing tools and services to our sellers is that we are broad-based in our offering of tools. We're not just focused on a retail customer or a restaurant customer or a services or appointment-based customer. We have tools for all of them. And the reason why I think that's important is on the other side of this, I imagine that a lot of the smaller sellers and the more scrappier sellers, will be looking at new models that integrate multiple modalities, such as restaurants selling or retail-oriented or appointment-based sellers doing more retail or even food. So I think in times like this, as we saw when we were starting the company, folks get really creative and that's where I think our ecosystem can help the most is by focusing on this omni-channel strategy and also continuing to strengthen the financial services that we offer sellers, inclusive of capital and Square card and payroll. I think we give them an advantage over most and we do expect that a lot of new sellers and merchants and startups will be created. And our intention is to make sure that Square is one of the easy choices for them to pick up. And the same is true for cash. The most important thing here, as we work through this, is around ease of use and the ecosystem and financial services. So we're just doing our work to make sure that we're prioritizing and accelerating the right things on our road map. These are not new initiatives. These are not new features. We're just pulling them forward so we can address the sudden shift in how the economy is moving.

And Lisa, I would -- sure. I was just going to add the reminder of the diversity of our business across our seller base, obviously, across millions of businesses in a variety of verticals. Just to give you a little bit more granularity on that. By industry, we're seeing the services vertical, like home and repair and professional services slow, to a lesser extent, than other verticals like food and drink and retail. And even by seller size, we see differentials. So obviously, it's still early, but we see micro sellers' GPV slowing less relative to the overall base. And there's also a variety of outcomes across commerce types. So 1/3 of our GPV is from card-not-present transactions today. And so parts of our business where we can really help our customers through contactless commerce, including keyed-in transactions, virtual terminal, invoices, e-commerce APIs, the Square Online Store, et cetera are areas where, as Jack was mentioning, we can accelerate parts of our road map to serve our customers in these areas.

Your next question comes from Timothy Chiodo with Crédit Suisse.

So in the past, we've talked about core volume retention rates better than 100%; revenue retention, 113%. And in the slides, on Slide 26, we now have gross profit cohort analysis, and the key there really is that you guys enter each year primed for growth, you don't have a hole to fill that most of the industry does in terms of replenishing a churn volume before you get to growth. And that's definitely an important factor of your model longer term. But thinking about that a little bit and this somewhat relates to Lisa's question, it can help us think about what the recovery might look like maybe in the second half of this year and into 2021, some of the puts and takes around seller additions, seller churn over the coming months. And when we used to think about the model, it was sort of 2/3 of the growth coming from existing customers and then maybe 1/3 -- sorry, 2/3 from new sellers and 1/3 from existing. How should we think about that dynamic, maybe changing a little bit over the couple -- next couple of months?

Okay, Tim. I can start here. So let me start by saying what you see in the slide deck that we shared today is the strength of the seller ecosystem through the end of 2019 and the strong unit economics that have driven the flywheel here. And although we recognize -- certainly, the current environment for 2020 is uncertain. We believe these fundamentals position us -- continue to position us well for the long run. So let me just walk through a couple of the key pieces here to try to address some of your questions. First, we believe we're differentiated because of our remarkable products. It's fast to get up and going, fast for self-serve as well as full serve options through our sales team or other channels. And it's an intuitive product experience. And you see that through things like our NPS scores of 65, which are 2x the industry average, that really drive the strong product resonance and the word-of-mouth that serves us as we move to the next factor, which is efficient acquisition. That product-first approach allows us to streamline our on-boarding process, allows the significant majority of sellers to help onboard onto our platform through strong word of mouth. And that's enabled paybacks historically to be in the range of 3 to 4 quarters on our sales and marketing spend, even as we've ramped our sales spend and marketing spend and as we've grown with larger sellers. And over time, what you see in the slides that we published today is that that's driven in ROIs of 4 to 6x over a 5-year time frame based on our customer cohorts. You've also seen positive revenue retention, positive gross profit retention as well as positive GPV retention through 2019 for annual and quarterly cohorts since 2012, which means that over time and in aggregate, sellers grow on our platform, in part, as they shift more volumes to Square, and obviously, as they adopt more of our ecosystem as we launch more products, et cetera. So over time, we see an opportunity to grow the value that we can provide to our customers and also the monetization as we've shown in the slides, gross profit per active seller is up 2.3x through 2019, which is effectively a measure of ARPU for the Seller business as we've expanded our ecosystem and as we've grown with larger sellers. So while I think it's premature for us to speak to how these dynamics adjust in 2020, we've demonstrated strong discipline in operating this business through 2019, and we believe that, that will serve us well into the future.

Your next question comes from Dan Dolev with Macquarie.

So you've raised the fees on the instant deposit a while ago, and we've done some work that shows that the consumers are very price inelastic. I mean, is this a no-no at this point to reconsider this to bridge some of the revenue? Or are you open to making changes to your fee structure?

I can start us off, and Jack can certainly weigh in as well. We are at a point where we are evaluating a number of different levers across both our interface with our customers as well as our operating expense base. We know that cash flow is important to our customers in this time. And so as we think about pricing more generally, separate from the environment that we're in right now, we think about the value across the entire ecosystem. You then have to layer on top of that the moment that we're in right now, where we know that cash flow is important to our customers. And so what you've seen us do in the past few weeks is take the approach of supporting our customers through this very difficult time. I think you'll continue to see us take that approach. As you think about medium to long term, we want to ultimately grow the value in our ecosystem, which gives us pricing flexibility across a number of different products, not just instant transfer or instant deposit, and that could play out in a variety of ways.

Yes, Dan, I agree with Amrita. I think we're going to optimize mainly for making sure that we're taking care of our customers and building upon our long-term relationship with them, both sellers and also Cash App customers. That said, there's a bunch of fundamentals within the business that we should look at that would encourage much more growth and trust in what we're doing. And we're certainly going to be critical of everything that we have, making sure that we're asking the right questions, that it will all be in service of making sure that we can help our sellers get through this time and also remove as much friction as possible from our Cash App customers.

Your next question comes from Josh Beck with KBCM.

And I just wanted to say, really impressive, certainly what you've done for your seller base in a really short amount of time. What I wanted to ask about was could you help us maybe think through the GPV mix related to food and retail? I know that's something you had disclosed in the past. Is that still a good reference point? And Amrita, I think you mentioned that the micro merchants were maybe outperforming some of the larger ones. So any other color you can provide if it's mix-driven or other would be helpful?

Sure. Happy to help, Josh. So the last figures that we disclosed in I believe our K for 2019, are still fairly relevant for you to use in terms of GPV mix by vertical, about 26% for food and drink, 17% for retail and about 25% that cover a variety of services segments, whether professional services, beauty & personal care, et cetera. So I think those are still relevant percentages for you to use. Again, that's just for seller GPV. We have an entirely separate ecosystem around Cash App, where we see Cash Card spend distributed across a variety of discretionary and nondiscretionary verticals as well. In terms of providing additional color on what we're seeing in terms of seller GPV impact by verticals, by geographies, by products. So first, let me start by saying, we provided you a blended rate for GPV over a trailing 10-day basis in March, which is the year-over-year decline of 25%, but there is a lot of volatility in this number. To give you a sense of that volatility, we've seen GPV growth fluctuate for the Seller business by 30 points in both directions, up and down, on a daily basis over the past week. So there's still quite a bit of volatility that we see here, and that's why we wanted to give you that 10-day trailing picture. There's also a variety of outcomes by market by vertical and by geography and by product. I've talked a little bit already in terms of verticals and products. But by market, we are seeing a more pronounced impact in markets like New York, San Francisco and Seattle, where the declines have been about 45% or more year-over-year in the last few days, and these are the markets where self-quarantine or shelter-at-home measures are in place. Outside of the top 11 metros, we're seeing growth hold up somewhat better with declines about 20% year-over-year over the past 10 days, although we would expect, at this point, growth to converge closer to the larger cities based on the rollout of more restrictive measures with shelter-at-home. And then internationally, we've seen a variety of outcomes across the markets, but on a blended basis, about 40 points of impact in terms of GPV growth over the past 10 days or so. Again, each market with slightly different trends depending on the mandates around business closures in that market. Obviously, most recently, seeing some of those updates to those positions, in particular, in Australia and the U.K. I think that gives you some of the color relative to -- we already spoke about verticals and commerce types, but let me know if there's anything else we can help you with.

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

Yes. I really appreciate you going ahead and doing the call. I just want to get your perspective first just on 2 things. First, gross profit for the quarter is obviously being cut about $35 million. Just directionally, should we assume that the adjusted EBITDA shortfall versus the original guide would be something less than that just because of some initial benefits from some of the OpEx actions that you described? And then just also on the gross profit front, it looks like the implied growth in the month of March is maybe around 0%. So fair to assume the gross profit growth is now trending kind of negative in the latter part of March? Just trying to think about the run rate as we start to head into the second quarter so we can try and model as best as possible in this tough environment.

Sure. Let me try to talk you through a couple of the puts and takes. So on your first question with respect to the EBITDA guide, obviously, we're not updating a specific range for you because of the volatility, as I was mentioning earlier in the potential outcomes. But the Seller GPV, transaction processing, sort of relative loss that we've seen from gross profit is generally high-margin gross profit, meaning through much of it -- meaning much of it would flow through to EBITDA. We have taken measures to curtail discretionary expense, as mentioned earlier, but many of those measures were enacted towards the end of the quarter, in the last week to 10 days. So I wouldn't expect much benefit from those measures to offset the decline of high-margin transaction processing revenues. The second question that you asked, can you remind me? Sorry, Jason.

Yes. No, that's okay. So just trying to do back into the math for the month of March, it seems like we're looking at roughly 0%, yes. And just -- so trending negative presumably as we kind of exit March. Is that -- just to help us start to think about the second quarter, understanding you're not providing guidance until you report the first quarter, but just so that we have our best estimates out there.

Yes. I mean, look, certainly, as I mentioned earlier, given the day-to-day volatility that we see, it's hard for us to tell you much about Q2 at this point. We'll give you a lot more color on that in our May call. What we can tell you is the assumptions we've included in our Q1 guide for this last week of the month. Leading up to this last week, what you've heard is a very strong January and February, where we were 2 points ahead -- 2% ahead of our expectations, with strong growth across both Seller and Cash App. The first part of March was also strong for us and relatively in line with expectations. It's really this back half where we've seen a deceleration. And what we're assuming for the last week in March is a further deceleration. What we've shared is the assumption specifically in the past 10 days on the Seller GPV at 25% down, and we'd assume further deceleration in the back week of the month.

Your next question comes from Harshita Rawat with Bernstein.

I have a question on the long term. At some point, this crisis will end. And as we come out of this, how do you expect this crisis specifically to fundamentally alter your business in the long term, both positively and negatively, in the Seller business and the Cash App, and I am sort of thinking of things which are even stronger omnifocus, but the offset regarding potential impact on the current seller survival?

Thank you for the question. So over the long term, I do imagine that we'll see a lot more demand for online and purely digital services. Hence, our focus on omnichannel. And I do believe we'll see a lot more opportunity around financial services. Hence, our focus on capital and what we're doing with the Cash App. But generally, as I said earlier in the call, I think new models of business both for small, micro, medium and larger-sized businesses will emerge. I think we'll see a lot of new companies and new sellers who are mixing models between retail and between restaurant food and services. And that's why I think our ecosystem strategy is so unique and also so strong. And I imagine that we will see an opportunity to very clearly add entirely new tools to these ecosystems or even create an entirely new ecosystem itself based on how the economy moves. I do believe it's important for us to continue to focus on our priority of Global, both for seller and also for cash. And I imagine that given a lot of the activity might move online, that will become much, much easier for us to move rapidly around but generally, I think, in comparison to a lot of our peers, our ecosystem will continue to be the reason people choose Square, and we are the first consideration.

Your next question comes from Bryan Keane with Deutsche Bank.

Yes. I wanted to ask on Square Capital, just how you think about the revenue and fees associated with that going forward. And if you guys have contemplated into guidance and going forward, any rise in bankruptcies? And then secondly, just trying to figure out transaction-based costs and Bitcoin costs in the quarter. It sounded like Bitcoin was up. So just trying to figure out if we can net that out?

Bryan, I can get us started. And Jack, you should feel free to jump in as well on capital. Let me actually start on your second question, Bitcoin and transaction fees. We'd expect you to see sort of similar flow through to recent periods with respect to transaction processing costs for Q1, haven't specifically guided to it, but don't expect major changes there. With respect to Bitcoin, you do see, as we mentioned earlier, very strong engagement on our Bitcoin and equities trading product. Bitcoin you see on the face of P&L as we reported and understand, obviously that we report it from a gross perspective for total net rev. And given the strength that we've seen there over the past few weeks, that is included and embedded in the guide that we -- the updated guide that we've provided you for Q1. With respect to capital, we've temporarily, as you heard, scaled back on new originations until we have more clarity on recent trends. We want to take these prudent measures to limit the exposure -- Square's exposure by adjusting eligibility criteria in both automatically updated machine learning models as well as proactively adjusting for leading indicators that we see to increase loan requirements and credit standards. Our teams are tracking this on a daily basis across all geographies. So when conditions begin to shift, we can then reactively adjust our program criteria and potentially loosen them, so that loans can be made available to qualified sellers.

Awesome. And Amrita, let me add to that on capital. We think about our revenue in 2 components, and both require a healthy seller ecosystem. And so there are 2 components of the product that we're focused on: one, how the product is structured so that we can enable sellers to manage their cash flow through this crisis. And we have a lot of features that enable our program to operate in a way that we can adjust our loan inventory and enable ourselves to operate once we get past this situation. Our proprietary data, we have millions of signals that enable us to see what activity we have across size, across type, across geography and understand in a very granular way what's happening in the ecosystem and whether we can lend to sellers in a safe manner. We're going to continuously assess our models so that we could adjust both eligibility and also loan size. And in times like this, where there's a lot of volatility, that will be really important to keep a healthy seller base so that they could manage their operations with credit in a way that's flexible. The loans are also relatively short term, so they could get repaid in less than a year, and they're integrated into the seller's workflow, so that in times like today, where we have decided on behalf of sellers to help support their cash flow needs and make sure that we could pause repayments, we also are able to turn that back on once we see more normal operating behavior. The second part of relationships, which impact our revenue model, is that around our investor base. 75% of our contracts are committed for periods of over a year. And just for the avoidance of doubt, we don't have any warehouse facilities or any market-sensitive securitization. And so we're focused on maintaining very healthy relationships with our investors. And those investors are diversified by type, by investment strategy, by underlying source of funds. And so as much as Amrita said, we temporarily scaled back our new originations until we have more clarity on recent trends, we also think we'll benefit because of the structure of the way our product works that we will be able to operate and evolve very quickly once we understand the length and severity of the impact of COVID.

Our last question comes from Peter Christiansen with Citi.

Jack, following up on your comments related to Square Capital. There's been some press that Square and some other fintechs are proposing their services as a pipeline -- their services with the U.S. government in any potential future stimulus. Can you talk to any feedback that you've received on this effort? And why do you think a proposal like this could benefit American small business?

This is Jack. Thanks for the question, Pete. So I think the most important thing that we should focus on right now is making sure that we are delivering on cash flow for our sellers, like that is the biggest problem that our sellers are having and also more and more so individuals with all the shelter-at-home and the number of the unemployment and layoff numbers that we're seeing. So I think the benefit that we would add to disbursement is really around speed. As capital can get a loan to a small business in under 24 hours, Cash App can distribute funds immediately. So we're definitely open to working with the government to make sure that we can offer speed. Nothing to update on where we are in that, but we do believe that the speed aspect is critical right now. So we would encourage the U.S. government to look for opportunities to move those funds as quickly as possible, and we're certainly happy to help where we can.

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

Thank you, everyone, for joining our call. Before closing, we wanted to let everyone know that the slide deck is linked in the Events section of our Investor Relations website. I would like to remind everyone that we will be hosting our first quarter 2020 earnings call on May 6, and thanks again for participating today.

Ladies and gentlemen, thank you for participating in today's program. This does conclude the program. You may all disconnect.