Good evening. My name is Krista, and I'll be your conference operator today. At this time, I would like to welcome everyone to the PayPal Holdings Earnings Conference Call for the Third Quarter 2023. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to introduce your host for today's call, Ryan Wallace, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, and thank you for joining us. Welcome to PayPal's earnings conference call for the third quarter of 2023. Joining me today on the call is Alex Chriss, our President and CEO; and Gabrielle Rabinovitch, SVP and Acting CFO. We're providing a slide presentation to accompany our commentary. This conference call is also being webcast. Both the presentation and call are available on our Investor Relations website. In discussing our company's performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. We will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include, without limitation, our guidance for the third quarter and full-year 2023, our planning assumptions for 2023, our comments related to anticipated foreign exchange rates, operating margin, impacts from our sale of loans to KKR and share repurchase activity. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly report on Form 10-Q, filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today's date, November 1, 2023. We expressly disclaim any obligation to update this information. And with that, let me turn the call over to Alex.

Thank you, Ryan, and thank you to everyone for joining us this afternoon. It is a pleasure to speak with you all on today's call, my first as President and CEO of PayPal. Before I dive in, I'd like to take a moment to thank my predecessor, Dan Schulman, for his diligence and professionalism and handing over the reins and helping me onboard quickly. Additionally, I'm very excited to welcome Jamie Miller to PayPal as the company's next Chief Financial Officer. Jamie will officially be joining PayPal on November 6. Jamie is a world-class CFO who joins us with decades of experience in both senior finance and operations roles at a number of different Fortune 100 and private companies, including GE and Cargill, and was most recently, CFO of EY. Jamie is a vital addition to our team. Under Jamie's leadership, I have no doubt that we will drive the financial discipline, necessary efficiencies and operational excellence our company requires. I look forward to introducing Jamie to you over the coming months and you will also hear from her, of course, on our next earnings call. As excited as we are to welcome Jamie, I also want to take a moment to express my sincere thanks to Gabrielle for all of her hard work, dedication and passion as interim and then acting CFO. She has helped to drive the company forward and has been instrumental in helping me get up to speed over the past couple of months. I truly appreciate her partnership as well as her commitment to PayPal and look forward to working with her during this next chapter of PayPal's journey. Okay. Let's jump in. When I was asked by the Board to take on the CEO role, I was so energized by the possibilities of the…

Thanks, Alex. It's great to have you on-board. The past few weeks have been incredibly inspiring and invigorating. There is renewed energy and excitement at PayPal, with you leading us forward. I look forward to welcoming Jamie and working with you as we enter this new chapter of growth for PayPal. I share Alex's enthusiasm for our increased pace of innovation and the outstanding opportunities we have given the power and scale of our global franchise. And I agree that with increased focus and improved prioritization, accelerating our growth and delivering operating leverage are mutually reinforcing. Importantly, we're committed to increase transparency and improve consistency in how we discuss our business and the ongoing enhancement of our disclosures. I would also like to thank the entire PayPal team for their steadfast focus on delivering for our customers and executing our priorities. First, several highlights from the quarter. We're reporting 9% revenue growth on a currency neutral basis and 20% growth in non-GAAP earnings per share, both of which are ahead of our guidance. In the third quarter, we again demonstrated strong expense discipline and our ability to operate our business with improved efficiencies. In addition, we continue to make progress in the quarter across our long-term strategic initiatives, which are focused on driving more profitable growth. Moving to our customers. We're encouraged by new cohorts coming in. Retention and active use based on product innovations are starting to pay off. That said, during the quarter, active accounts declined by 2.8 million as we continue to flush out low-quality customers, predominantly in Latin America and Southeast Asia. As a reminder, we said this would be a year where we churn off lower-quality actives and, in which, total accounts would decline. Year-to-date, churn has been lower than our expectations. Customer growth is…

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang from J.P. Morgan. Please go ahead. Your line is open.

Hey. Thanks so much. And Alex, appreciate your observations and priorities here. Can you maybe share a little bit more on your early impressions of the assets and the portfolio products at PayPal? I'm -- just love to hear what surprised to the upside and maybe what assets could require more work to turn around than what you thought? And if -- for example, Happy Returns being sold, as you called out last week, we see more sales, divestitures, replatforming, that kind of thing. Thank you.

Yeah. Thank you, Tien-Tsin, and good to hear from you. It's been exciting to come in. If I would be remiss if I didn't say it wasn't a surprise, but it's delighted me from an asset perspective. The first I'd highlight is our employee base. This is a tremendous team that is energized, has welcomed me to the team and is fired up to go tackle all the opportunities ahead of us. If I then think about the different components, I've been really impressed with all the different pieces that we have to deliver for our consumers. We have a ubiquitous platform that's globally recognized with PayPal. Venmo is a verb, and it's something that is tremendous in the U.S. and has opportunities beyond. If I think about all the different core problems that we can solve with the assets that we have for customers, Rewards, Buy Now Pay Later, cashback cards, all of those are tremendous and within our grasp. We just, as I mentioned earlier, just have to put them together into a core value proposition, and that's what the team is working towards right now. On the merchant side, again, we have tremendous penetration into small businesses and enterprises. We have a beachhead now with Braintree, which I'm really excited about. And I think we've earned the right now to expand margin and make sure that we're really pricing to value and ensuring that we're delivering what we need to across the board. And then, if I really think about the biggest surprise that I didn't realize before coming in is probably around the data. When we look at the data that we have across this two-sided network, it allows us to do things that I think others just can't. And when I think about how we can personalize branded checkout, how we can recognize people that checkout with our data and create an experience that is frictionless, that is personalized, that drives conversion for our merchants, I think we're just scratching the surface of the opportunity there. And so, that is a big opportunity that gets me very excited. In terms of opportunities where we have more work, I think you saw it with the Happy Returns divestiture. And what I would say overall is we have lots of opportunities, but we're doing too many things. We're spread too thin. And we have an opportunity to focus the organization on what matters the most, on the most impactful opportunities to customers and to growing the business, and we'll be looking at that over time.

Great. Thanks, Alex. Thanks, Gabs.

Your next question comes from the line of Ramsey El-Assal from Barclays. Please go ahead. Your line is open.

Hi, Alex and Gabrielle. And I appreciate all the clarity you guys provided on your priorities. You gave us some great detail also on your approach to the SMB side of the business, such as some commentary on PPCP. I guess the question is, given your prior experience with SMBs, do you see SMB becoming a more important part of PayPal's strategy relative to the past? And I guess which areas of the product or innovation roadmap get you most charged up at this point?

Yeah. Thank you, Ramsey. I -- small businesses are a passion of mine. It has been for the last 19 years and it's very personal. I used to run a small business, and so it's in my DNA and something that not only is important to PayPal and has been in the past, it's really been the lifeblood of the organization. But it absolutely will be a priority going forward. When I think about small businesses in general, there's two really core customer challenges that the small businesses have. The first is getting customers and growing their business, and the second is managing cash flow. On the getting customer side, we have a tremendous opportunity with PPCP to help them convert customers, to find customers, to drive new customer acquisition and really help them over time. This is a data play. It's a ubiquity play. And with our two-sided network, it's where we're focused right now. Once we do that, I think we earn the right to expand into their second challenge of cash flow. Cash flow was all about money in, money out and access to capital. We play in all three of those areas. We just have to put together the assets that we have to be able to help small businesses, again, manage their cash flow in a way that helps them grow their business and get past any ups and downs in the market. So, very excited about small businesses going forward.

Fantastic. Thank you so much.

Your next question comes from the line of Darrin Peller from Wolfe Research. Please go ahead. Your line is open.

Hey. Thanks, guys. Alex, congrats again on the new role, and Gabrielle, thanks for everything. Obviously, we know you'll be missed by your investors. Guys, I know you lowered your outlook a bit for revenue in the fourth quarter, and I think you said you continue to see a decrease in gross profit for fourth quarter. Can you just give us a bit more color on what you're seeing in the environment on e-com, both U.S. and perhaps globally? And just if anything you're seeing in the trends is what led to a more cautious outlook either on the holidays or anything more broadly? Thanks, guys.

Yeah, Darrin. You bet. Thanks for the question. Overall, I'd say we're seeing very healthy trends in our checkout business. We're heading into the heart of Q4, and we really see no meaningful shifts in our performance or our demand environment. We have taken an appropriately prudent approach to planning for Q4, and obviously, we've contemplated a range of outcomes. As you know, headed into Q3, we had expected to see branded checkout accelerate through the back half. Branded did bump up in July. And as I discussed a few minutes earlier, it moderated through Q3. Overall, we've seen very solid performance in branded. So, when we think about the sort of what we're seeing in the back half relative to the first half, very consistent performance in global branded checkout. But it's just not as elevated as we planned and that's really what's informing the outlook.

Got it. Thanks, Gab.

Your next question comes from the line of Mike Ng from Goldman Sachs. Please go ahead. Your line is open.

Hey. Good afternoon, and thanks for the question. First, Alex, congratulations on the new role, and Gabrielle, thanks for everything. I appreciate your comments around managing the cost base and it being too high. Could you just talk a little bit about how you think about balancing the need for investment versus efficiency? The company previously talked about the opportunity for OpEx to keep declining in the years ahead. Is that how we should think -- still think about the future? Thanks.

Yeah. Thanks, Mike. First, let me say, as I mentioned earlier, this is a growth company, and we are going to assess the focused priorities where we will invest in growth and we will make sure those are funded for success. And so, I think about that separately, then also being able to manage OpEx. On the expense side, we have an opportunity to continue to manage OpEx efficiently. We have a lot of acquisitions that we've done over the past few years. We have a lot of duplication and a lot of manual work that we have an opportunity to invest in automation. We have an opportunity to invest in a platform that allows us to build services that can be reused and leveraged across the organization, which will, again, as I mentioned earlier, actually accelerate us and speed the company up. So, I think about them differently. We will absolutely invest in growth and make sure that the levers that we have to continue to delight customers and grow the business are funded for success. And then, we will work on building a platform that drives automation and continues to drive down our cost base.

Great. Thank you for the thoughts.

Your next question comes from the line of Jason Kupferberg from Bank of America. Please go ahead. Your line is open.

Good afternoon, guys. Alex, welcome. Gabrielle, best of luck. And I wanted to actually ask about the transaction profit dollar growth. In Q4, will that year-over-year decline be more or less than it was in Q3? And then, how should we think about the potential for this metric to see improved growth into 2024? Maybe you can comment on which of the initiatives that are in place to offer more potential than others to move the needle on transaction profit dollar growth next year? Thank you.

Yeah. You bet, Jason. Maybe I'll start. Well, as you heard Alex discussed and I commented on it as well, our focus really is on driving profitable growth. And we're putting the weight of the organization against initiatives consistent with that objective. That said, we did see a decline in our Q3 transaction margin dollars. We do expect them to decline again in Q4, but to a lesser extent. So, I really view Q3 as the low point and we'd expect to see an improvement in the profile in Q4. In addition, obviously, we're not guiding 2024 on this call. Longer-term, our success will, in part, be determined by our ability to reaccelerate profitable growth in the business and we expect to be able to do that. Alex, anything else you want to add?

I just -- I want to underscore, I know I've -- I said it in the comments and I just want to underscore it again. We have every opportunity to drive profitable growth. It's just a focus that -- and a discipline that we will bring to the organization. And so, it will take time. There will be a sequential performance improvement over a number of quarters. But when we make it the focus of the organization, we have enough levers at our disposal to be able to deliver on that.

Thank you.

We have time for one more question. James Faucette from Morgan Stanley, please go ahead. Your line is open.

Thank you so much for the question. And I want to add my welcome to Alex and thanks to Gabrielle for all the work she's done in the CFO seat. One of the assets that you talked about within that population of the U.S. is Venmo. And I'm wondering how you're thinking about expanding its acceptance and kind of the to-dos around that? It seems like it's really important demographically. You have at least a foothold at Amazon, but expansion of acceptance elsewhere online especially has been pretty slow. So, just wondering how you're thinking about that as part of the asset pool and the to-do list there? Thanks.

Yeah. Thank you, James, for the question. And it is pretty rare to be able to have an asset as powerful as Venmo. When something, again, becomes a verb in language is a tremendous demographic. And you saw with our launch of Venmo Teen, we continue to expand the opportunity set there. As you mentioned, we're in early stages with Amazon. That is going well and we expect that both from a customer demand perspective as well as a merchant demand perspective, we will continue to drive acceptance ubiquity for Venmo. I think that is very important for us as well as just driving additional services that our customers are demanding for the Venmo app. And so, again, we think about providing different services, expanding the opportunity for our customers to be delighted and use Venmo for all aspects of their spending and managing of money. I think we're just, again, scratching the surface of what's possible with an app that is clearly loved in the market and has created viral growth. So, very excited to accelerate investment there and see where we can take Venmo.

Thank you.

Thank you. I will now turn the conference over to Alex Chriss for closing remarks.

Great. Thank you, Krista. And thanks, everyone, for joining us today. Hopefully, you can see how serious we are about growing and improving PayPal across the board as quickly as possible. Before we close, I want to leave you with three thoughts. You've heard in my voice today, both the confidence that we will make this company excel and the determination to do it as quickly and thoroughly as possible. We have an excellent business, but it needs to execute better and with greater clarity and focus, and it will. We will impact the go-to-market strategy and financial focus of the company in ways that are immediately impactful. It won't happen overnight, but we will get PayPal to the kind of consistent growth profile we all expect. As I've said it already, but it bears repeating one last time, what I care about is profitable growth. That is going to be our true north and receive our total focus. I've spent my entire career focusing on making sure we delight our customers and solve their most critical problems, but we must ensure we serve all our stakeholders. And lastly, our employee base is fired up and motivated to win in the market. In addition, you can also expect us to add additional senior talent to our team, who I believe can help significantly accelerate our growth trajectory. We are future-proofing this business and we know what needs to be done. We are playing to win. In the weeks and months ahead, we are going to be moving with velocity to deliver for our customers and our business. I look forward to talking to you all on our next call in February and laying out our clear plan to win. Thank you, and have a great day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.