Good morning and welcome to PayPal's Second Quarter 2024 Earnings Conference Call. My name is Sarah and I'll be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal's Chief Investor Relations Officer. Please go ahead.

Thanks, Sarah. Welcome to PayPal's Second Quarter 2024 Earnings Call. I'm joined by President and CEO, Alex Chriss and CFO, Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses, as we see them today. As described in our earnings press release, SEC filings and on our website, those elements may change as the world changes. Now over to you, Alex.

Thank you, Steve. And thanks to everyone for joining us this morning. PayPal delivered a strong second quarter and first half with encouraging operating and financial results. While change takes time and we still have much work ahead of us, we are well positioned today, have the right leadership in place, and are moving full steam ahead. I'm confident we are on the right track in making meaningful progress on our transformation to position PayPal for long-term, durable and profitable growth. Looking at our results in the second quarter, total payment volume rose 11% to $417 billion, and we delivered 9% revenue growth on a currency-neutral basis. Transaction margin dollars grew 8%, representing our best performance on that metric since 2021. Our non-GAAP earnings per share increased 36% year-over-year. We're encouraged to see not only the strength and stability in PayPal's platform, but also early contributions from some of the initiatives we have underway. Branded checkout continues to grow profitably. Braintree is now meaningfully contributing to transaction margin dollar growth for the first time in over two years. Venmo momentum continues to build and monthly active accounts increased across both PayPal and Venmo. Given the strength across PayPal, we are raising our full year guidance for growth in transaction margin dollars and earnings per share, and increasing our investment in strategic growth initiatives that we are driving. Overall, we remain on course with the strategy we set at the beginning of the year. Our teams are moving with urgency, excited about our innovation, and focused on execution. We are still early in our transformation, and while pleased with our progress in many areas, we know there is much more we can do and with greater speed. For example, mobile experiences, SMB, and Venmo are places we are working hard to…

Thanks Alex. Good morning everyone. Moving to Slide 6, PayPal delivered strong second quarter results and we are raising our full year guidance. We're passing through the first half performance and increasing second half growth investments as we build confidence in initiatives across the company. Our goal for 2024 remains the same, to set PayPal up for long-term success by prioritizing investments that will deliver durable, profitable growth. As Alex mentioned, while the second quarter produced another improving set of results, change takes time and can sometimes be uneven. The success of our transformation will be measured over quarters and years. We have a lot of work ahead but the teams are making progress and building on a strong foundation visible in our first half results. Looking at the high-level financial results in the second quarter, revenue increased 8% at spot and 9% on a currency-neutral basis. Transaction margin dollars grew 8% year-over-year, a more than 300 basis point improvement from the first quarter. Non-GAAP earnings per share were $1.19, representing 36% year-over-year growth. And relative to our prior expectations, higher earnings per share were driven by a combination of factors, including stronger transaction margin dollar growth and interest income. Turning to Slide 7, our financial results are a function of the number of customers we have, how engaged they are across our platform, and how frequently they transact with us. Our operating metrics reflect progress on this front. We ended the second quarter with 429 million total active accounts and 222 million monthly active accounts. Total active accounts increased by nearly 2 million from the first quarter and included growth in PayPal merchant and consumer accounts in addition to other products. We were encouraged to see sustained total active account growth following a positive inflection in the first quarter.…

Thank you, Jamie. To summarize, PayPal grew profitably again with strength in multiple areas, including branded, unbranded, and Venmo. We are also starting to see traction in several initiatives. Taken together, these results highlight the strength of PayPal's global commerce platform. I'll leave you with one last example. You've heard me talk about our Venmo customers, looking for us to provide more money in and money out opportunities. As we are improving opportunities to spend Venmo balance with products like Venmo debit card or pay with Venmo, we are seeing a corresponding improvement in funds being used within the Venmo ecosystem rather than transferred out. This is an example of meeting our customers where they are, solving their needs, and driving monetization and margin improvement in the process. Overall, this was a strong quarter for PayPal, and it gives us the confidence to both increase our growth investments and raise our full year profit and free cash flow guide. I'm proud of our team and excited about the coming quarters and years for PayPal. Steve, let's go to Q&A.

Thanks Alex. Before we open the line, I'd ask everyone in the queue to consider your fellow analysts and ask just one question, so we can get to as many people as possible. Sarah, please open the line.

Thank you. [Operator Instructions] Your first question comes from the line of Ramsey El-Assal with Barclays. Your line is open.

Hi, thanks so much for taking my question and great to see all the progress that you're making. Branded volumes maintain the X-leap year growth rate from last quarter. Can you drill down a bit more into your strategy to drive branded growth acceleration? You mentioned it focused on mobile vaulting user interface. What are the most important levers? And then maybe also, did Jamie's comments on lower volume right there at the end of the prepared remarks in the second half apply to both branded and unbranded volumes? Thanks.

Yeah, thanks for the question, Ramsey. You know, we're excited to see the progress that we've made on branded. As you can see, we've got a consistent, loyal customer base that continues to use and love PayPal. What we've been focused on over the last six months is really some of the things I've touched on before, the experiences particularly around mobile. I touched on some of it in the comments, but the teams are working night and day now to improve everything from the vaulted experience, which is essential on mobile. This is think of high usage, high repeat usage checkout experience where you actually vault PayPal as your default. We've now improved that experience. And as I mentioned, we're seeing a 75 to 110 basis point lift with our new experience. We're also rolling out a new pay sheet experience overall, which simplifies, gives customers still the choice of whether they're using PayPal Balance or any instrument they want, as well as buy-now, pay-later, but just simplifying the experience. And We are seeing a nice lift in conversion rate there as well. So big focus on the end-to-end customer experience. We feel like that combined with the ubiquity that we have just in marks across both mobile and web gives us the ability to continue to not only maintain, but where we want to be, which is taking share in the branded experience.

Great. And Ramsey, on the second part of your question about lower volumes in the second half, that primarily relates to Braintree. We are seeing both lapping of larger wins this year, particularly in the second half, and some shifting and normalization in the Braintree revenue profile, just as we enter into and really get into the process of working with our customers around our mission around profitable growth. But on the branded checkout side of things, we expect the second half to be consistent with the first. July is off to a good start. What we've seen in July is very consistent with the first half so far. So we feel pretty good about that.

Thanks so much.

Your next question comes from the line of Darren Peller with Wolf Research. Your line is open.

Hey, guys. Thanks, and nice results, especially on the transaction margin side. So I'll just start there and touch on the dynamics around what's contributing to it from mix versus you talked a lot about pricing per value, which we've heard more and more about in the industry also, so it's good to see, but maybe more direction and color on the contributing forces. And adding onto that, the sustainability of the strength you saw this quarter in growing transaction margin dollars at these rates. Help us understand your expectations there going forward now. Obviously, you updated guidance, but really beyond just the next few months. Thanks, guys.

Yeah, so good morning, Darrin. Thank you. So maybe I'll start with the biggest contributors to transaction margin dollar growth and talk a little bit about the second half there as well. So we were really excited to see the broad base strengths and the acceleration. There's a lot the team has underway and there's several significant contributors to the growth. First, we talked about in my prepared remarks, interest income on customer balances. That was about 3 points in the first half. But second, and really very strong was branded checkout. It continues to grow profitably as a healthy contributor to transaction margin dollar growth. Braintree, which you mentioned, it is back to contributing to transaction margin dollar growth, which we're really excited about. And it's really great to see some progress from our shift in focus there. Venmo continues to benefit not only from the strong consumer, but, you know, we're doing a nice job in Venmo too, driving continued growth in monthly actives. And then lastly, transaction loss favorability continued to be favorable in the second quarter as well, which was nice to see. When we think about the second half, there is really a couple of things to think about there. I'd say first is that our first half tailwinds around interest income, you know, will begin to decline. We've just got higher comps in the second half of 2023, as rates were coming up in the second half of last year. So that impact on transaction margin dollar growth, the percentage, that'll start to come down. The second is that we saw transaction loss favorability in both the first quarter and the second quarter. It is feeling more durable than we expected, even in the first quarter. Having said that, we're planning for some normalization in the second half. As we get better in transaction loss prevention and detection. So do bad actors, and they continue to work hard to do different things. And the second is we are launching a number of products in the second half. And any time you launch products, we're just being prudent around how we think about transaction loss to make sure that if we have a few bugs in the process, we're working the kinks out as we go. But the core business is solid. We are more positive than we were three months ago on Braintree profitability, P2P, on transaction loss. It's still early in our progress but we're driving significant change.

Your next question comes from the line of Tien-Tsin Huang with JP Morgan. Your line is open.

Hi, thanks. Good results here. I wanted to ask about the second half growth and investments. It looks like in your guidance you're applying a fourth quarter step down in EPS performance there. So does that, should we assume that that's heavy marketing around the holiday? Can you maybe just give a little bit more specifics on what you're marketing exactly and what kind of return you're expecting? Thanks.

Hi, Tien-Tsin. Good morning. I'll take the first part, and then maybe Alex will want to comment on the marketing pieces of it. So in the first half, we've done, I think, a really nice job with expense discipline. We've taken a number of actions to reduce our OpEx profile, while at the same time remixing or prioritizing investment back into engineering product and some marketing. Now we intentionally deferred in the first half some marketing dollars to the second half. So when you look at the second half profile, you're seeing the same underlying core reinvestment in engineering and go-to-market and things like that. But you're also seeing a much bigger ramp in our marketing spend, you know, around marketing and brand campaigns for both PayPal and Venmo. But really also around these product launches, really making sure we put our marketing dollars to work to have that hit the ground running the way we need to. So in the second half, when you think about the EPS guide side of it, more than half of that 4Q pressure is the ramping of those growth investments. The other side, I'll just mention this quickly while around the topic, is that we've got a higher tax rate in the second half than we have in the first half. And so that, particularly on a comparative basis to last year, is what's impacting some of the EPS profile?

Yeah, and just to pile on and dig a little bit deeper, you know, this is very deliberate. The first half of the year, we needed to invest in innovation and invest in the customer experiences and put to market experiences on both PayPal and Venmo from a consumer standpoint that we can be proud of. I feel like we are at that place now. The experience on the PayPal app, what we are putting out on branded experiences, and even just the engagements, just the new designs, the shopping and rewards that now exist inside of the PayPal app is completely rebuilt and new. On the Venmo side, you've seen the improvement as we started to create real onboarding ramps for our debit card, and we are seeing the improvement there. So feeling really good about the experiences on both of the apps and it's time to tell the world about it. And we are excited to ramp up some of our go-to-market spend in sort of exciting and engaging ways.

Your next question comes from the line of Harshita Rawat with Bernstein. Your line is open.

Hi, good morning. Alex, I want to ask about Europe. Historically PayPal has grown in the region despite not investing enough. How are you thinking about Europe among PayPal's international markets? Looks like the company has a very strong local presence and the regulatory environment is now more favorable with respect to NFC access [iPhone] (ph)? Thank you.

Yeah, I think it's a great question, and it's one of the things that we may overlook sometimes when we just think about PayPal. We are a global company, and the way customers use us, whether it be cross-border, whether it be access to merchants all over the world, is truly a global phenomenon. We've invested heavily over the years in ensuring that we are compliant in everywhere that we want to be in over 200 different markets. You know, as we think about our strategy, as I've laid out in the past, to make sure that PayPal is available everywhere for every purchase every time. That includes being able to be available in an omnichannel solution, whether it's e-commerce or whether it's in-person. And with some of the changes coming particularly in Europe around NFC, that opens up the opportunity for us and we will be prepared shortly to be able to play in that space. So it's exciting to see our growth. I'll hit one more example. Our buy now pay later growth that we continue to see, 60% of that volume comes from outside of the US. So we are bringing the entire ecosystem of what PayPal brings to the global stage and excited to continue to invest there.

Your next question comes from the line of Colin Sebastian with Baird. Your line is open.

Great, thanks, and good morning to everybody. I was curious on the SMB initiatives, in particular the strategy to drive more adoption of branded checkouts, how important Fastlane is that initiative. And then also, if you think advertising can be ultimately a lever for that side of the business as well on both sides of the network. Thank you.

Yeah, it's a great question. And SMB, as I've said since I got here, I think is an untapped opportunity for us. So let's just pull back and talk about what SMBs really need. Small businesses are there fighting for every customer. They need to be able to find customers, they need to be able to engage with customers, convert them, and then reengage with them. And really what they're looking for is an end-to-end platform and an end-to-end solution to help them. It is very difficult for a small business to piece together 17 different solutions. They just don't have the bandwidth, the people, and the time to be able to make that happen. With PPCP, we now have put together the most powerful single platform for them to be able to run their business in a full stack manner. So with PPCP, you now get branded experiences with the best branded experiences. You get access to the best guest checkout conversion with Fastlane. You get unbranded processing so that you can ensure that you can process anywhere around the world. You get every mark. You get buy-now pay-later. You get access to our working capital. And then as you mentioned, now that we start to roll out our ads platform, you get the ability to drive new customers. You also get the ability to re-engage with customers in a delightful way, so package tracking, smart receipts, the ability to be able to re-market to customers even after they've purchased. All of this is in one place with one partner. And so, you know, we're in early days right now. PPCP really is just rolling out. We're excited about the progress and the growth, but there's a lot more to play here. Live in 30 markets and through 40 partner channels. But I think we're just getting started. This is going to play out over the next few years.

Your next question comes from the line of Sanjay Sakhrani with KBW. Your line is open.

Good morning. It's nice to hear about the accelerated general availability of Fastlane. Maybe you could talk about what it means from a revenue contribution standpoint. And if not this year, maybe we could just talk about how we should think about the revenue contribution. Would it be through more engagement? And then maybe just secondly, if you could just talk about the volume trends. It seemed like US was pretty stable, international dropped off. Maybe you could fill a bit more color there would be helpful. Thanks.

Yeah, let me start with Fastlane. So just as a reminder for everyone, Fastlane is really tackling the 60% of checkout that is guest checkout. We've got a unique experience because of the volume of our two-sided network and the consumers that we see coming in, where we're able to dramatically change the conversion rate for repeat users. So 80% conversion rate versus a traditional roughly 50% on a repeat user. Our goal is to capture and help all merchants for all guest checkouts. So the way we built Fastlane is this really is a platform that can be processed or agnostic. And we want to be able to help every consumer come through and have a delightful guest checkout experience. As well as enable actually our ability to capture them through a Fastlane by PayPal experience and bring them into a branded experience as well. So there's a flywheel effect. In terms of rollout, we're rolling this out now. We've got a developer day situated in a few weeks from this time in August. We're going GA now in August as well, and so we'll be ramping up as many customers as we can. We've not talked about and disclosed pricing on this, so I'm not going to get into that at this point. But know that this is our ability to monetize not just guest checkout that we process through Braintree but really for us the total addressable market is the entire guest checkout experience across the board.

Yeah and on the second part of your question around the US and international environments, you know as I mentioned before we see the US environment being very consistent right now with what we've seen over the first half. International is a real strength for us and we did have a shift, down a bit in the international area on TPV this quarter, but when you look at that, what that really is, it's almost solely related to lapping some large Braintree [wins] (ph) last year, otherwise very healthy.

Your next question comes from the line of Dan Dolev with Mizuho. Your line is open.

Hey, guys. Good morning. Thank you for letting me ask the question. Great results. I wanted to ask you, Alex a little bit about the competitive positioning regarding Apple Pay. Obviously, really strong branded checkout. There has been some worries in the past. Can you maybe contextualize a little bit where we are and you know what you're doing to beat them? Thank you.

Yeah thanks Dan, great question. So let me set some context. So first we play in a massive multi-trillion dollar market and it's not a zero-sum game. So we expect competitors, we've had competitors come in since we launched, you know, over a decade ago. We went from one button to now there's lots of different buttons and branded experiences and we'll expect that to continue. Let me, though, set the context of the reality of today, and then how we think about the future. So the reality today, we are the Number #1 branded experience across all platforms and devices. If we narrow down into desktop web, which is still 40% to 50% of all checkout, we see no degradation in our share over the past four years. So let me say that again. We've held share despite competition. Second, if we look across browsers, there's actually no difference in our selection rate across different browsers. So certain buttons moving from one platform to the other just isn't material to us. So that's where we are today. So let us focus around our ability to continue to improve and make this a better experience for our consumers going forward. So for merchants, they're looking for an end-to-end solution. They want to get customers, they want to convert customers, and they want to engage and have a return experience with customers. As we talked about, we now have the best branded experience. We're continuing to improve that. We have Fastlane, we have the best checkout experience. And we've rolled out ads and continuing to invest in our profiles. So we are helping merchants end-to-end. On a consumer side, they're looking for ubiquity, flexibility, and a rewarding experience. We are the most ubiquitous. We have 80% acceptance rate in the developed world with a large and growing customer base. And from a flexibility standpoint, they want to be able to pay everywhere with any way that they can -- that they want to pay and we're able to provide that. So if you pull back, I'm just excited that we are in a strong position of being the most complete platform and two-sided global network, driving the highest value and benefit to our consumers and our merchants.

Your next question comes from the line of Timothy Chiodo with UBS Financial. Your line is open.

Great. Thanks a lot for taking the question. I wanted to drill into, branded checkout a little bit with the 6% growth. Maybe you could talk a little bit about the relative levels of growth, US versus International. Branded, you did call out the strength and international with continental Europe and Asia. And then also on the relative levels of transaction margin, given that there are some differences in transaction expense levels and also potentially merchant size mix. Would appreciate those. Thanks.

Yeah, so on a relative level of growth, US and international, both continue to be strong contributors for us. There's obviously different market mixes and different [merchant] (ph) mixes, as you look at those growth profiles. You know, in the US, large enterprises continue to be an area of strength for us. And I would say, in the small business area, we continue to remix that portfolio as we move to PPCP and off of legacy platforms and really move to both a direct and a partner strategy there. You know, when you look at the international side of things, branded checkout is very, very strong in several European, both countries and corridors. UK continues to be pressured, but I would say outside of that, we've got real strength in other countries such as Germany and just real bright spots in Europe as well. So I'd say it is fairly balanced across the globe when you look at it. I'm trying to look at the second part of your question here. Transaction expense. You know, when you look at transaction expense, it is impacted by funding mix, product mix, geo mix, all of that stuff. Funding mix relatively stable. The biggest driver of our shift in TE right now is been Braintree, and that continues to be what is happening there. We're always looking at ways to continuously improve our transaction expense profile and work with different partners to move the needle on that. And we continue to have different benefits, different quarters just in terms of how that rolls-through, none of which was particularly material, but we had a little bit of that too.

Your next question comes from the line of Jason Kupferberg with Bank of America. Your line is open.

Good morning guys, thanks. I just wanted to ask a follow-up question on the full year guide for the transaction profit dollar growth. Obviously you're ticking that up here. It does imply the deceleration in the second half that you mentioned around flow comps, et cetera. What I'm trying to get a sense of, has your full year outlook for transaction profit dollar growth from the core branded and Braintree businesses changed, just to kind of isolate the delta here in the guidance?

Yeah, I would say generally we are seeing a stronger branded baseline and we're having increasing confidence in the slope of our Braintree profitability efforts. That's what I would say on those two.

Your next question comes from the line of James Faucette with Morgan Stanley. Your line is open.

Great, thank you so much. Want to circle back to Fastlane and obviously a lot of interest and excitement in terms of its launch timing, et cetera. And I think you've made it pretty clear that this will be kind of a gradual opportunity that will build on it and addressing a big market. How should we think about, like, what your key to-dos are as we go through the rest of this year and into next year? And I'm wondering if any of Fastlane with the launch timing is now built into the guidance, as well as any other new initiatives that may have been added into guidance for the rest of the year. Thanks.

Yeah, let me start with the last part. We really not built any Fastlane upside into guidance. And part of that is because of our go-to-market is going to be very focused on just getting adoption, not around monetizing in this half of the year. Now, to be clear, we are pricing in the contracts that we're signing with customers, and so pricing is built in and as I said before, the TAM is every guest checkout. That's what our focus is. But it's not built into the second half of the year. In terms of key to-dos, we really created and worked hard during this beta period to create a seamless experience so that developers and merchants can get on board as fast as possible. And so, you know, for someone using us now, it is really a four to four week experience to get onto the Fastlane code and enable that to roll out. So we need to get it on as many platforms as we can, so that small businesses in particular can just one click a button and turn it on for the holidays. We are working with many of our large enterprises who want access to this before the holidays as well. But again, look, the reality is we've got a lot of merchants around the world, and it is going to take time for them to be able to put this into their roadmap. So that's why we want to set expectations that this is going to take quarters and years to get everyone on board. But the beauty of Fastlane is it's a network effect. More customers coming through it, we are already seeing best-in-class conversion rates. The more customers that come through it, the more profiles that we start to capture, and the better the conversion rates should become. So we want to get started as fast as possible, get as many merchants through this holiday season as we can, and then build from there.

Sarah, let's make time for one last question, please.

Thank you. Our last question comes from the line of Andrew Schmidt with Citi. Your line is open.

Hey Alex and Jamie. Thanks for squeezing me in here. I wanted to double-click just on the Braintree trends. Obviously, good progress in terms of transaction margin dollar growth. Maybe you could talk a little bit more about what's driving that, clearly more disciplined, lapping of large contracts? And then as we look to the back half and beyond, I hear you on the slope that's kind of built into the outlook. But from what you've seen so far, how does it inform your confidence in terms of building on the progress that you've seen so far in transaction margin dollar growth as we go into the back half in the subsequent years? Thanks a lot.

So, good morning Andrew. Thank you. So first well, let's just talk through the Braintree growth and what's really driving that. We set out this year to really reorient the team with Braintree around profitable growth. And as we've done that -- we've had just a number of conversations with customers, both around contract renewal, but also just around our holistic relationship and really getting into understanding how we partner, what the margin structure is, how we provide value-added services, just the overall value-to-value exchange that we have got. And honestly, they've been really positive conversations as we -- and just on a total relationship basis sort of thing. As we looked at that, there are certain situations where as we've gotten into the discussion, we are willing to accept a lower share of revenue in exchange for a higher margin contract. There is other situations where, as we work with our customers, we are able to sell in value-added services in ways that we just haven't done before. So it is lots of different levers in that process. But what we are excited about is we are really starting to see good traction on that. It is intentional. We've set out to do this. And it is a really good thing for the business. And I think as you look at the second half, what we saw play out in the second quarter, I expect to continue. We saw some of the volume growth normalize a bit, but we saw more positive transaction margin dollar growth. And it is really good to see that tangible progress play out. And I think it will continue to play out over time. It may be a little bit uneven and not linear, but that trend of a little bit more normalization into the business, but improving margin profiles is something we fully expect to continue.

Alex, I think you have time for any final comments you might have?

Yes. Thank you all today, and thanks Steve. Just to close the call, company is energized. We are proud of what we've accomplished, just to again, sort of step -- set the context of where we are. We are really six months in. We've got a new leadership team. We are getting stronger every day. We've returned the company to transaction margin growth. We've returned the company to a consumer user growth. We significantly improved profitability at Braintree, and we are accelerating Venmo. And so I just feel really proud that we are stronger today than we were six months ago, and we will be stronger six months from now than we are today. And we are executing against our game plan. This will be measured in quarters and years. So it will be a long game, but six months in, we are on the right trajectory. So thank you all for today and see you next quarter.

Thank you. This concludes today's conference. Thank you for participating. You may now disconnect.