Good morning and welcome to PayPal Holdings, Inc.'s third quarter 2025 earnings conference call. My name is Sarah, and I will 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 Holdings, Inc.'s Chief Investor Relations Officer. Please go ahead.

Thanks, Sarah. Welcome to PayPal Holdings, Inc.'s third quarter earnings call. I'm joined by CEO Alex Chriss and Chief Financial and Operating Officer Jamie S. 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. Over to you, Alex.

Thank you, Steve. Good morning, everyone, and thanks for joining the call. PayPal Holdings, Inc. is a fundamentally stronger company today than it was two years ago. Focus and execution have enabled us to drive a positive inflection across our business. Take transaction margin dollar growth, excluding interest on customer balances. We are on pace for 6% to 7% growth in 2025 compared to negative growth just two years ago. Revenue growth has accelerated in the past two quarters as a result of our deliberate strategy to focus on profitable growth. Operationally, we are winning new customers and deepening engagement across our existing base. We have reinvigorated unprofitable and underperforming parts of the business. We're leveraging our incredible brands to innovate and expand our addressable market beyond online payments. Thanks to our omnichannel initiatives, we've accelerated branded experiences TPV growth to be between 7% and 8% on a currency-neutral basis over the past four quarters. Our BNPL business is sustaining 20% volume growth quarter after quarter. Venmo revenue growth has accelerated 10 points compared to two years ago, while we have also continued to grow our user base. Our enterprise payments business has turned a corner, returning to volume growth and consistently contributing to company transaction margin dollar growth. We have delivered this acceleration in our business while remixing inefficient spend into growth investments and returning capital to shareholders. In total, we are on pace to deliver at least 15% non-GAAP EPS growth this year. All of this gives us confidence in the business's longer-term growth potential and ability to deliver high single-digit transaction margin dollar growth and non-GAAP EPS growth in the teens or better over the longer term. I'm also excited to announce that we are initiating a dividend. Our overall capital allocation priorities remain the same. We…

Thanks, Alex. Moving to slide 10, PayPal Holdings, Inc. delivered another quarter with good execution and real momentum across the underlying business. TPV and revenue growth both accelerated by 2 points from the second quarter. Transaction margin dollars, excluding interest, grew 7%, continuing the momentum we built through the first half. The drivers of that growth have been broad-based, led by strong credit performance, branded checkout flow-through, improvements in PSP profitability, and Venmo monetization. Growth across these areas was partially offset by higher transaction losses in the quarter. The diversification and quality of this growth is a meaningful improvement from where we were at the start of the company's transformation. We have clear opportunities to build on this progress with investments that strengthen our competitive position and drive durable, profitable growth. Moving back to third quarter financials, non-GAAP operating income grew 6%. Strong operating income, share buyback, and a favorable tax rate more than offset headwinds from lower interest rates, contributing to 12% growth in non-GAAP EPS. Adjusted free cash flow, which excludes the timing impact from the origination and sale of pay later receivables, was $2.3 billion or $4.3 billion year to date. Turning to slide 11, we are driving deeper, more active relationships with our customers. Monthly active account trends showed steady progress, up 2% year over year to 227 million. Transactions per active account, excluding PSP, which is a good proxy for engagement, accelerated to 5% growth. Moving to slide 12, total payment volume accelerated to 8% growth at spot and 7% on a currency-neutral basis to over $458 billion. We've moved branded experiences to the top of this slide to reflect the importance of this metric to our more expansive strategy and value creation. Looking across the product portfolio, we see encouraging signs that our initiatives…

Thanks, Jamie. We are operating from a position of strength. The results you're seeing are proof that our strategy is working. We built a more balanced, profitable growth engine across branded experiences, PSP, and Venmo, and that's exactly what we set out to do. We're investing in high-impact growth initiatives that will move the needle and future-proofing the business with critical partnership, while simultaneously returning value to shareholders through our buyback program and our newly launched dividend. We've moved this business from defense to offense, from stabilization to acceleration. We know exactly where the opportunities are, and we are laser-focused on executing our strategy. With that, Steve, let's go to Q&A.

Before we open the lines for Q&A, I'd like to ask everyone to limit themselves to one question so we can get through as many of your fellow analysts as possible. Sarah, please open the line.

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tien-Tsin Huang with J.P. Morgan Payments. Your line is open.

Hey, thanks a lot. Good morning here. I just want to ask about agentic commerce. It's a popular topic here at Money2020, and I'm not sure how to ask it, Alex and team, but maybe I'll just rapid-fire a few, if you don't mind. Has agentic commerce changed PayPal Holdings, Inc.'s strategic priorities in any way? What's your right to win? Can you fully fund investments here without sacrificing your incremental margins? Of course, you've announced a lot of key partnerships like OpenAI today, Perplexity, Google, et cetera. Do you have the coverage you need to drive ubiquity, or is there more work to do on the partner front? It seems like there's a lot of talk about collaboration, and you guys are definitely in the center of all that. Just love to hear your thoughts on all of that, if you don't mind. Thanks.

Love it. Thanks, Tien-Tsin, and hope you're enjoying Money2020. We've got a good contingent there as well. To hit on a few of those, first, from a prioritization, from a priority question, not really, right? Our strategy we've laid out very clearly is that we want PayPal Holdings, Inc. to be available anywhere and everywhere that consumers want to pay, and we want merchants to be able to sell to consumers anywhere and everywhere. We've talked about this even back at Investor Day, where we laid out we want it to be online, we want it to be in-person, and we want it to be agentic. Agentic is just an evolution of this strategy. In terms of our right to win, we actually think we're extremely well-positioned to win here. Let me just lay out a couple of the different components. First, on the merchant side, merchants are going to need to figure out how to integrate with each of these LLMs. That's hard because there's multiple LLMs that are out there. Whether you're a large enterprise or a small business, you really don't have the bandwidth to go figure out how to integrate with each and every one of these LLMs, make your catalog available, understand the identity and fraud protection that comes with each of these different elements. What we announced today was our PayPal Holdings, Inc. agentic commerce services, which enables merchants to integrate once with PayPal Holdings, Inc., a partner that they've known and loved and integrated with for years, and be able to orchestrate their services to every LLM that's out there so that they get full coverage of consumers. That is a huge win for merchants. We give them seller protection. We give them the ability to scale across all the different LLMs. From…

Sure. These partnerships do entail some level of investment, whether that's in product and tech or around co-marketing, things that really drive usage and habituation around the product. I mentioned in my prepared remarks that we would be reinvesting, begin reinvesting some of our margin dollars in the fourth quarter to really amplify some of our product initiatives. Between the push into agentic and that, some of those investments are likely to be a near-term headwind to how fast transaction margin dollars or earnings grow next year. We are really excited about understanding what's working and really putting our dollars behind that and the core business, in addition to really advancing our initiatives across the business on things like agentic.

The last part of your question was ubiquity. We obviously feel like we've got the largest breadth of merchants. We obviously have the largest breadth of consumers. Now with the partnerships, we've already announced OpenAI, Perplexity, Google. As we look to partner with any of the LLMs that are out there, we think we've got actually quite good scale and ubiquity across the ecosystem. We are very well-positioned to win as agentic commerce continues to evolve.

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

Hi, good morning. I want to ask about branded. I know you highlighted some headwinds and the 5% growth number. You highlighted some kind of deceleration in the fourth quarter. I'm also thinking you have some benefit from Pay with Venmo and the Buy Now, Pay Later promotion in the holiday season. Going back to the Investor Day, you laid out the path to branded acceleration. I know it's not linear. How should we think about just the overall path from here? Should we focus more on slide four, right, that you highlighted, which is very helpful, which focuses on more diversified drivers of growth? Thank you.

Yeah, Harshita, maybe I'll answer that in two parts. I'll talk about fourth quarter and then really talk about the broader investor framework. We've had consistent mid-single digit growth in branded checkout for multiple quarters now. For the quarter, we've seen really good momentum across our growth initiatives with Buy Now, Pay Later, with Pay with Venmo. We've seen continued U.S. growth at higher rates as well this quarter. When we got into September, we began to see macro-related deceleration, and that is both in the U.S. and in Europe. I talked about it in my prepared remarks, but really a relatively consistent number of transactions. We're seeing basket sizes just trade down, average order value being down, particularly in retail where consumers are just being more selective. That behavior has continued into October. Obviously, it's really early in the fourth quarter. The holiday season is very back-end loaded. It's something we're watching. We did call out, and you're right, our guidance assumes a rate of growth lower than that of third quarter. When you look at that macro, and I pivot now to talking about the broader framework, we've seen very good progress. I think what I'm most excited about is we know what's working, and we're really doubling down against that. Alex has talked a lot about Buy Now, Pay Later. We've talked a lot about Pay with Venmo. Importantly, year to date in the U.S., our growth rates are higher than what we saw year to date last year in the U.S. We're really seeing nice progress. That macro piece of it, whether it's tariffs or some of this deceleration, is offsetting our progress. We set those 2027 targets, assuming a consistent consumer macro environment. Ultimately, that's how we'll measure progress against that. What I am excited about is we have scaled our initiatives in the U.S. first. Where we see progress, we've got real confidence as we scale outside of the U.S. and internationally. I think we've invested in the right products. We're seeing customer adoption and engagement around the things we've talked about, in addition to things like omnichannel initiatives and places where we get other halo effect. The investments we're making are really predicated on our confidence and our ability to continue to build on our progress as we get through the next couple of years.

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

Hey, guys. Great results, as always. Just wanted to ask a quick question in a very, very short follow-up. On Buy Now, Pay Later, huge momentum here. Can you maybe give us sort of the lay of the land, like how you view, Alex, the industry? Who are you gaining share from most and in what territories? I just have a super quick follow-up for you, Jamie, on the investments next year. If there's any way to quantify that, that would be great. Those are my questions. Thank you.

Great. Thanks, Dan. Look, we're very excited about BNPL. We see this as one of those generational shifts that's happening now. We're seeing not only in the results, but also just as we talk to customers, particularly a younger generation is moving more and more towards debit and BNPL as the way that they want to make purchases. We think we're incredibly well-positioned to win there. As you said, we're seeing good growth. We're actually seeing growth across the board. U.S. MAs are up 21% in Q3. TPV continuing to grow pretty consistently over 20%. This is a product that people love. An NPS of 80 is quite incredible. From a strategy and a share perspective, we think we have something unique. We have a brand that people know and love. We have a global scale. Not only seeing good gains in the U.S., but we continue to expand our global footprint. It just expanded to Canada within the last week or so and continuing to expand the offerings across the board and across Europe. We're also moving to where customers want to pay as well, not just online, but moving in store. We started in Germany and are now expanding that in the U.S. We really see BNPL as one of those growth drivers for us. The other big shift that I would want you to be aware of is most of our BNPL, and again, we're on track to do $40 billion or so of TPV in 2025. Most of that has come almost after they've chosen the PayPal Holdings, Inc. button choice. For many customers, that's actually too late. They want to make a choice upfront when they're making that purchase, and they want to see what that payment could look like if it was split into a few payments. Strategically, we're now meeting our customers where they are, and think we have a really exciting expansion opportunity to be upstream in presentment. Again, with a brand that people know and love, with a product that they're already familiar with and using, when we get upstream into some of these purchases, we think we have the opportunity to continue to accelerate. Very, very excited with BNPL and something that we're going to invest in to win over the next few years.

Dan, with respect to the second part of your question, it's early. We are still working our 2026 plan, and we plan to take you through that on our February earnings call. When you look at the types of investments that we're talking about, these are targeted really around product attach and habituation. Things like merchant co-marketing, cashback offers, and rewards, and things around better placement and presentment drive right back into the business and around growth. We'll have some more information for you on that in a couple of months.

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

Thank you. I want to dig into the really strong growth momentum at Venmo, where the revenues have been consistently growing 20%. Alex, you mentioned sort of the multiplier of upside from here. Could you maybe map that out for us in terms of how we should think about the growth rate you've posted recently and what you could do next year and beyond, given all the different initiatives you have in place inside of Venmo?

Yeah, thank you. We, Sanjay, are equally excited about the trajectory that Venmo is on. Let me just pull back and talk a little bit about where Venmo was a couple of years ago and the contours of where we're moving. Venmo a couple of years ago was an incredible P2P product, a brand in the U.S. that was a verb. It was the way a younger, very valuable demographic was moving money amongst themselves. That was a very strong starting position. The challenge was we really weren't meeting customers where they are. Money was moving from a P2P perspective, but if you were splitting a meal, you couldn't actually pay for that meal in person. You had to use a different instrument. We've expanded what Venmo means to this demographic. We're now meeting them where they are and enabling them to make purchases in person, online, move money between each other, as well as starting to think about different experiences that they're having together. I'll touch on that in a minute. If you look at what that means, it means that not only are we continuing to grow our active base, so MA is up 7% year over year at 66 million. That's very strong. Now we're starting to see real penetration into two of our monetization levers. Debit card MAs are up 43%. Pay with Venmo MAs are up 24%. This is starting to drive ARPA up. ARPA is up mid-teens year to date. When you put all of that together, I still feel like we're just scratching the surface. If I look at us versus peers from an ARPA perspective, we are a third to a quarter of what I believe our potential is over time. We're starting to now see really good adoption of the cards…

The next question comes from Darrin Peller with Wolfe Research. Your line is open.

Hey, guys. Thanks, and congrats on the OpenAI and the dividend announcements. I just want to touch on the exit growth rate of the year for a minute. I know you're guiding 2% to 5% for transaction margin growth. Maybe the puts and takes of what that could compare when you think about trending into 2026 and how we should think about next year in the context of the exit rate. I know you talked about investments being made, obviously, for all these initiatives. How does that impact our thought process on operating leverage and just overall investment EPS potentially for our next year as well? Whatever you can comment. I know it's early. Thanks, guys.

Yeah. Good morning, Darrin. I'll stay away from giving 2026 guidance, but I will give you some color on the fourth quarter transaction margin dollars and what we expect to see there. You know, to some level, we've got some impact from interest rate cuts coming in the fourth quarter. In the credit business, we've got tougher comps. You may remember that we really got that business back to growth in the fourth quarter of last year, and we just have tougher comps coming into the fourth quarter this year. I mentioned some level of investments in growth initiatives as well. With what we're seeing on macro, you know, we want to be prudent in terms of how we guide there. Across the portfolio, the product initiatives, I think what's probably important to call out is that some of this goes through transaction margin dollars. Other parts go through OpEx. Things like investment in product and tech and brand marketing, things like that go through OpEx. As we work our plan, you know, we work across all of that to really get to the right mix as we get into it. We'll take you through more in a couple of months, but hopefully, that's some color for you.

Hey, Darrin. I want to, without going into the details for next year, I do though want to set a mindset for us because this is what we're thinking about internally. You know, I've mentioned, and we've talked about it so far on this call, a couple of big shifts that we see in the market. I want to call that out. We see three pretty significant generational shifts right now. One is a massive shift to digital wallets, and this is globally. The second is a real shift to Buy Now, Pay Later. Again, a younger generation that's now moving the way they're spending. This, we think, can start to take share away from credit cards and be the way that this new generation is going to start to pay. The third shift we've talked about is towards agentic commerce. These are all three massive shifts that can recast the entire commerce landscape. We think we're extremely well-positioned in all three of them. If you look at digital wallets, we have leading wallets such as PayPal Holdings, Inc. and Venmo we just talked about, and we have our expansion into PayPal World, which continues to connect wallets around the world. In Buy Now, Pay Later, we just talked about upstream presentment. We talked about the expansion and the trajectory we have there. We've talked earlier about agentic commerce and the shift that's happening in our ability to lean in and win. The mindset that we have from a company is these are generational shifts that we are well-positioned and we must win in. We are going to invest appropriately. Those investments may very well lead to some near-term headwinds in how fast transaction margin dollars and earnings grow in 2026. We'll come back with more details as we think through that. Our goal is to win these markets and set ourselves up for faster, durable growth in the future across all of commerce. I just wanted to set that tone.

The next question comes from Jason Kupferberg with Wells Fargo. Your line is open.

Good morning, guys. Thanks for taking the question. You obviously had a nice beat here on transaction margin dollars in the quarter. It seems like the branded business came in right in line with your expectations. The OWAS revenues were quite strong. I wanted to just unpack the sources of transaction margin upside in the quarter a bit. If you can give us a relative sense on how much of that upside came from the credit products versus some of the other drivers, and then just any quick comments on how you see cadence of additional penetration of the new checkout experience moving beyond the 25% level as we move into next year. Thanks.

Thanks, Jason. Good morning. Really, when you look at third quarter transaction margin dollar performance, we had meaningful contribution across each of branded checkout, Venmo, PSPVAS, and credit. What's important there, and we really tried to highlight this in our prepared remarks as well, is that we've got nice diversification not only on the revenue side, but on the margin sources. I think that's demonstrative of that.

Yeah. On the penetration, we've talked a little bit about it. Just to set the tone, we really started in the U.S. We now are roughly 25% of global transactions. Even under that 25%, though, about half are actually optimized. We're really working through how do we nail the overall pay sheet improvement, the biometrics that we're starting to put together. When all of that comes together, the pay sheet and the biometrics, we're actually seeing conversion rates increase 2% to 5%. We know we have a winning product. It just is taking time. I'm as impatient as anyone. I want to see this move as fast as we can. We're talking about bending the curve on over half a trillion dollars of spend, and it's just taking time to get there. We have confidence, as Jamie mentioned earlier, U.S. branded checkout is growing faster year to date than it did in 2024. We know the experiences are working. We're now rolling it out in Europe. We expect that to continue through 2026. In the meantime, we're leaning into BNPL growing north of 20%, Pay with Venmo growing north of 40%. We know that overall in branded checkout, we're on the right path. It's just taking time.

The next question comes from Will Nance with Goldman Sachs. Your line is open.

Hey, I appreciate you taking the question. I wanted to dig in a little bit on the BNPL volumes. Just a couple of questions here. I guess first, if you could just quantify some of the run rate financial impacts you're expecting on the Blue Owl offloading, just any help with the geography of those impacts on the P&L if we think about that going forward. Maybe a big picture question on the BNPL growth. Obviously, very strong. I think you've said in the past that the branded numbers or the branded volumes are roughly 40% U.S., 60% international. Do the BNPL volumes skew meaningfully differently? Any color on what you're seeing from a geographical perspective in terms of adoption and penetration of branded volumes in BNPL? Thank you.

Yeah. Let me take that second part, and then Jamie can lean in. BNPL, right now, we're looking at less than 30% of originations in the U.S. This is still a very global business. It's one where, as I mentioned earlier, what we're excited about is really an expansion of our strategy into upstream presentment. We think that's going to be a big, big shift and opportunity for us, as well as a change as we start to expand into omnichannel. Being able to move Buy Now, Pay Later into in-store, you know, it's interesting. The dynamics of how we're seeing people shop is it's not just hard lines of in-store or e-commerce. There are a lot of people that are shopping on their phone and then wanting to pick up in-store, and that's where they get the opportunity to do their Buy Now, Pay Later purchase. All of this is coming together in a holistic product. Again, we're seeing the flywheel effect of BNPL as well. When somebody starts to leverage BNPL, there's a lift in engagement. Their TPV is up 35%, and we start to see their ability to use us for all purchases. This is, you know, it's very interesting just to see the dynamics of purchase behavior. I think in the past, as e-commerce and commerce in general was evolving, there were much harder lines. What we're seeing from customers now is they want to pay when they want to pay. Sometimes it's pay now. Sometimes it's pay later. Where they want to pay, online, in-store, or agentic, and how they want to pay, whether it's with their friends, whether it's with crypto, whether it's the wallet from their home country. We now have a strategy that enables us to meet them everywhere they are. Exciting trajectory there. Again, you're going to see us lean in even more into BNPL over the coming years.

Yeah. With respect to the first part of your question on Blue Owl, we had a small impact in the quarter, but that was net neutral to operating income, which both raised margin a bit, but also was offset in OpEx. With respect to 2026, there's a small impact to 2026 OpEx in terms of increasing the run rate.

Hey Sarah, let's make time. I know we're past the top of the hour, everybody, but let's make time for one last question if we can.

Thank you. Your last question will come from Timothy Chiodo with UBS. Your line is open.

Great. Thank you. I think we've covered some great numbers on the BNPL business today. I was hoping we could round it out with a few more, and this would help us in comparability to some of the competitors in Affirm and Carta. I was hoping you could give a little bit on the mix of paying for versus some of your longer-term pay monthly loans. Also, maybe touch on the loss rates. What I think investors really want to get down to is balancing those losses and potentially more favorable funding mix for the repayment. What really is the transaction margin dollar net take rate per unit of BNPL volume so that we can compare that to metrics like RLTC as a % of GMV for Affirm? Thanks.

Good morning, Tim. You've packed a lot into that, so I'm hoping I remember it all. Let me start with sort of thinking about unit economics on the core product. First, with respect to what type of product is it, most of this is paying for, pay monthly. We've got about an average turn on the portfolio of Buy Now, Pay Later of about 40 days. When you think about that compared to peers, the duration of the portfolio is a much higher turn than maybe some of the others you look at. Secondly, as we price it, our economics are on par or better than our peers. The thing I'd really point you to here is when we look at Buy Now, Pay Later, we do run it at the business level, but we look at it much more holistically at the total branded checkout or PayPal Holdings, Inc. level around how do we habituate and engage our consumers around the brand and across the brand and drive sustained lift or a halo across that with Buy Now, Pay Later adoption. It just drives stickiness. We really see.

to 40% sort of incremental usage of branded checkout, and that stays with us as the consumer continues to spend with BNPL. We're expanding through new geographies, as Alex mentioned, really focused on driving consumer experience and marketing dollars. Hopefully, that gives you a little bit of color as to how to compare.

Hey, Alex. Any final thoughts before we wrap?

Thank you, everyone, for your questions. As you can hear from us, it is an exciting time at PayPal Holdings, Inc. We mentioned some of these significant generational shifts, and that makes it exciting to be at the forefront and a leader in this space. We have got the right plan. We are making great progress and delivering results along the way. I look forward to updating you as we continue to make progress. Take care, everyone.

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