Business Description
PayPal Holdings, Inc. is a leading technology platform that facilitates digital payments and commerce experiences for merchants and consumers globally. The company operates a two-sided network connecting 426 million active accounts across approximately 200 markets as of December 31, 2023, offering services such as person-to-person payments, merchant payment solutions, and cross-border transactions . PayPal's primary revenue streams include transaction revenues and revenues from other value-added services, with transaction revenues being the largest contributor . The company also offers credit products, including PayPal and Venmo branded credit products, and facilitates the purchase and sale of cryptocurrencies . PayPal's branded checkout and unbranded processing services, such as Braintree, are significant components of its business, with branded checkout being a key area of focus for growth .
- Transaction Revenues - Generates income from payment transactions and currency conversion fees, serving as the largest revenue stream.
- Branded Checkout Services - Provides a seamless checkout experience for consumers, focusing on enhancing user engagement and conversion rates.
- Unbranded Processing Services (Braintree) - Offers payment processing solutions for merchants, enabling them to accept various payment methods.
- Other Value-Added Services - Includes partnerships, referral fees, subscription fees, and interest on customer balances, contributing to diversified revenue streams.
- Credit Products - Offers PayPal and Venmo branded credit products, providing consumers with flexible payment options.
- Cryptocurrency Services - Facilitates the purchase and sale of cryptocurrencies, expanding digital asset accessibility for users.
You might also like
Q2 2024 Summary
What went well
- PayPal's focus on profitable growth in Braintree is yielding positive results, with Braintree now contributing to transaction margin dollar growth after over two years, and this trend is expected to continue.
- Branded checkout continues to grow profitably, with improvements in mobile experiences leading to higher conversion rates, positioning PayPal to take share in the branded experience.
- PayPal's global presence and upcoming regulatory changes in Europe around NFC technology open new opportunities, allowing PayPal to expand in omnichannel solutions, including in-person transactions. Additionally, Buy Now, Pay Later growth continues, with 60% of volume coming from outside the U.S.
What went wrong
- Expected decline in Braintree volumes in the second half due to lapping larger wins and normalization in its revenue profile, which may impact overall growth.
- Interest income on customer balances, a significant contributor to transaction margin growth in the first half, will begin to decline in the second half due to higher prior year comparisons, reducing the tailwind to transaction margins.
- Normalization of transaction loss favorability is anticipated in the second half, as new product launches and adapting bad actors may lead to increased transaction losses, potentially impacting profitability.
Q&A Summary
-
Transaction Margin Growth
Q: What drives transaction margin growth and its sustainability?
A: The transaction margin dollar growth was driven by several contributors: interest income on customer balances added about 3 points in the first half ; branded checkout continues to grow profitably ; Braintree is back contributing to margin growth ; Venmo is seeing growth in monthly actives ; and transaction loss favorability continued in Q2. Looking ahead, we expect the tailwinds from interest income to decline due to higher comps in the second half , and we're planning for some normalization in transaction loss favorability. However, we're more positive than three months ago on Braintree profitability and transaction loss , and we expect the trend of improving margin profiles to continue. -
Braintree Profitability
Q: How is Braintree contributing to profitability and what's the outlook?
A: Braintree is back to contributing to transaction margin dollar growth, which is exciting progress. We've reoriented the Braintree team around profitable growth and engaged in positive conversations with customers about margin structures and value-added services. In some cases, we're willing to accept a lower share of revenue for higher-margin contracts. We expect the improvement in transaction margin dollars to continue, even if volume growth normalizes. -
Second Half EPS Guidance
Q: Why does guidance imply a Q4 EPS step down?
A: More than half of the fourth-quarter EPS pressure is due to ramping growth investments, particularly increased marketing spend for PayPal and Venmo brand campaigns and product launches. We intentionally deferred some marketing dollars from the first half to the second half. Additionally, a higher tax rate in the second half compared to the first half impacts the EPS profile. -
Branded Growth Strategy
Q: What is your strategy to accelerate branded growth?
A: We're focusing on enhancing customer experiences, particularly around mobile. Improvements in the vaulted experience have led to a 75 to 110 basis point lift with our new experience. We're also rolling out a new, simplified pay sheet experience, resulting in a nice lift in conversion rates. Combined with our ubiquity across mobile and web, these efforts aim to not only maintain but also take share in the branded experience. -
Competition with Apple Pay
Q: How are you positioned competitively against Apple Pay?
A: We operate in a multitrillion-dollar market and remain the #1 branded experience across all platforms and devices. Over the past four years, we've seen no degradation in our share of desktop web checkout, which still represents 40–50% of all checkout. We're continuously improving our offerings, including the best branded experience and checkout solutions like Fastlane, to provide value to merchants and consumers. -
Fastlane and SMB Focus
Q: How important is Fastlane in driving SMB adoption of branded checkout?
A: Fastlane is crucial for SMBs, offering an 80% conversion rate compared to the traditional 50% for repeat users. It tackles the 60% of checkout that is guest checkout. By integrating Fastlane with our PayPal Complete Payments (PPCP) platform, SMBs get an end-to-end solution, including branded experiences, unbranded processing, Buy Now, Pay Later, working capital, and advertising tools. We're accelerating Fastlane's general availability, aiming to onboard as many customers as possible. -
International Opportunities
Q: How are you approaching international markets amid favorable regulatory changes?
A: As a global company operating in over 200 markets, we've invested heavily to ensure compliance worldwide. Changes in Europe around NFC access present new opportunities, and we will be prepared to participate in that space. Additionally, 60% of our Buy Now, Pay Later volume comes from outside the U.S. , highlighting our strong international presence. -
Volume Trends
Q: Can you provide color on volume trends in the U.S. and internationally?
A: The U.S. environment remains consistent with what we've seen in the first half. Internationally, we saw a slight decline in total payment volume this quarter, primarily due to lapping large Braintree wins from last year. Excluding that factor, international performance is very healthy. -
Transaction Profit Guidance
Q: Has your outlook for transaction profit dollar growth from core businesses changed?
A: We're seeing a stronger branded baseline and have increasing confidence in the trajectory of our Braintree profitability efforts. This positive outlook influences our full-year guidance. -
Branded Checkout Growth
Q: How is branded checkout growth comparing between U.S. and international markets?
A: Both U.S. and international markets are strong contributors. In the U.S., large enterprises are an area of strength, and we're transitioning small businesses to PPCP. Internationally, branded checkout is very strong in several European countries, with particular strength in Germany, although the U.K. continues to be pressured. Transaction expenses are impacted by factors like funding mix and product mix, with Braintree being a significant driver.
Key Metrics
Revenue by Segment - in Millions of USD | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Transaction Revenues | 6,364 | 6,556 | 6,654 | 7,283 | 26,857 | 7,034 | 7,153 | 7,067 | |||||||||||||||||||||||||||||||||||||||
Other Value Added Services | 676 | 731 | 764 | 743 | 2,914 | 665 | 732 | 780 | |||||||||||||||||||||||||||||||||||||||
Total Revenue | 7,040 | 7,287 | 7,418 | 8,026 | 29,771 | 7,699 | 7,885 | 7,847 | |||||||||||||||||||||||||||||||||||||||
Revenue by Geography - in Millions of USD | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
United States | 4,147 | 4,210 | 4,257 | 4,639 | 17,253 | 4,467 | 4,550 | 4,518 | |||||||||||||||||||||||||||||||||||||||
United Kingdom | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||
Other Countries | 2,893 | 3,077 | 3,161 | 3,387 | 12,518 | 3,232 | 3,335 | 3,329 | |||||||||||||||||||||||||||||||||||||||
Total Revenue | 7,040 | 7,287 | 7,418 | 8,026 | 29,771 | 7,699 | 7,885 | 7,847 | |||||||||||||||||||||||||||||||||||||||
KPIs - Metric (Unit) | Q2 2015 | Q3 2015 | Q4 2015 | FY 2015 | Q1 2016 | Q2 2016 | Q3 2016 | Q4 2016 | FY 2016 | Q1 2017 | Q2 2017 | Q3 2017 | Q4 2017 | FY 2017 | Q1 2018 | Q2 2018 | Q3 2018 | Q4 2018 | FY 2018 | Q1 2019 | Q2 2019 | Q3 2019 | Q4 2019 | FY 2019 | Q1 2020 | Q2 2020 | Q3 2020 | Q4 2020 | FY 2020 | Q1 2021 | Q2 2021 | Q3 2021 | Q4 2021 | FY 2021 | Q1 2022 | Q2 2022 | Q3 2022 | Q4 2022 | FY 2022 | Q1 2023 | Q2 2023 | Q3 2023 | Q4 2023 | FY 2023 | Q1 2024 | Q2 2024 | Q3 2024 |
Transactions Per Active Account | 53.1 | 54.7 | 56.6 | 58.7 | - | 60.0 | 60.9 | 61.4 | |||||||||||||||||||||||||||||||||||||||
Percent of Consumer Loans Current (%) | 96.7 | 95.5 | 95.4 | 95.4 | - | 95.9 | 96.1 | 95.9 | |||||||||||||||||||||||||||||||||||||||
Consumer Loans > 90 Days Outstanding (%) | 1.4 | 2.0 | 2.0 | 2.2 | - | 1.9 | 1.7 | 1.7 | |||||||||||||||||||||||||||||||||||||||
Net Charge-off Rate Consumer Loans (%) | 4.4 | 5.0 | 7.6 | - | - | 7.2 | 5.2 | 4.6 | |||||||||||||||||||||||||||||||||||||||
Percent of Merchant Loans Current (%) | 89.8 | 86.5 | 86.7 | 87.0 | - | 88.7 | 89.6 | 91.3 | |||||||||||||||||||||||||||||||||||||||
Merchant Loans > 90 Days Outstanding (%) | 4.5 | 7.1 | 6.6 | 5.6 | - | 4.4 | 3.9 | 2.8 | |||||||||||||||||||||||||||||||||||||||
Net Charge-off Rate Merchant Loans (%) | 8.2 | 13.3 | 20.4 | - | - | 14.0 | 10.7 | 8.3 | |||||||||||||||||||||||||||||||||||||||
Crypto Asset Safeguarding Liability (million USD) | 943 | 1,016 | 877 | 1,241 | - | 2,846 | 2,429 | 2,167 | |||||||||||||||||||||||||||||||||||||||
Crypto Asset Safeguarding Asset (million USD) | 943 | 1,016 | 877 | 1,241 | - | 2,846 | 2,429 | 2,167 |
Executive Team
Questions to Ask Management
-
Given your expectation of lower volume and revenue growth in the second half of the year, despite increasing investment in strategic growth initiatives, how do you plan to offset the anticipated pressures on transaction margin dollars, especially considering the smaller tailwind from interest on customer balances and normalization in transaction and credit losses?
-
With the competitive pressures from alternative payment methods like Apple Pay, particularly in the mobile payments market, how do you plan to maintain and grow your market share, especially when you acknowledge the increasing competition and changing dynamics in the industry?
-
Braintree has begun contributing to transaction margin dollar growth for the first time in over two years, but you expect lower volume growth as you focus on profitable growth; how sustainable is this contribution from Braintree, and could prioritizing profitability over volume growth impact your competitive positioning in the long term?
-
You have highlighted the untapped opportunity in the SMB market and the rollout of PPCP; what challenges have you faced in effectively penetrating the SMB segment previously, and how does your current strategy address these obstacles differently?
-
Regarding the forthcoming opportunities in Europe with changes around NFC technology, how prepared is PayPal to capitalize on these changes, and what potential regulatory or competitive barriers could impede your ability to expand your omnichannel solutions in the European market?
Past Guidance
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance: The documents do not contain specific guidance details from the Q3 2024 earnings call.
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Revenue Growth: Mid-single digits for Q3; continued growth for FY 2024 assuming stable macroeconomic conditions .
- Non-GAAP EPS Growth: High single digits for Q3; low- to mid-teens for FY 2024 .
- Transaction Margin Dollars: Increase by a low- to mid-single-digit percentage for FY 2024 .
- Free Cash Flow: Approximately $6 billion for FY 2024 .
- Share Buyback Plan: Increased to $6 billion for FY 2024 .
Q1 2024 Earnings Call
- Issued Period: Q1 2024
- Guided Period: Q2 2024 and FY 2024
- Guidance:
- Q2 2024:
- Revenue Growth: Approximately 6.5% at spot and 7% on a currency-neutral basis .
- Non-GAAP EPS Growth: Low double-digit percentage .
- FY 2024:
- Non-GAAP EPS Growth: Mid- to high single-digit percentage .
- Free Cash Flow: Approximately $5 billion .
- Share Buybacks: At least $5 billion .
- Other Value-Added Services Revenue: Roughly flat year-over-year .
- Transaction Margin Dollars: Slightly positive .
- Non-Transaction Operating Expenses: Increase slightly .
- Q2 2024:
Q4 2023 Earnings Call
- Issued Period: Q4 2023
- Guided Period: Q1 2024 and FY 2024
- Guidance:
- Q1 2024:
- Revenue Growth: Approximately 6.5% at spot and 7% on a currency-neutral basis .
- Non-GAAP EPS Growth: Mid-single-digit percentage .
- FY 2024:
- Non-GAAP EPS: Roughly in line with prior year's EPS of $5.10 .
- Free Cash Flow: Approximately $5 billion .
- Transaction Margin Dollars: Roughly flat .
- Non-Transaction Operating Expense: Low single-digit increase .
- Interest Rate Environment: Anticipated declines impacting revenue .
- Credit Revenue: Headwinds due to normalization and loss rates .
- Share Buybacks: At least $5 billion .
- Q1 2024: