Q2 2024 Earnings Summary
- 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.
- 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.
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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.