PayPal Holdings, Inc. Q3 FY2024 earnings call

• Launched new mobile checkout experiences with significant conversion lift, including 100+ basis points lift for vaulted checkout and up to 400 basis points for one-time checkout, and 15%-20% increase in Buy Now, Pay Later use. • Made progress in pricing services for large enterprise, with Braintree meaningfully contributing to transaction margin dollar growth for the second consecutive quarter. • Launched PayPal Complete Payments in new geographies like China and Hong Kong, with nearly 40% of SMB processing and checkout volume on the platform. • Launched PayPal Everywhere to redefine consumer value proposition, adding over 1 million first-time debit card users. • Made progress on Venmo transformation, with monthly active debit card accounts up 30% and Pay with Venmo showing growth, though still room for expansion.

Total payment volume grew 9% to $423 billion. Revenue reached $7.8 billion, growing 6% on a currency neutral basis. Transaction margin dollars increased 8% to $3.7 billion, with non-GAAP earnings per share up 22% year-over-year. Branded checkout volumes grew 6% on a currency neutral basis. PSP processing volume grew 11%. Transaction revenue grew 6% driven primarily by Braintree, branded checkout, and Venmo. Other value added services revenue increased 2% to $780 million, and interest on customer balances provided a meaningful tailwind.

• Raised full-year guidance for transaction margin dollars and non-GAAP earnings per share. • Expect fourth quarter revenue to grow at low-single digit percentage, with lower Braintree volume and revenue growth due to merchant negotiations. • Anticipate higher non-transaction OpEx growth in fourth quarter due to discretionary investment spend. • Expect 2024 free cash flow of approximately $6 billion and plan for $6 billion of share buyback. • Project full-year non-transaction operating expenses to increase in low-single digit range with cost efficiency funding strategic growth investments.

• Macro-economic and consumer spending environment uncertainties. • Interest rate cuts starting in 2025 could impact transaction margin dollars. • Normalization of transaction losses as new products are rolled out.

Q: Good results on gross profit, how about customer response to pricing changes and deceleration in fourth quarter margin growth?

A: Jamie Miller mentioned interest income benefit less in fourth quarter, transaction loss normalization, and Tien-Tsin Huang was told about product innovation, Braintree platform holism, and Venmo/P2P momentum.

Q: Detail on drivers of more favorable view on transaction margin dollar growth and what to expect in 2025?

A: Jamie Miller said it's about durable profitable growth, product innovation, Braintree platform breadth, Venmo and P2P momentum. Alex Chriss reinforced contract improvements on Braintree, Venmo innovation, and branded checkout growth drivers.

Q: Update on Fastlane monetization strategy?

A: Alex Chriss said focus is on adoption, with over 1,000 merchants using Fastlane, and Jamie Miller added they're in conversations with merchants about pricing and it will take time to ramp.

Q: Branded TPV growth and new checkout experience rollout?

A: Alex Chriss said branded checkout has consistent trends, new experiences have improved conversion and latency, with 5% of U.S. checkout traffic on new experience and expected continued momentum in 2025.

Q: Braintree competitive positioning and bundled button clause?

A: Alex Chriss said it's about price to value conversation, still bundle branded and price to value, and Jamie Miller added on going through large renegotiations and more progress in next couple of years.

Q: Fastlane with larger merchants and branded checkout dynamics?

A: Alex Chriss said large enterprises are excited to ramp Fastlane in Q1, and they're building on profiles from Fastlane to bring users into branded checkout.

Q: Transaction take rate trajectory and branded vs SMB growth?

A: Jamie Miller said take rate impacted by product mix, Braintree margins, and large enterprise vs SMB mix. Alex Chriss talked about innovation for small business and its long tail.

Q: Branded checkout growth vs e-commerce market and goals?

A: Alex Chriss said branded checkout is consistent, with room for growth through innovation, Fastlane, and PayPal Everywhere.

Q: Consumer monthly actives and product pipeline?

A: Alex Chriss talked about innovation as competitive advantage, Venmo and PayPal Everywhere driving user growth, and Jamie Miller mentioned steady monthly active progress and excitement about PayPal Everywhere's impact.