Q2 2021 PayPal Holdings Inc Earnings Call
Good afternoon, My name is Brandon and I will be your conference operator today.
At this time I would like to welcome everyone to Paypal Holdings earnings Conference call for the second for 'twenty 'twenty 1.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question press the cranky. Thank.
Thank you I would now like to introduce your host for today's call Ms. Gabrielle Rabinovich, Vice President corporate Finance and Investor Relations. Please go ahead.
Thank you Brian Good afternoon, and thank you for joining US welcome to Paypal is earnings conference call for the second quarter of 2021.
Joining.
In the call our Gan Sherman, our president and CEO, and John Rainey, Our Chief Financial Officer, and EVP global customer operations for providing a slide presentation to accompany our commentary.
This conference call is also being webcast and both the presentation and call are available on our Investor Relations website.
In discussing.
Due to the company's performance, we will refer to some non-GAAP measures you can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call.
Management will make forward looking statements that are based on our current expectations forecasts and assumptions and involve risks and uncertainties. These statements.
It's got to now include our guidance for the third quarter and full year 2021 are.
Our actual results may differ materially from these statements you can find more information about risks uncertainties and other factors that could affect our results and our most recent annual report on form 10-K, and quarterly reports on form 10-Q filed with.
Statements UC and available on our Investor Relations website.
You should not place undue reliance on any forward looking statements.
All information in this presentation is as of today's date July 28, 2021, we expressly disclaim any obligation to update this information with that let me turn the call over to.
Dan Thanks, Kevin and thanks, everyone for joining us today.
I am pleased to say that on the heels of a record year. Our Q2 results. Once again reflect some of the best performance in our history on both an absolute and relative basis.
It is now clear.
Sure.
Customers around the world have embraced all forms of digital payments.
Even in regions, where in person activities are returning towards pre pandemic levels.
In this new normal Paypal serves as an essential and trusted platform.
<unk> for both consumers and merchants across all forms of commerce payments from basic financial services.
As a result, we hit a new milestone in Q2, surpassing $300 billion of TPG for the first time in our history.
Growing 40% on a spot basis to $311 billion with an annualized run rate of approximately 1.25 trillion dollars.
This is even more notable given that E bay's.
T PV on our platform declined by 37%.
Ebay exited the quarter at under 4% of our volume.
And we expect their key PV will approach 2.5% of our total volumes.
<unk> by year end.
Excluding ebay our volumes grew by a remarkable 48% on a spot basis.
Our active accounts now exceed $400 million up 16% to 400.
Million.
We added $11.4 million net new active accounts in the quarter, including an additional 1.5 million merchant accounts.
That brings our total merchant count to $32 million.
We still expect to end.
And the year at the higher end of our previous guidance of 52 to 55 million net new active accounts.
Transactions in the quarter grew by 27% to for <unk> 7.4 billion.
And even as our net new actives.
Continue to show strong growth our transactions per active account accelerated 11% in the quarter to 43, 5 times as our consumers engage more frequently across our growing suite of services.
We grew our revenues by 19.
10% to 624 billion.
This.
Growth comes even as we lapped strong results from last year and absorbed 811 basis points of revenue pressure from EBIT as their revenues on our platform declined.
51% in Q2.
Excluding ebay our revenues grew at approximately 32%.
We now expect that ebay will be essentially 100% complete with their migration to managed payments by the end of.
<unk> third quarter.
We are maintaining our full year guidance. Despite the fact that this accelerated ramp puts an additional 100 basis points of revenue pressure in 2021.
The good news is that this pressure begins to EPS in Q4.
The fine obviously positions us for accelerated revenue growth in 2022.
Finally, we delivered non-GAAP EPS of $1.15.
Even as we continue to invest heavily in our growth initiatives.
Venmo continued its strong performance in Q2.
With $58 billion in TPB up 58% year over year with over 76 million active accounts.
Revenue growth accelerated to almost 70% in Q2, our highest growth rate in the past year.
Fueled by the most product diversification strategy.
More than 500000 customers have established new business profiles on them up with more than 300000 created in Q2 alone.
Pay with Venmo revenues grew by.
183% year over year.
We're also seeing strong adoption and trading of crypto on venmo and this quarter, we expanded the venmo value proposition to allow merchants and consumers to pay for goods and services and received buyer.
By seller protections for commerce transactions.
This has been a very successful feature on Paypal P to P services and we expect it will be widely adopted on venmo.
I'm pleased to report that the initial version of our new consumer.
And for wallet Super App is code complete and we are now beginning to slowly ramp.
In the next several months, we plan to be fully ramped in the U S with a host of products and services across payments basic consumer financial services and commerce and shopping.
Consumables launching every quarter.
New features will include high yield savings.
Early access to direct deposit funds, new and improved bill pay functionality.
Messaging capabilities outside of PDP to enable family.
Family and friend Communications, as well as additional crypto capabilities and customized deals and offers.
Each wallet will be unique driven by our advanced AI and machine learning capabilities in order to enhance each customer's experiences.
<unk> and opportunities.
As I previously mentioned 32 million merchants now rely on Paypal.
They trust that our scale security tools and resources will help them to grow their businesses in today's rapidly emerging digital economy.
Paypal is the only payments company to offer features like global seller protection and fraud prevention services at no additional cost we have.
1 of our few payments companies to allow consumers to use crypto currency as a funding source.
To check out on our platform.
Our buy now pay later offering comes at no additional cost to merchants, while boosting their conversion rates and increasing card sizes by 39%.
And we continue to expand our product differentiation.
2 recent acquisitions like chart channel and happy returns that will drive additional value to both consumers and merchants post a sales transaction.
Our announced pricing adjustments in the U S align our pricing with the value we deliver.
While giving us flexibility to aggressively compete in full stack processing and at point of sale checkout.
We continue to see strong demand for our in store services with approximately 1.3 million merchants now accepting our.
QR codes and continued momentum and excitement across our large enterprise merchants.
In fact every 20 seconds, a new merchant signs up to use our QR codes.
It's also very encouraging to see that consumers, who use our QR codes.
<unk> spent more TPB in fact, 19% more TBD on the Paypal platform.
Our in store efforts will no doubt be a multiyear journey.
But these trends reinforce our conviction to be a seamless omni channel wallet.
In Q2, our overall in store efforts cross QR and cards equaled $6.8 billion in <unk> up 39% year over year.
Our in store suite of services continues to expand with.
With the launch of Paypal Zettel in the U S.
As in Europe, Paypal now offer small businesses in the U S. In integrated commerce solution that not only helps them to accept payments in store with the zettel card reader, but also helps them to manage sales.
<unk> and inventory across their various channels all in 1 place.
Our buy now pay later product continues its strong growth and is proving to be extremely popular for consumers and merchants alike.
Since.
At launch we have processed over $3.5 billion in PPV.
With more than 1.5 billion of that TPG in Q2 alone.
Approximately 650000 merchants have customers, who use our buy now pay.
Later capabilities and 40000 have positioned buy now pay later upstream on their product pages.
Over 7 million consumers have transacted more than 20 million times with our buy now pay later product.
Australia.
<unk> is now fully deployed and off to a strong start with additional countries in Europe slated to rollout later this year.
Our employees customers and government officials expect Paypal to be a role model and a responsible corporate citizen.
I am proud to say that we are delivering on our commitments to advance social justice and ratio of equity.
Over the past year, we have committed all of the $535 million, we pledge towards advancing ratio economic equality.
And we recently launched a new $100 million commitment focused on women's economic empowerment.
These efforts are a direct reflection of our values and our belief that Paypal must be part of a solution.
Drives a better future for all of us.
I'd like to thank our employees for their passion and their never ending commitment towards shaping a new and inclusive financial services system.
We are entering a new era, and we couldnt be more excited to help drive in emerging digital future.
Small business.
Businesses and consumers can participate and thrive in a post pandemic world and with that let me turn the call over to John.
Thanks, Dan.
I'd like to start by thanking the entire Paypal team for their continued commitment to serve our customers and execute on our priorities.
We.
Again, another very strong quarter.
Our results are indicative of the strength diversification and breadth of our 2 sided global payments platform.
Paypal sits at the intersection of digital transformation and E Commerce penetration.
As the largest open platform for digital payments.
Our reported we're uniquely positioned to address the opportunity that these secular tailwind present.
Over the past 6 quarters, our team's focus collaboration and resilience has allowed us to innovate at scale and deliver our best performance in company history.
Globally, the pace and.
Shape of the recovery varies as the environment continues to evolve.
We are evolving with it to serve the changing needs of our consumers and merchants.
During the second quarter restrictions started to relax across our core markets and we saw the beginning of a return to normalcy and consumer.
Global leader.
Consumers are spending again in verticals that had been severely affected and have become more comfortable shopping in person and dining out.
Merchants are repositioning for the post pandemic world.
Relative to our expectations, which were for reopening spend.
Tumor basically track vaccination rates, we've seen travel and events volumes returned more rapidly.
At the same time in markets that have reopened elevated e-commerce spending above pre pandemic levels is ongoing and indicative of permanent shifts in consumer behavior.
On a 2.
To classes, our business performance is remarkably consistent and very strong.
Our second quarter results last year were exceptional we grew revenue, 22% delivered a 28, 2% operating margin and grew non-GAAP EPS, 49%.
2 year.
Both the operating margin and earnings growth, where the best performance we've ever delivered.
It is remarkable that in the second quarter of this year. When we're lapping this explosive growth our business is continuing to perform at a very high level.
Our results are even more impressive.
<unk> given the transitory headwinds we're facing from ebay.
This year as part of Ebay's managed payments transition, we're absorbing a rapid migration of marketplaces volumes off of our platform.
Further compounding this effect is that E Bay benefited meaningfully from Covid last year, which.
Just the comparison this year even more difficult.
For context from 2016 to 2019, the 3 year compound annual growth rate for ebay marketplaces revenue on our platform was approximately 2% and.
And in 2020 this revenue grew 11%.
Which make approximately 5 times faster.
Also worth highlighting is that through this period as ebay's contribution to our revenue declined from 22% to 13% we've expanded our operating margin 500 basis points.
Given the accelerated pace of migration in 2.
From 'twenty 1 there is a more pronounced effect on our operating margin and earnings growth profile. This year.
At the same time this is truly a transitory effect on our results, which we now expect to be very largely contained to 2021 with much less of a tail into next year.
And.
As we've discussed over the past several quarters near term forecasting continues to be complex given the global macroeconomic backdrop varied stages of pandemic recovery and deferring paths of reopening.
It's with this orientation in mine site mindset that we head into the back half of 2021.
Before discussing our outlook for the remainder of the year I'd like to highlight our second quarter performance.
Total payment volume grew 40% at spot and 36% on a currency neutral basis to $311 billion.
Our Q2 <unk> grew at a 2.
2 year compound annual growth rate of 34% accelerating from 33% in Q1 and indicative of the strong momentum in our business.
Versus the second quarter last year merchant services volume grew 43% currency neutral.
A resurgence in travel in advance as.
As well as core payment volumes contributed to this performance.
This quarter ebay had a much greater effect on our <unk> than in the first quarter.
In Q2 EBIT.
Ebay marketplaces volumes declined 41% currency neutral from last year.
This is in comparison to a 3%.
<unk> declined last quarter.
Ebay represented 4% of our volume in Q2 down 512 basis points from last year.
In addition to lapping elevated growth during the pandemic, we saw a faster ramp of the payments transition than what we had expected earlier this year, which resulted in a larger decline in.
In Q2 volume.
Given the speed at which we're seeing intermediation progress our plans now contemplate nearly 100% completion of the merchant migration by the end of the third quarter.
This accelerated timeframe means that while we expect a similar drag to our volume revenue and earnings growth.
In the third quarter this impact lessens in Q4 and begins to tail off from there as a result, we will have a much cleaner exit to 2021.
Revenue increased 19% on a spot basis, and 17% currency neutral to 624 billion.
<unk>.
Transaction revenue grew 17% to $5.8 billion.
And on a 2 year basis transaction revenue grew 22, 3% in Q2 versus 22, 7% in Q1 of this year.
In addition to the consistency of our results this performance.
<unk> is even more remarkable excluding ebay.
In the second quarter ebay marketplaces revenue declined 51% in comparison to Q2, 'twenty and 27% sequentially.
Our revenue, excluding ebay grew 32% and 11 point acceleration.
<unk> from last year's already strong second quarter.
Other value added services revenue grew 40% on a spot basis, and 36% currency neutral to $441 million.
These results were driven by strengthening credit performance and portfolio growth partially offset.
Set by lower interest income on customer balances.
In the second quarter transaction take rate was 186% and total take rate was 2.0 or 1%.
The mix effect of ebay contributed to more than a third of the 37 basis point reduction in take rate.
The blended take.
Ebay volume this quarter was 3.2% in comparison to 4.1% in Q2 last year.
The remainder of the debt.
The decline was primarily driven by reduced currency volatility in the quarter, which resulted in lower growth.
Our growth rate and foreign exchange fees.
Right on a decline of $122 million from foreign currency hedges recorded as international transaction revenue and growth and bill payment volumes build.
Bill payment is a vertical characterized by both a lower take rate and an overall lower cost of funding then our e-commerce volumes.
Q2 was another.
Great quarter.
<unk> based expense performance.
Transaction expense came in at 81 basis points as a rate of TPB. This year relative to 83 basis points last year.
Transaction loss as a rate of TPB was a record low 9 basis points versus 12 basis points.
Points in Q2 last year.
The net effect of credit provisioning on credit losses in the quarter inclusive of originations and reserve reversals resulted in a benefit of $104 million.
In the quarter, we had an increase in loan origination activity and ended Q2 with.
With $3.9 billion and gross receivables, reflecting sequential growth of 11%.
Strong performance of our loan portfolio, improving macroeconomic trends and the mix of shorter duration originations from our installment paid products resulted in our reserve coverage ratio declining.
16, 9% from 21, 4% at the end of the first quarter.
As a result transaction margin dollars grew 19% in the second quarter and transaction margin reached 56, 8%.
I would now like to cover our non trans.
To foreign related operating expenses overall, these expenses increased 27% and represented 30% of revenue.
These are higher growth rates than what we've incurred historically.
But as I suggested before we believe that there is never been a more important time to invest in our business.
<unk> secular tailwind in our business has perhaps never been stronger.
In Q2, we again invested aggressively in product innovation and our go to market initiatives.
Sales and marketing increased 68% in the quarter and technology and development spend grew 23%.
Is this on a non-GAAP basis operating income grew 11% to $1.65 billion and are operating.
<unk> margin was 26, 5%.
This includes an approximately 12% or $360 million decline in transaction margin dollars from.
Day marketplaces.
Normalizing for the reserve build last year and subsequent release this year non-GAAP operating income declined 7% and operating margin was 23, 9% and.
And on a 2 year basis, the compound annual growth rate for operating income.
From EEP is 29%.
For the second quarter, non-GAAP EPS grew 8% to $1.15.
This includes an approximate 27 per share headwind from the decline in ebay marketplaces transaction margin dollars.
Adjusting for our increased.
Provisions last year and this year's release of reserves EPS declined 9%.
And on a 2 year basis. This represents 27% earnings growth annually.
We ended the quarter with cash cash equivalents and investments of $19.4 billion.
And in addition.
Credit for generated $1.1 billion and free cash flow.
I would now like to discuss our outlook for the rest of 2021.
Our business is performing exceedingly well and overall consistent with the outlook, we provided on our last call.
Given our strong year to date performance.
Additionally, in our expectations for the back half, we're raising our <unk> outlook and reiterating full year revenue and earnings.
We now expect TPB growth to be in the range of 33% to 35% given the strong volume trends in our business.
We continue to expect revenue.
<unk> share to be approximately $25.75 billion.
Representing 20% growth on a spot basis.
In addition, we continue to expect non-GAAP earnings per share to be approximately $4.70.
Our growth of approximately 21%.
We.
For the year raised our 2021 revenue outlook by $250 million or approximately 1 point of growth when we reported our first quarter results in may.
We're now absorbing more pressure from ebay than we had previously expected.
Our current outlook contemplates an approximately 7 point negative impact to revenue.
<unk> growth for the year.
This corresponds to an approximately 85 cent negative impact to non-GAAP EPS from reduced transaction margin dollars.
We're pleased that the strength of our platform and the diversification of our business is allowing us to maintain this elevated outlook.
Revenue. In addition, we expect to generate more than $5 billion in free cash flow or approximately <unk> 20 of free cash flow for every dollar of revenue.
Now turning to guidance for the third quarter.
This quarter, we are up against our toughest revenue comparisons versus last year.
In Q3, 'twenty, we reported.
25% revenue growth, our strongest performance for the year.
As a result of this dynamic as well as E based managed payments transition our plants had always assumed that in Q3, we would report our lowest level of quarterly revenue growth for the year.
However, we're now planning for ebay's drag.
The net growth to be greater than previously expected.
Resulting from both the accelerated pace of merchant migration in international markets as well as some additional core pressure, which magnifies. This result.
For the third quarter, we expect revenue to be in the range of $6, 1.5 billion.
On our <unk>, 2.5 billion.
At the midpoint. This represents growth of approximately 14% at spot and includes about 8.5 points drag from ebay or approximately $465 million negative impact.
On a 2 year boat basis inclusive of this drag.
<unk> our guidance represents 19% growth.
We also expect non-GAAP diluted EPS to be flat to last year or approximately $1.7.
Reflecting increased investments to support our growth initiatives and the pressure we're facing from EBIT.
Our financial.
<unk> performance over the first half of 2021 has been very strong and consistent with the guidance we've outlined at the outset of each quarter.
At the same time, the environment in which we're operating while more stable than a year ago continues to be very dynamic and more challenging to predict than normal.
Adding.
Adding to the complexity is this exercise of predicting ebay's transition for which we have less than perfect visibility.
Each quarter, we've tried to provide our best estimate of the level of performance that we believe we can deliver.
Overall, our growth remains strong.
And importantly, we continue.
To see the categories that benefited from quarantine measures and shelter in place activities last year maintain higher levels of e-commerce volumes in comparison to pre COVID-19 levels.
Our conviction and our ability to drive sustainably strong performance and in the strength of our franchise has never.
Been greater.
This year, we expect to process approximately 125 trillion of payments volume we.
We expect to grow revenue by 20% more than offsetting pressure to revenue growth of approximately 7 points from ebay and lapping our strongest year.
<unk>, 22% revenue growth.
And given the momentum we have in development and innovation and the pace of scale of the new experiences, we're bringing to our customers. We are investing in our business at record levels for.
Further last year, we grew earnings 31%.
On top of that.
With <unk> this year, we plan to grow our earnings by 21%.
Importantly, our team has never been more focused or aligned around the shared goal of being the leading digital payments company in the world.
Last year was a pivotal moment in our history.
And this year we're building on.
Perforation and continuing to realize our ambition for greater relevance ubiquity and impact is a global payments leader.
We look forward to sharing more of our progress with you.
With that I'll turn it over to the operator for questions.
As a reminder.
Net down did you ask a question.
Chris for then the number 1 on your telephone keypad.
I'll pause for just a moment to compile the Q&A losses there.
Okay.
Your first question is from Tien Tsin Huang of Jpmorgan. Your line is now open.
Yes.
Thank you. Thanks, so much and thanks for all the details in the slides here go through it.
Just with the third quarter guidance.
Being a little bit lighter than trend, but you're also reaffirming the.
For the year, even with ebay expect it to be.
1 point worse can you just reconcile that.
Finder thinking between the third quarter and holding the year and then also if you could just help us bridge.
Third quarter to fourth quarter growth for us given all the other moving pieces here that'd be great. Thanks.
Sure Tien Tsin I'll start there.
Look.
Yes.
Third quarter has always.
Yes.
Ben was going to be our toughest quarter from a year over year growth rate perspective.
For a lot of the reasons I outlined.
There are a number of reasons that are contributing to the growth in the fourth quarter, but I think before I get into them. It's important to understand that if you look on a year over 2 year basis.
The revenue growth actually is very consistent and each quarter of this year.
And for the full year will be growing in the neighborhood of 20%, but the items that are contributing to the growth in the fourth quarter. There's a few that that I think are notable to call out 1 is certainly less pressure from ebay.
That that abates somewhat in the fourth quarter we.
We also have some benefit from the pricing changes that we announced that go into effect next month, and then we have a number of different initiatives that.
That we're rolling out in the second half of the year in which we get most of the benefit of the full.
Full quarters worth of benefit in the fourth quarter and so all of those things tend to drive I think some acceleration and what we're seeing in revenue from the third quarter, the fourth quarter and then as usual.
We always have some seasonality around the holiday shopping season, which we again expect this year.
So if there is 1 thing.
Add to John's comments.
Is Q3.
Is the height of EBIT pressure and then as John mentioned as we go into Q2, those headwinds that have been flowing against us on ebay turnaround and become tailwind.
I can say that we have something like 850 basis points of pressure.
In Q3, as John mentioned that drops to 600 basis points of pressure as we go into Q4. So that's a natural lift of about 2.5 per.
<unk> of revenue growth as we go into 2022.
That continues.
To help our results and I think if you look beyond the ebay impact and looked at our adjusted results.
You can see that the core business and the strength of our franchise has really never been performing better.
I think Jeremy.
1 thing that I think it is worth highlighting that the elevated.
Spend around online.
Is continuing even as we see economies reopen I mean, you could see that in our growth rates of our volumes up 40% 48%.
<unk> without ebay.
But if you even look at things like our daily active users our daily active users versus pre pandemic levels are up 43%.
Up substantially last year and they continue to grow as we go into this year and so.
I think we have.
A lot of strength in the core some of thats being masked by ebay, but ebay is all about timing. We always knew these revenues were moving away. It's just a matter of timing and now we've got kind of what we think is the right case, 100% in third quarter.
And then from there on in.
Those pressures abate.
Great.
Rip off the band aid.
Thank you both losses out of the system I think exactly right.
Yep.
Thank you.
Thanks, Tien tsin.
Yeah.
Your next question is from Ashwin <unk> of Citi. Your line is now open.
Thank you Hi, Dan Hi, John.
I know you.
You provided us.
A lot of inflammation on ebay.
Throughout your prepared remarks.
But I did want to drill down further into sort of the overall effect of E Bay on your non.
On your results and if you can kind of speak to the.
Ongoing impacts through the back half of the year and into next year.
And then the flip side, obviously you've mentioned.
<unk> EBIT performance.
The 32% growth and so on.
Should should we expect that to be coming out of this that sort of growth rate to be.
For more non mode appearance of what you can do.
Sure I'll start.
Ashley I'm sure Dan will want to jump in.
There is.
A couple of metrics that really.
Highlight the true performance of our business, but to start with we've always known that 2021 was going to be the year, where we had the most significant impact from ebay.
And the fab.
Fact that we're lapping what was tremendous growth last year and still performing at the level that we are this year in the face of that impact from ebay.
Is this really just quite phenomenon, but I'll give you. An example of I think really tells the picture here. So last year in the second quarter, we grew revenue 22.
2%.
And in that number there was a benefit of 5 percentage points of growth from ebay, so 23% revenue growth for 5 percentage points of benefit from EBIT.
This year in the second quarter, we grew revenue 19%.
And that number included 800 or 8 percentage points of headwind.
And related to ebay business, and so that really underscores the strength of the franchise and how well we're performing right now.
And quite frankly, it's something that we're very excited about because this sets us up for I think much cleaner performance going forward and an acceleration in some of.
For our growth rates when ebay is a much.
Slower growing and smaller part of our business going forward.
If I can maybe.
Complement some of John's comments, there first of all I do want to say this about ebay obviously, they remain very close strategic partner for.
Us.
We still have about 60% share of checkout on ebay and obviously ebay merchants.
And and consumers.
1.
And desire to use Paypal.
If you think about just to give perspective history.
For perspective, if you think about when we split from ebay 6 years ago.
Ebay's revenues as a percent of our total were 26% of our total revenues and we believe that theyre going to end this year around 3% or so and that there.
<unk> is going to be under 3% as a percent of our overall <unk>.
Volumes and so.
This is as I mentioned before it's a timing issue and frankly, the sooner EBIT transitions the better it is for our future revenue growth I would also say just 1 other.
We are making a lot of progress with a lot of other marketplaces coming out of the.
Ebay restrictions and we continue to see Alibaba continue to ramp really pleased to watch the growth rates, there and we are making.
A lot of progress with a lot of other marketplaces.
That will talk about as we get.
Along further in the year. So the ebay transition is behind us at the end of this quarter.
<unk>.
Dissipate and.
And we're glad to start to move forward and as John.
You'll really be able to see the strength of the franchise start to shine as a result of that.
Thank you. Thank you for those comments.
You bet.
Your next question is from James Fawcett.
Morgan Stanley Your line is now open.
Good afternoon, and thanks for all the commentary, Dan and John I'm sure there'll be additional questions on the quarterly cadence is an EBIT, but I wanted to touch on or for you to touch on something you mentioned earlier and that is.
Growing in store acceptance and QR codes.
John says we've heard some positive things from industry sources recently on growing usage, there and I'm wondering if you could give a little color on what youre seeing from Paypal perspective, and how you are.
Acceptance works with the partnership with Clover from by serve and what it's done to enable that for.
Woods for merchants and consumers.
Yeah, I think I'll start on this 1 and then maybe John can.
Can kick in.
So first of all clearly pretty much every merchant whether it's small mid size or large is envisioning.
A seamless omni channel feature.
And Thats, where our physical.
An online kind of blur together that they now start to use that to digitally interact with their customers too.
<unk>.
Basically.
They tie in their loyalty programs customized deals and offers to individual consumers and that is.
Moving well beyond just checkout before we were thinking QR codes and other forms of <unk>.
Contactless payments were great because.
Was.
Both fast and may be more healthy.
And a pandemic environment, but all of our conversations that go beyond checkout people are looking to drive loyalty looking to drive rewards and coupons more flexibility in how consumers like order track pay.
There are services customized incentives and so that's really the conversations that we're having and that's why we're getting a ton of traction.
By the way I do think that this seamless omni channel.
Efforts by US is key to us doing everyday usage.
For look at not just <unk>.
Multiple millions of consumers that are using our QR codes, but.
What's happening is they also are spending 19% more <unk> on the Paypal platform and that Halo effect is a big deal as we look forward, especially.
If I look towards the Super App, which maybe somebody will talk about later, but.
The more and more of these services, we've put together the more and more of that Halo impact that occurs and so.
We obviously are up to now $1.3 million merchants every 22nd a merchant signing up for more QR codes.
With us we have a lot of momentum with large enterprises right now, but the conversations have moved to how do we fully integrate their loyalty programs into our app.
Do we drive customized.
<unk> for them and so those are taking a little longer to go live.
<unk> site, but they are much more integrated than we've ever seen before and we're seeing with customers like Cvs. Once you start to integrate that together once you start to get it habituation, we saw Cvs transactions go up a 151% month over.
Life and so we're really beginning to see some some traction.
In the marketplace around all of these things very excited about it it's going to be a multiyear journey for us.
But we know that both merchants and customers expect us to be fully omni.
Thanks, a lot.
Oh, yes by the way James 1 other thing you talked about Pfizer Clover I forgot about that so.
That is rolling out this quarter, we are a default funding instrument.
On Clover is a very close partnership.
That we have with <unk>.
Looking forward to reporting more on that as quarters go on.
Thanks for catching that Dan, yes, yes, sorry about that.
Your next question is from Darrin Peller from Wolfe Research your line.
Line is open.
Alright, thanks, guys.
Look it's great to hear that the Super App refresh is going well if you could just give us a little more specifics on the timing of the rollout.
And then what Youre looking for to mean in terms of engagement or impact on M&A levels and I guess just quickly on M&A as Dan you mentioned earlier, you're still confident.
And the high end of the $52 million to $55 million range, which would that would require a bit of a step up from second quarter levels. So just any more color on the conviction there yes.
Yes, sure I'll start right with that quickly.
The second quarter was going to be the low point of the year, because we did 21.
<unk>, 3 or <unk> 4 million, a year ago, and even though they are performing better than cohorts that we've previously had historically their churn is lower it's still a ton of.
Of incremental churn versus traditional cohorts.
On the second quarter.
And.
We're clearly beginning to see that dissipate already this year as I look at M&A is coming in and so.
I feel really good about that that guidance right. Now Q4 is always our high point.
Of the year and so you'll see it start to build.
From second quarter up into third quarter, and then up again into fourth quarter.
And then maybe if I can just.
If that answers your question on M&A.
I'll go quickly into the Super App.
Yes, we made a really.
Substantial milestone.
By being complete on this first iteration.
The Super App.
Slowly ramping first change we've done to the App.
Well for <unk> since I've been here that we've done to the App and so we want to kind of measure for the engage.
<unk> levels are and and the uptake of it but this is going to be something where this isn't a big Bang theory that this app in and of itself. This version is the be all and handle it obviously.
Is going to look across payments basic financial services.
<unk> and shopping tools.
We're going to see.
Re leases.
The enhanced functionality come out pretty much every single quarter, but early on that's going to include things like high yield savings enhanced bill pay which will do improved search and <unk>.
Better UX more builders Aggregators, we're going to do 2 day early access to direct deposit budgeting tools, something we haven't talked about 2 way messaging so for <unk>.
$10 for whatever Youre doing.
Do you want to message me right back.
About sending me a PDP you can go do that and we think that's going to drive a lot of engagement on the platform you don't have to leave the platform to message back and forth. Obviously, the <unk> is being redesigned we've got rewards and shopping we've got a whole, giving hub around crowdsourcing, giving to charities.
<unk>.
And then obviously buy now pay later will be fully.
Integrated into it.
And by the way as we go into next year, we've got all.
For the last time I counted it was like 25 new capabilities that.
And that we're going to put into.
Into the Super App, and so I don't want.
To dismiss it all what we've done right now, but it just continues to improve.
Going going forward in the way that I'm looking at success with the Super App is what kind of engagement levels do we get fully expect engagement to move up what's happening to our average revenue per active account.
Count.
By the way even with the new services. We've recently launched our Avon average revenue per active account ex ebay went up 13%.
This past quarter and Thats, a really good sign along with the 11% improvement in Tpa, which was.
Really a record in the last for years.
Or so and so we've got a lot going on I think our engagement average revenue per active user and then we will look clearly at all of the Halo effect as well, but we're excited.
To be on the journey, right now and be underway and again.
Sales continue to improve quarter over quarter.
Good day.
Yes, you bet.
Your next question is from Colin Sebastian of Baird. Your line is now open.
Great. Thanks, Good afternoon wanted to fall.
Follow up on the pay later initiatives.
Clearly youre, gaining nice traction with users I wonder how much of that activity is incremental to volume if thats just a function of the higher conversion rate and secondarily. We've heard from some merchants that return rates are a little bit higher with pay later, so I'm just curious if that impacts merchant adoption at all thank you.
Yeah sure so look I would say.
Another.
Terrific quarter I mean, it just in every way.
For buy now pay later as I mentioned, we did $1.5 billion of PPV in the quarter alone.
No.
<unk> added 3.5 billion, but this is an amazing piece of a stat on that $1.5 billion, that's up 50% for.
From Q1 sequentially. So you can really see that even if we had so much momentum Q1 that momentum really accelerated in.
2 you've got a bunch more merchants using it now 650000.
Merchants.
More and more of them are presenting it upstream on their product pages that obviously gives us a disproportionate share of checkout.
When that occurs and.
Q you could tell by the 7 million customers doing $20 million.
Plus transactions that obviously, our repeat rates are extremely high and theres a lot of satisfaction.
With the product.
Still something like <unk>.
70% are repeating.
Within 6 months.
And our Halo effect is the same as it was last quarter still a 15% halo effect and TPB.
Still a substantial reduction in our ta costs about a 16% reduction.
Still seeing 80% plus of these funded through a debit.
And.
And Australia, we've put into place a couple of weeks ago and Bam, it's off to a really strong start right away. So.
And part of the reason.
<unk> gone that we're getting such strong results is because we have 400 million customers and when we put.
And it happens at scale and we know those customers. So the approval rates are much higher returns are lower because we know the customer.
And so a lot of the other buy now pay later players don't necessarily know the consumer the way that we know the consumer.
Put something this in.
And so we're pretty pleased we've got a ton on our roadmap ahead.
In terms of expanding internationally and more and more functionality that we want to put on the product itself.
And I'd just add a couple of points there I think a really encouraging as we looked at the early progress there.
<unk>.
1 is that where we have upstream presentment, we see a double digit click through rate from consumers, which is quite encouraging and particularly when you think about what Dan mentioned scaling that across all of our customer base, but the other and it's a very important 1 and it actually ties back into Darrin.
<unk> previous question around.
Revenue per user and engagement, but we see a 15% lift.
And overall TPB among those customers that are using buy now pay later so we're early stages here, but as we've repeatedly said, we think that we've got a value proposition that is frankly.
So none.
Quite encouraged by some of the early results that we're seeing.
Great. Thanks, guys.
Net.
Your next question is from David Toga day ever.
Core ISI your line is now open.
Thanks, So much Dan and John given the new PE.
Second for pricing model on branded and unbranded products effective August 2nd can you gauge for us the expected annualized impact on revenue and non-GAAP EPS from these changes.
And then as part of that could you just elaborate on.
Your physical point of sale payment strategy.
Given the size of the price cut.
On physical credit and debit card transactions is quite substantial.
Sure I'll take the first part of that question David.
Look our pricing change.
<unk>, both price increases and price decreases.
And.
It remains to be seen sort of the.
The volume changes that come from each of those and so in the context of our 25 plus billion dollar revenue base I would say that for the year. These are relatively immaterial on our results, but I think very importantly, this provides a lot.
Lot more transparency and clarity to our customer base around high power pricing and really trying to price to the value that we provide for these for.
For these customers and we've demonstrated time and again where that value comes from and just.
Survey data on.
On customers' willingness to buy when Paypal as presented at checkout.
Exponentially greater than when it's not so this is.
This is probably overdue it's been the first time in 20 years 20 years.
That we've made a change to our base pricing like this but.
Certainly think it puts us more in line with with.
With the market and and really prices to the value that we're creating for our customer base.
That was a pretty comprehensive.
Response from John I mean, we obviously carefully review every 1 of our pricing changes.
<unk> are down.
Do extensive market research.
Before we do any change and as John said, we look at what do we add value and we price in accordance.
With that clearly on the branded side, we think we add a tremendous amount of value things that John talked.
By a buyer and seller protection.
Buy now pay later at no incremental cost from protection highest checkout conversion et cetera, but we took that down rates.
For basic full stack processing.
Now that that also was reduced somewhat substantially.
From the 2.9 plus 30 to $2.5.9 plus 49.
And that is going to enable us to aggressively compete.
For all of the payment processing of the merchants that do business with us and.
You've heard us say time.
Time and time again that we.
We are going to move into the in store space.
Going to move so aggressively in there we rolled out settle in the U S.
Is a really beautiful full package. It doesn't just include card reader, but inventory.
Management sales reads out and allows the merchant to seamlessly load inventory in both their online.
And in store locations than across multiple channels as well and so we're obviously going to be very aggressive.
<unk>.
I am moving into in store.
And.
It's always been part of our strategy and by the way if a small merchant does all of their business with us they can actually see their overall cost come down and we want to encourage them to do all of their business with us because we are adjusted.
The platform, they do turn to us and.
We price we think the right way, we finally have unbundle some of this branded and unbranded.
Because that's how the market is.
And we know where we want to be aggressive and we're going after that.
Thanks, so much Dan and John.
You.
You bet David Thank you.
Your next question is from Ramsey El Us all for it.
Please your line is now open.
Hi, Dan and John Thanks for taking my questions. This evening.
Dan I wanted to get your updated view on crypto and blockchain and see how you guys are.
Planning on engaging with the ecosystem from a consumer product perspective, and I know you just mentioned some new crypto capabilities in our new App, but also from a balance sheet perspective, and internal technology perspective, how does how will you kind of engage with the ecosystem in the quarters ahead.
Yeah.
Well, we continue to be really pleased.
It is with the momentum we're seeing on crypto and we're obviously.
Adding incremental functionality.
Into that whether you probably saw increased limits.
100000, a week.
We're right in the middle of some open banking.
Integration, which will increase.
<unk> the ability to fully integrate into aviation do faster payments, we're going to launch.
Hopefully maybe even next month.
In the U K open up trading there working right now on transfers to third party.
And we really.
To make sure that.
We create a very seamless process for taxes and tax reporting.
And so we're really looking at.
How do we integrate that into both the trading in the <unk>.
By with crypto on our platform, but I will say this all of that.
It is.
Is interesting, but it isn't the main course.
In terms of what we're trying to do with our blockchain and digital currency business unit.
We are clearly thinking about what the next generation of the financial system looks like.
How we can help shape that we are working with regulatory.
Agency's.
Central banks across the world the number of countries.
That are looking at CBD see Central Bank issued digital currencies is increasing rapidly.
I get 40 countries.
6 months, a year ago, you almost up to 100 countries looking at it.
Right now and clearly there is an opportunity to think about a new infrastructure that can.
More efficiently read that to be a lower cost do track.
These actions and also get money to people much faster.
Then happens today I mean, the other day I said in Ft from 1 bank to another bank that Bank told me. It would take me 3 days to access that money in the <unk>.
That's crazy.
It needs to be instantaneous and there is a lot of desire.
By governments to really thank Erik can you create a more efficient system using new technology to bring in more citizens more under banked underserved citizens into the financial system.
Because they disproportionately pay a higher take rate than those who are fully banked or higher income levels and other.
There is a lot of.
Connections between digital wallets and Central Bank issued digital currencies imagine.
Having to send out stimulus checks.
Sending those directly into a digital wallet.
Instantaneous receive it and you don't have to go in.
To check cashing location exchange that and get to get charged for that exchange Theres, just so many benefits to.
That as well as just plain utility to payments, how can we use smart contracts more efficiently how can we digitized assets and open those up to consumers that may not have had access to that before.
And there are some interesting <unk> applications as well and so we are working really.
Hard and by the way as you probably have seen we are trying to pick off the very best talent in the ecosystem to come work here at Paypal.
We have a list of names and phone numbers and we're slowly but surely.
Building a team that.
I think he is going.
To shape the thought process around this and.
I'm really pleased with at least the early returns on that hopefully that helps you.
It does debt very interesting. Thanks, so much you bet.
And we have time for 1 last question from Jason Cooper part.
Of Bank of America. Your line is now open.
Hey, Thanks, guys just wanted to ask a couple here on margin and for starters can you just reconcile for us the unchanged revenue and EPS guidance for the year with the lowered operating margin guidance and talk about how much of the guidance change on margin is.
Really ebay versus perhaps elevated opex growth expectations.
And then just as a quick follow on and give US a sense of how we should think about the margin potential of your business beyond this year EBIT conversion moves into the rearview mirror.
Sure Jason I'll take this and it's great to speak with you. So.
Starting with the first part of the change this year.
Really 2 things to note.
1 that we talked about is ebay ebay, we expect to have an 85 cent impact to.
Our EPS this year.
And the fact that we are performing and expect to perform for the back half of.
As for me at this level and being able to weather that impact us I think really speaks to the strength of the overall business, but the second area and this sort of gets into the second part of your question as well, but we're also investing aggressively in our business I would argue that there's never been.
The year of our important time in our business to invest right now to invest for our future where we believe in the primacy of digital wallets, we believe in the permanent pull forward of E. Commerce, we believe in.
The ubiquity of digital payments and 2.
We want to help shape that outcome, we want a BLA.
Been a motor in that space now it happens that the the structural nature of our business our margins once it go up and by the way they will to be very clear about that.
But at the same time, we don't want to be.
Prisoner to expanding operating margin 1 quarter to the next.
Because we want to be able to appropriately invest in our business to create the most shareholder value that we can over the long term and become the company that we all believe that we can be and so closeout. Our margins will go up we said this year that we expect to have flat, maybe some marginal improvement in our margins.
But as we noted at our Investor Day earlier this year, our margins will go up over time, but we want to we want to invest for growth and invest to be that leading digital company payments company that we know we can be.
Okay. Thanks for the comments.
Alright, Thanks, Jason.
<unk>, but I would now like to turn the call back to you.
Dan Schulman for closing remarks.
Thanks, so much.
Thanks, everybody for those great questions.
Thank you everybody for your time.
I hope that all of you and your families are staying healthy.
That you are having a great summer as well.
We look forward to speaking to you soon.
Take care and thanks again for your time.
This concludes today's conference call you may now disconnect.
Yes.
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