Q1 2025 PayPal Holdings Inc Earnings Call
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Good morning, and welcome to Paypal first quarter 2025 earnings Conference call. My name is Polly and I will be your conference operator today as a reminder, this conference is being recorded.
Speaker Change: I'd now like to turn the program over to your host for today's conference, Steve Winokur, Paypal Chief Investor Relations Officer. Please go ahead.
Okay.
Steve Winokur: Thanks, Paul and welcome to Paypal as first quarter earnings call I'm joined by CEO, Alex, Chris and Chief Financial and operating Officer, Jamie 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.
Alex: As we see them today as described in our earnings press release, and SEC filings and on our website those elements may change as the world changes now over to you Alex.
Steve Winokur: Thanks, Steve we.
Speaker Change: We had a strong first quarter as we begin to execute on the strategy, we laid out during our recent investor day.
Steve Winokur: Paypal is transforming from a payments company to E Commerce platform.
Steve Winokur: This includes expanding to be available everywhere, whether it's online in store or <unk>.
Steve Winokur: This means moving from a one size fits all experience to personalized experiences that leverage the vast data at our fingertips.
Steve Winokur: We are developing a dynamic smart wallet that will allow consumers to make the smartest choice and how to pay and get rewarded.
Steve Winokur: With this transformation, we are shifting from being purely a payments processor to an end to end strategic commerce partner for our merchants.
Steve Winokur: And underpinning this is our work to converge into a single Paypal platform that unlocks the full potential of Paypal two sided network in support of both consumers and merchants.
Steve Winokur: This strategy is durable and positions us to win in the months and years ahead.
Steve Winokur: Turning to Q1, we have so much to be proud of.
Steve Winokur: Let me share just a few highlights.
Steve Winokur: Our strategy is designed to improve Paypal profitability over time.
Steve Winokur: In Q1, we delivered our fifth consecutive quarter of profitable growth with transaction margin dollars growing by 8%, excluding the impact from last year's Leap day.
Steve Winokur: That growth was driven by multiple sources across our strategic initiatives, including Omnichannel commerce, both online branded checkout and offline branded payment methods.
Steve Winokur: Venmo and PSP.
Steve Winokur: As a result of this focus on profitability.
Steve Winokur: non-GAAP earnings per share increased 23% year over year.
Steve Winokur: Additionally, Paypal and venmo are being used by more people more often.
Steve Winokur: Both total active accounts and monthly active accounts grew a healthy 2% in the quarter.
Steve Winokur: Transactions per active account ex PSP grew 4%, reflecting improved engagement and transaction growth in online branded checkout and venmo.
Steve Winokur: As we expand our offerings from online to everywhere the best way to see the traction we're gaining is through branded experiences TPB.
Steve Winokur: Branded experiences comprises volume from Paypal, and Venmo online checkout as well as branded in store payment methods like debit in tap to pay.
Steve Winokur: In Q1 branded experiences PPV grew 8% excluding last year's Leap day.
Steve Winokur: A full two points higher than branded experiences growth for the full year of 2024, highlighting the growing contribution of our omnichannel initiatives.
Steve Winokur: Still early days, but we are very proud of this progress.
Steve Winokur: Within branded experiences, we're continuing to accelerate the rollout of our upgraded online branded checkout flows.
Steve Winokur: This includes our simplified and modernized patient designed with streamlined login and reduced latency.
Steve Winokur: Since the beginning of the year, we've driven a 25 point jumped to more than 45% of U S checkout traffic.
Steve Winokur: This shows we can execute and we anticipate an even faster rollout for Europe, starting in the second quarter.
Steve Winokur: And finally venmo had another standout quarter.
Steve Winokur: We hit an important inflection point for venmo monetization with 20% revenue growth driven by our push to make venmo, one of the best ways to pay online and in store.
Steve Winokur: These are only a few examples of the strength, we're seeing in the execution of our strategy.
We're feeling the excitement of our innovations in the market and the engagement from our consumers and merchants partners and we're just getting started.
Steve Winokur: As you can hear I'm encouraged by the momentum we are driving.
Steve Winokur: We had a great start to the year and expect a solid second quarter, which would result in the first half coming in above our prior expectations.
Steve Winokur: However, given it is early in the year and because of the current level of macro uncertainty we are maintaining our guidance for the full year at this time.
Steve Winokur: Jamie will provide more color on our results and guidance in her remarks.
Steve Winokur: Let me now go into the details of the progress, we're making on our strategic growth drivers.
Steve Winokur: Starting with wind checkout.
Steve Winokur: Online branded checkout, TBD, including Paypal and pay with Venmo grew nearly 6% this quarter accounting for last year's Leap day.
Steve Winokur: We're proud of this growth and expect it to increase over time as more traffic flows through our upgraded experience.
Steve Winokur: One of the main benefits of our upgraded experience as the modernized <unk>, which improves the presentment of our full suite of payment options.
Steve Winokur: This contributes to a personalized experience where consumers can more easily pay their own way, whether now with balance cards crypto or buy now pay later.
Steve Winokur: What we're seeing is that as we improve the presentment of the NPL and checkout, it's being selected more often.
Steve Winokur: In Q1, the NPL volume grew more than 20% and monthly active accounts grew 18% year over year, highlighting the effectiveness of the new design and the strength of our value proposition.
Steve Winokur: As a reminder, the NPL users spend 33% more on average and conduct 17% more transactions.
The NPL is featured in our latest marketing efforts with will Farrell about Paypal as flexible online checkout.
Steve Winokur: And we are focused on winning in key markets.
Steve Winokur: We will continue to lean into the NPL throughout this year with targeted consumer awareness campaigns in the UK and Germany and continued investment in other priority global markets, including Australia, France, Italy and Spain.
Steve Winokur: Pay with Venmo is resonating well with consumers and merchants and it is growing rapidly with TPB, increasing more than 50%.
Steve Winokur: Monthly active accounts grew 30% as we increased merchant availability.
Steve Winokur: For example in January Jetblue became the first airline to accept venmo for bookings.
Steve Winokur: We're seeing strong selection from venmo is valuable demographic at major brands, such as Domino's, instead cart and Tic Toc shop.
Steve Winokur: I expect more demographic relevant merchants to offer pay with venmo over the coming quarters.
Steve Winokur: Let's move to the progress we are making to become omnichannel, serving our customers everywhere, they want to shop with Paypal and venmo.
Speaker Change: As I noted earlier branded experiences TPB grew 8% in the quarter, excluding last year's Leap day.
Steve Winokur: This growth reflects our strategy to deliver flexible and rewarding experiences that connect consumers to the things and experiences they want and love wherever they shop.
Steve Winokur: Today, our Paypal and venmo debit cards are enabling our customers to use their balance to shop anywhere cards are accepted.
Steve Winokur: Adoption is strong and growing with approximately 2 million first time, Paypal and venmo debit card users in the quarter, an increase of nearly 90% from last year.
Steve Winokur: Debit card PPV grew approximately 64% in the first quarter.
Steve Winokur: <unk> debit card monthly active accounts grew nearly 40% and penetration has increased to 6% of venmo maa's.
Steve Winokur: We are focused on getting these products into the hands of even more of our customers because they allow them to choose Paypal and venmo as their way to pay more often.
Steve Winokur: In the first quarter users, who adopted the Paypal debit card transacted nearly six times more and generated more than two times. The average revenue per account compared to those who used online branded checkout only.
Steve Winokur: There is also a halo effect, where debit card users choose Paypal more often and online branded checkout.
Steve Winokur: Our Omnichannel strategy is showing early success in the U S and we are excited to replicated internationally.
Steve Winokur: We are on track to launch NFC capabilities in Germany later, this quarter and bring Paypal everywhere to the U K in Q3.
Steve Winokur: Moving to our PSP business, which remains a key driver of transaction margin dollar growth.
Steve Winokur: We continue to build deeper relationships with the world's largest brands and sell our strong suite of value added services.
Steve Winokur: That is a massive untapped in margin rich opportunity I'll share two examples.
Steve Winokur: We recently scaled our optimize debit routing with wayfarer and upward.
Steve Winokur: This service routes eligible debit cards through lower costs debit networks, which helps merchants reduce their transaction fees.
Steve Winokur: Regal cinemas has adopted our fraud protection advanced service, which allows merchants to leverage Paypal has decades of fraud intelligence and advanced machine learning to improve the risk decisions and capture even more revenue.
Steve Winokur: Let me give you. An example of how this focus on adoption of value added services can improve the end to end relationship and margin profile of our largest customers.
Steve Winokur: Recently, we expanded our relationship with a long time Braintree merchant by.
Steve Winokur: By focusing on price to value and processing attachment of advanced risk capabilities, and leading edge branded solutions like payment ready API.
Steve Winokur: We were able to improve merchant performance and profitability.
Steve Winokur: We took this merchant from unprofitable to profitable improving their transaction margin nearly 20 percentage points over the course of the year.
These are the kinds of conversations we're having that drive value for our customers and for Paypal.
Steve Winokur: Because of the quality of our value added services. We expect these types of improvements to continue over the next few years.
Steve Winokur: For small businesses, we continue to migrate volume onto Paypal complete payments today.
Today, nearly half of SMB processing and checkout volume is on this platform, which is steady progress from last quarter.
Steve Winokur: Bringing more smbs into the stack enables them to easily access our latest online branded checkout and new products like fast Lane, and we've seen incremental product adoption increased by 33% as a result.
Steve Winokur: Next Paypal is leveraging our two sided ecosystem in ways, we've never before to innovate and build the future of commerce.
Whether it's AI personalization ads, where crypto, we are providing our customers with the most advanced ways to engage and a shopping experience. These.
Steve Winokur: These initiatives are in the early stages, but unlock significant growth potential for us in the years ahead.
Steve Winokur: Take AI for instance at.
Steve Winokur: At Investor Day, I told you we were leaning into Asia into Commerce.
Steve Winokur: I asked you to imagine what the future would look like where AI agents could bring up the right products at the right time and complete your purchase.
Steve Winokur: Thanks to rapid developments that future is here.
Steve Winokur: Just a few weeks ago, we launched the industry's first remote MCP server and enabled the leading AI agent frameworks to seamlessly integrate with Paypal Apis.
Steve Winokur: Now any business can create a gen tick experiences that allow customers to pay track shipments manage invoices and more all powered by Paypal and all within an AI client.
Steve Winokur: As we speak developers are gathering at our San Jose headquarters for our annual developer days.
Steve Winokur: Every major player in AI is represented providing demos and engaging with our developer community.
Steve Winokur: The future of Commerce will have a strong <unk> presence and we're excited about leading the charge.
Steve Winokur: Paypal ads is continuing to lay the foundation for a robust and highly differentiated ads business that will create more personalized shopping experiences.
Steve Winokur: We're leveraging our extensive cross merchant transaction data and customer insights to develop a platform that improves discovery for consumers and helps merchants reach more shoppers.
Steve Winokur: We recently expanded Paypal ads internationally with our launch in the U K.
Steve Winokur: And today, we are launching off site ads, which are ads informed by our insights placed outside of the Paypal platform.
Steve Winokur: This will allow Paypal to help brands find the right user at the right time.
Steve Winokur: And it is built with the privacy in mind.
Steve Winokur: We are working to rapidly accelerate advertiser onboarding as we continue to grow at.
Steve Winokur: Crypto is another area, we're making strides.
Steve Winokur: We're moving quickly to bring the benefits of crypto and stable coins to our customers and the industry.
Steve Winokur: Last week, we introduced the ability to earn rewards for holding <unk> USD.
Steve Winokur: This will increase the adoption and use of digital currencies for everyday commerce from sending money internationally to making purchases and more.
Steve Winokur: We've also strengthened our relationships with major crypto players like coinbase, so people can more easily access and use <unk> USD.
Steve Winokur: As I close my remarks.
Steve Winokur: Want to again highlight how proud I am of our team and the focused execution and innovation we are driving.
Steve Winokur: To reinforce this point, let me bring together venmo strength in the first quarter as an example.
Steve Winokur: We've leaned into venmo and the investment is starting to pay off.
Steve Winokur: The venmo user base continued to expand and we're growing monthly active accounts mid single digits.
Steve Winokur: Pay with Venmo, TPB grew more than 50% and MAA as grew 30%.
Steve Winokur: <unk> debit card Maa's grew nearly 40% and penetration has increased to 6% of venmo Maa's, that's up from 4% a year ago.
Steve Winokur: When you added all up the venmo business grew revenue by 20%.
Steve Winokur: That sequential double digit growth and the highest rate we've achieved in years.
Steve Winokur: Our execution muscle is growing stronger by the day and we're just getting started.
Steve Winokur: To recap we had a great first quarter, we are confident in our ability to execute the strategy, we laid out as we enter the year.
Steve Winokur: With our clear strategy strong balance sheet high free cash flow conversion and traction and execution. We have a solid foundation that allows us to navigate uncertain times and invest in our long term growth.
Jamie Miller: With that over to Jamie.
Jamie Miller: Thanks, Alex.
Jamie Miller: Moving to slide five Paypal delivered a strong quarter to start the year. Our results reflect another positive step forward with multiple drivers contributing to an acceleration in profitable growth.
Jamie Miller: We are improving our speed and focus across the organization working hard to transform the company, while improving our value proposition for consumers and merchants.
Jamie Miller: Excluding interest on customer balances transaction margin dollars grew 7% or 8% ex leap day accelerating from last quarter, we outperformed the TM dollars and EPS guidance, we provided in February with upside driven by a combination of sources, including PSP profitability.
Jamie Miller: <unk> venmo credit and transaction expense improvement and a more favorable tax rate non.
Jamie Miller: non-GAAP earnings per share were $1 33 in the quarter up 23%.
Jamie Miller: And Paypal generated $1 billion of free cash flow in the first quarter, bringing trailing 12 months free cash flow to $6 billion.
Jamie Miller: Adjusted free cash flow, which excludes the net timing impact between originating and selling European buy now pay later receivables was $1 4 billion in the first quarter and $6 $2 billion over the past 12 months.
Jamie Miller: Turning to slide six total active accounts increased by about $1 5 million from the fourth quarter and over $8 million versus the prior year's first quarter to $436 million.
Monthly active accounts continued to show steady progress up 2% year over year to $224 million with contributions from Paypal consumer accounts and venmo.
Jamie Miller: Transactions per active account, excluding PSP processing grew 4%.
Jamie Miller: Moving to slide seven total payment volume grew 3% at spot and 4% on a currency neutral basis to $417 billion.
Jamie Miller: As we highlighted at our Investor Day in February. This slide now includes a simpler and more relevant PPV breakout.
Jamie Miller: This reflects how we think about our product portfolio today, the go forward strategy and our customer needs.
Jamie Miller: Looking across these categories. We are encouraged to see signs that both consumers and merchants are expanding how and where they use paypal.
Jamie Miller: Winning checkout remains our most critical priority and our teams remain laser focused on advancing the many initiatives that reinforce our checkout business.
Jamie Miller: In the first quarter online branded checkout volumes grew more than 4% on a currency neutral basis.
Jamie Miller: And excluding last year's Leap day, which contributed over a point to growth online branded checkout volumes increased nearly 6%.
Jamie Miller: Branded experiences TPB, which includes online checkout, Paypal and venmo debit as well as tap to pay grew 8% ex leap day accelerating from the prior year.
We're excited about this momentum as we work to drive greater awareness that both Paypal and venmo are ways to pay any time and any place ultimately our goal is to form deeper consumer relationships driving habituation across online and offline channels.
Jamie Miller: Turning to PSP, which spans both large enterprise and SMB processing as well as parts of our vast portfolio like payouts invoicing and point of sale solutions volume grew 2% compared to 6% in the fourth quarter.
Jamie Miller: As we discussed throughout the past year. The shape of this growth is intentional we are prioritizing healthy quality growth within our Braintree business and have made deliberate choices to shift away from unprofitable volume.
Jamie Miller: Shifting away from this volume pressures gross revenue that is accretive to transaction margin dollars and should result in more than one point of TM benefit this year.
Jamie Miller: We continue to expect this benefit to build over time as we drive more value added services.
Jamie Miller: Moving to more financial detail on slide eight transaction revenue was flat on a spot basis or up 1% on a currency neutral basis to $7 billion, driven primarily by branded checkout Venmo and SMB processing. This growth was offset by the shift away from unprofitable Braintree volume.
Jamie Miller: That I just mentioned.
Jamie Miller: <unk> other value added services revenue grew 17% to $775 million driven primarily by healthy performance in consumer and merchant credit.
Jamie Miller: We ended the quarter was $6 $5 billion in net loan receivables up 1% sequentially and we continue to be pleased with the quality the diversification and the performance of our credit portfolio.
Jamie Miller: We take a prudent approach to managing the portfolios exposure and our goal is to sustain a balance sheet light business model, while providing our customers with more ways to manage their cash flow spending and borrowing needs.
Jamie Miller: Transaction take rate declined by six basis points to 168% driven largely by product and merchant mix. The two largest drivers of this change were momentum in payouts and shifting away from unprofitable volume on brain tree, some of which carries a higher gross take rate due to card funding.
Jamie Miller: There was also impact from faster growth of large enterprise volume within branded checkout adoption of the Paypal debit card and growth of Venmo and Paypal PDP.
Jamie Miller: These are positive trends for our business, demonstrating the relevance and importance of Paypal to consumers and merchants around the globe as well as the progress we are making to improve profitability.
Jamie Miller: Our focus on profitable growth and the progress we are making across our strategic growth drivers is most clearly demonstrated by the acceleration in transaction margin dollar growth that we have delivered over the past year.
Jamie Miller: Branded checkout, PSP and value added services credit and Venmo, where all meaningful contributors to transaction margin dollar growth in the quarter. These drivers also include improvement in transaction expense.
Jamie Miller: Transaction margin rate increased by more than 270 basis points year over year, reflecting our focus on price to value and profitable growth.
Jamie Miller: Non transaction related Opex increased 2% as we continue to actively manage our cost structure, while reinvesting in key growth initiatives. This includes marketing to support the rollout of new products and initiatives.
Jamie Miller: non-GAAP operating income grew 16% in the quarter to $1 6 billion and non-GAAP operating margin increased about 260 basis points to 27%.
Jamie Miller: In the quarter, we completed $1 5 billion in share repurchases, bringing share repurchases over the past four quarters to $6 billion.
Jamie Miller: Finally, we ended the quarter with $15 $8 billion in cash cash equivalents and investments and $12 6 billion in debt.
Jamie Miller: Moving to guidance on slide nine for the second quarter and the full year of 2025. Our teams are focused on execution and capturing the opportunity in front of US we are confident that our scale diversification and balance sheet enable us to keep advancing our strategic growth.
Jamie Miller: <unk> through different operating environments.
Jamie Miller: As we continue making progress on Paypal transformation, we have multiple growth levers and are well positioned to help merchants and consumers navigate the environment.
Jamie Miller: Importantly, with a strong first quarter behind us and a good start to the second we believe we are on pace to outperform our original expectations for the first half of 2025.
Jamie Miller: At the same time, given uncertainty in the environment and the potential for a wide range of outcomes, we are appropriately cautious.
Jamie Miller: Consumer spending and the labor market have proven resilient, but it remains to be seen how tariffs and other trading friction will impact global economic activity consumer spending and supply chain over time.
Jamie Miller: As Alex mentioned, despite our strong start to the year, we're maintaining our full year guidance and this guidance now implicitly build some incremental flexibility into the second half of the year for macroeconomic uncertainty.
Jamie Miller: Throughout different macro environments, we will remain focused on making the right long term decisions for the business.
Speaker Change: Striking an appropriate balance between investment and productivity.
Jamie Miller: For the second quarter, we expect low to mid single digit revenue growth on a currency neutral basis.
Speaker Change: Which is impacted by the Braintree renegotiation efforts I discussed earlier.
Speaker Change: We've seen a good start to April and are watching trends closely.
Speaker Change: Tariff related concerns and news flow have likely resulted in some spend being pulled forward for certain verticals in the U S.
Speaker Change: We are not assuming that those higher activity levels persist for the entire quarter.
Speaker Change: We expect second quarter transaction margin dollars to be between $3 75, and $3 8 billion, which represents four 5% growth at the midpoint excluding.
Speaker Change: Excluding interest on customer balances, we expect transaction margin dollars to increase by approximately six 5% at the midpoint.
Speaker Change: We are planning for mid single digit non transaction opex growth in the quarter due to the timing of initiatives and marketing spend and we expect to deliver non-GAAP EPS in the range of $1 29 to $1 31, or 9% growth at the midpoint.
Speaker Change: For the full year, we are maintaining our guidance as I mentioned earlier and I'll just highlight a couple of lines excluding interest on customer balances, we expect transaction margin dollars to grow by at least 5% compared to four 6% growth in 2024, and we expect to deliver full year non-GAAP EPS.
Speaker Change: In the range of $4 95.
Speaker Change: To $5 10.
Speaker Change: Representing about 8% growth in the mid point.
Speaker Change: This includes negative impacts from lower interest rates and compared to our prior guidance a smaller headwind from our expected non-GAAP effective tax rate.
Speaker Change: Our guidance continues to assume approximately $6 billion in share buyback for the full year and we continue to expect full year free cash flow of approximately 6% to $7 billion.
Speaker Change: I'd like to wrap up by thanking the Paypal team for their continued focus and dedication we have a solid foundation to build on as we execute on the second year of Paypal transformation with that back to you Alex.
Speaker Change: Thanks, Jamie.
Speaker Change: To summarize we had a great start to the year and our strategy is taking hold.
Speaker Change: We've built a solid foundation and have multiple ways to win.
Speaker Change: A huge thank you to the Paypal team for their focus on delivering for our customers and our business.
Speaker Change: Steve Let's go to Q&A.
Speaker Change: Before we open the line I'd ask everyone in the queue to consider your fellow analysts and ask just one question. So we can get to as many people as possible. Paul would you. Please open the line.
Speaker Change: 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 well pause for just a moment to compile the Q&A roster.
Speaker Change: And your first question comes from the line of Jensen Huang from Jpmorgan. Your line is open.
Speaker Change: Yes.
Jensen Huang: Hi, Thanks.
Speaker Change: But the progress report here lots lots to talk about just wondering maybe.
Speaker Change: That's the obligatory macro question, if you don't mind I'd love to hear a little bit more on how you'd characterize consumer end.
Speaker Change: And SMB health overall, and I know you've touched upon a little bit, but as the macro and the geopolitical stuff that's going on in the world is that changing enough for you to reorder some of your priorities. It does sound like you are leaning harder into the NPL and venmo, but yeah, just just a broader macro question.
Speaker Change: <unk>.
Tien Tsin: Hey, Tien tsin. Thanks, Thanks for the question.
Tien Tsin: I Wouldnt say were reordering any priorities and I don't think we we're obviously watching it very closely.
Tien Tsin: To see what plays out, but yes things have been pretty consistent so far.
Tien Tsin: <unk>.
Tien Tsin: Obviously, we think there's an opportunity you mentioned buy now pay later, we think with our strong position.
Tien Tsin: Position, there and strong product there is obviously an opportunity to continue to lean in I think from a consumer standpoint, yes, we have been building over the last few quarters to really be the most rewarding way for consumers to pay and we think thats an opportunity for us to continue to get our message out our rewards coming back on debit card rewards, we just put out on <unk>.
Tien Tsin: These are things that put more money in the pockets of consumers and thats.
Tien Tsin: That's a positive thing as an opportunity for us on small business again.
Tien Tsin: We know that that cash flow is the most critical part for small businesses, we haven't seen a big impact yet but as.
Tien Tsin: As they think about money in money out and access to capital.
Tien Tsin: Know that we have a tremendous strength when it comes to providing capital to our small business customers and we think we can be a place for them to come in times of need, but I'd say, we're still early and we haven't seen any big shifts yet, but we feel confident in our position if those things happen.
Speaker Change: And Tien Tsin I would just add.
Tien Tsin: That when you look just at the core.
Tien Tsin: Credit portfolios as a monitor some of your question around consumer health or merchant health.
Tien Tsin: We monitor that very closely charge off rates are stable and in some cases, improving and in particular with respect to the consumer portfolios, we've actually seen delinquencies over the last 30 days improve.
Tien Tsin: And also as it relates to just broader consumer trend. The first part of April we.
Tien Tsin: We saw an uplift as well in terms of TPB and a lot of folks have referenced that is pull in but when you look at just general consumer health coming into what could be a more uncertain time is looking pretty healthy and pretty good and then with respect to SMB. Good continued consistent performance, there too and I'm, a merchant lending side as well.
Tien Tsin: Monitor that.
Tien Tsin: Honestly pretty consistent with what I would say about consumer charge offs also improving and obviously, we're monitoring the whole thing very very carefully but it looks it looks pretty steady right now.
Speaker Change: Our next question comes from the line of Dan <unk> from Mizuho. Your line is open.
Speaker Change: Hey, guys great results here really appreciate it.
Speaker Change: Can you give us like a 10, so it looks like the branded experienced <unk> strategy is doing really well can you give us maybe a sense of like how much traction you're getting there and what youre doing to get those nice results and thanks again.
Dan: Yeah, Dan Let me, let me start.
Speaker Change: Good to hear from you.
Speaker Change: We've got this is this is the strategy that we've laid out really coming to life. So first.
Speaker Change: We have a branded checkout strategy that is.
Speaker Change: Really about driving habituation everywhere the customer wants to pay we have such strong brands in both Paypal and venmo.
Speaker Change: And our customers are asking to be able to leverage that trust the safety the brand the rewards and every purchase that they make and so we've been focused on not only improving that online experience that we've talked about it and I'm sure we'll talk about more.
Making it available for them exactly how they want to pay whether thats immediately or with a pay later scenario with buy now pay later, but then also offline and you mentioned branded experiences. This really is.
Speaker Change: Enabling our Paypal debit card.
Speaker Change: Our venmo debit card to be accessible to our consumers, we saw Paypal debit card TBD growth over 100% in Q1.
Speaker Change: That really is driving habituation. This is driving our our consumers to actually start to come back move online.
Speaker Change: And start to pay.
Speaker Change: With Paypal wherever they see it so the strategy is working and our TPB up 8%.
Speaker Change: Overall in branded experiences and this really is the metric that.
Speaker Change: We are focused on and we hope you're focused on as well because again it is really.
Speaker Change: All about the strategy that we've laid out.
Speaker Change: Your next question comes from the line of Ramsey El <unk> from Barclays. Your line is open.
Speaker Change: Hi, Thank you very much for taking my question. This morning, I wanted to ask about the de Minimis tariff exemption for for China. I think that's scheduled to be eliminated on may 2nd do you expect an impact from that I guess and if so if you could help us dimensionalize the impact I'd appreciate it.
Speaker Change: Yes, good morning.
Speaker Change: So obviously the whole situation around tariffs is really changing daily and there is multiple scenarios that could unfold and maybe I would first start by saying I think we come into this from a position of strength. We are globally diversified our merchant base our region base, It's just very very global and diverse and we are well positioned.
Speaker Change: <unk> to capture shifts in spending as they happen and the other thing I would just add is the in particular in the U S. We are about 50 50 between retail and services. So diversification there as well, but when you talk about de Minimis.
Speaker Change: I would say is that for you our Chinese merchants selling into the U S is less than 2% of our branded checkout TPB and this includes both direct.
Speaker Change: The U S cross border transactions.
Speaker Change: And volume from Chinese merchants with U S entities, but where they're shipping from China.
Speaker Change: So.
Speaker Change: From that perspective, that's probably highlight size it there.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.
Speaker Change: Yeah.
Darrin Peller: Hey, guys. Thanks.
Darrin Peller: Let me just go a little further if you don't mind into what's embedded embedded in your outlook around <unk>.
Darrin Peller: <unk> and modeling assumptions totally understand now changing guidance despite the beat.
Darrin Peller: But if you could help us with the assumptions on the macro front of what you're embedding in your outlook.
Darrin Peller: Especially around cross border in China, and just what we should think about being recruited.
As well as even just give us a little more color on branded growth expectations. What are you seeing specifically in April right now from a branded growth rate standpoint, and then branded versus unbranded growth as the year progresses would be really helpful.
Darrin Peller: Thanks, guys.
Darrin Peller: Yes.
Speaker Change: Sorry, Darren I'm, just writing down all your questions here.
Speaker Change: Let me start with the macro question I think Alex was alluding to this before but I'd start by saying as we look at this year. We are laser focused on what we can control staying focused on delivering for customers and really executing around our core initiatives and our investments.
Speaker Change: And when we look at the macro and forecasting it's really difficult to predict which way.
Speaker Change: These scenarios could land I would just say maybe that were prudently guiding so despite a strong first quarter and second quarter guide, we're maintaining our full year guide just given the macro uncertainty and it builds in.
Speaker Change: Room for a range of consumer activity softening in the second half overall I'd say it covers about two to three points of deceleration in overall E comm trend in the second half.
Speaker Change: Is not what we see as run rate current performance is really trending well, but when you think about two to three points of E com.
Speaker Change: Think about that is two to three points of TPB plus some level of lower credit originations, maybe a little bit of credit losses, maybe some FBL impact our interest rate impact from from some rate shifting but so that's roughly highlight package it from that perspective.
Speaker Change: When you ask about April in branded trend branded his had pretty consistent trending as what we saw in the fourth quarter and April in particular.
Speaker Change: We saw some U S consumer activity accelerating I mentioned before it's likely a pull forward, we're not assuming that continues but all in we're on track for a mid single digit branded checkout TPB guide what we gave earlier this year.
Speaker Change: And then you also asked about branded and unbranded and how to think about I think the revenue side of that.
Speaker Change: And maybe I'll just anchor there around the unbranded side of that you saw that pullback. This quarter that was expected that deceleration really began in the second half of last year. The one thing I would say about unbranded or PSP inverse is that it's been a very strong and growing contributor to transaction margin dollars so well.
Speaker Change: <unk> was shifting down we're seeing a nice contribution to Tim is we really just sort of shift to that margin profile of the business over time.
Speaker Change: Second quarter on revenue, we expect a pretty similar profile to the first quarter and then a second half ramp.
Speaker Change: And overall contribute continuing to contribute to that transaction margin growth for 'twenty five.
Speaker Change: Yes.
Speaker Change: Our next question comes from the line of Jason Kupferberg from Bank of America. Your line is open.
Jason Kupferberg: Good morning, guys. Thank you. So it looks like online branded you were stable on an underlying basis here in Q1, it at up 6%.
Jason Kupferberg: But now we've got almost half the U S. On the new checkout experience sounds like Europe is on tap to start pretty soon so could we start to see some initial acceleration in online branded volume growth by the end of this year, if the macro stays stable and can you just give us a word on what the U S versus international branded split looks like in terms.
Jason Kupferberg: Q1 growth rates. Thank you.
Speaker Change: Hey, Jason Thanks, So so again.
Jason Kupferberg: Just to unpack our branded strategy.
Jason Kupferberg: Think about it as three parts one is the improved branded checkout experience and as you mentioned, we're we've moved very quickly up now over over 45% in the U S.
Jason Kupferberg: That still is think of that as sort of low double digits of our global transactions and so we're really excited we think we've got a really strong playbook now and we think as we start to.
Jason Kupferberg: Roll this out into Europe will actually accelerate even faster.
Jason Kupferberg: <unk>.
Jason Kupferberg: But our patient redesign is holding.
Jason Kupferberg: The improvement is holding it now if this is just about scaling.
Jason Kupferberg: The second lever is really accelerating pay with venmo and you've seen the results there so.
Jason Kupferberg: Very fast flywheel, starting to happen from a from a pay with venmo perspective, TPB up over 50% in EMEA is up over 30% and then the third lever is buy now pay later in our pay later products and again PPP up over 20%. So you add all three of those together and as we continue to see.
Jason Kupferberg: Our us leaning into those three levers.
Jason Kupferberg: I don't know the exact timing of when we'll start to see branded checkout, but we put.
Jason Kupferberg: Pretty strong growth numbers of 8% to 10% by 2027% I think.
Jason Kupferberg: Those three levers are continue.
Jason Kupferberg: Continue to give us confidence that we are executing well and heading in that direction.
Jason Kupferberg: And then Jason what I would just add to that.
Jason Kupferberg: When you look at the patient redesign I would say, we think about that as ramping over time I mean, this is something that you know as things come on transactions start flowing it's not something that is an immediate translation and we do see.
Jason Kupferberg: Impact coming through the numbers, but it's very small so far and so maybe that's how I would position that piece of it when you look at the U S.
Speaker Change: And international I guess I'd start with the U S. <unk> performance was relatively consistent with the fourth quarter and we are beginning to see good traction across U S. Maa's across tpa across shifting to power more upstream to more power users and Alex mentioned pay with.
Jason Kupferberg: <unk>, which is really had good traction there.
Jason Kupferberg: It is early but we've talked in the fourth quarter about seeing some shifting in our U S branded checkout levels, we saw that hold again this quarter watching it very closely but cautiously optimistic about that and then on the outside the U S side relatively consistent as well a little bit of macro volatility across the markets.
Jason Kupferberg: But in Europe, we continue to take share and content in continental Europe, including in Germany.
Jason Kupferberg: Really strong brand presence as you know across merchants across consumers and I think what we're really excited about is that we are bringing our new product innovation to the market in Europe, starting this quarter. So I will start with Germany, and the U K and this is the checkout redesign. It is buy now pay later it is omni NFC launches.
Jason Kupferberg: And brand marketing to accompany all of that with a fast follower to other countries. After that so I think the overall look right now we feel pretty good about branded checkout and just laser focused on our execution.
Jason Kupferberg: Your next question comes from the line of Andrew Schmidt from Citi. Your line is open.
Jason Kupferberg: Okay.
Jason Kupferberg: Okay.
Speaker Change: Hi, Alex Hey, Jamie Good morning. Thank you for taking the questions. Maybe you can just switch gears to the consumer side I was wondering if you could just talk a little about the people everywhere program, obviously, some rich rewards across categories, there, but could you talk a little bit about the halo effect, if any that youre seeing outside of those categories I'm curious if.
Jason Kupferberg: Just about adoption and spend trends with that program now that it's been in place for some time. Thank you so much.
Speaker Change: Yes, Thank you Andrew and again.
Jason Kupferberg: What you mentioned is exactly what we're starting to see so just as a reminder.
Jason Kupferberg: Rolled out Paypal everywhere, we're really.
Jason Kupferberg: Launched it in sort of August September of last year. Since then 4 million new debit card.
Jason Kupferberg: So really starting to see strong demand from our consumer base that loves the brand and wants to be able to use Paypal everywhere that they shop TBD.
Jason Kupferberg: CVV growth again up over 100% in Q1.
Jason Kupferberg: With active.
Jason Kupferberg: Tractive economics and offline as well so it's not just delivering the habituation that we want for every purchase but the offline spend is actually quite quite attractive what's exciting is though that halo effect. So we're starting to see that debit card users have.
Jason Kupferberg: Five 5% to 6% lift in transaction activity and over two X increase in average revenue per active user versus just a checkout only so this is the strategy starting to take hold this isn't user thats now, becoming habituated with with Paypal, they're enjoying.
Jason Kupferberg: The rewards in the category of their choice.
Jason Kupferberg: And we're also starting to see the spend in the category demand actually.
Jason Kupferberg: Extend to other categories outside so we started with things I've mentioned in the past gas groceries restaurants things that consumers have never used Paypal for before.
Jason Kupferberg: Before now we're starting to add new.
Jason Kupferberg: New everyday spend categories like rideshare in transit. So demand is really strong from these consumers were starting to see the halo effect of not just offline, but now moving into online.
Jason Kupferberg: And again this is why this all comes back to Dishabituate soon in this branded experiences journey.
Jason Kupferberg: That we think is going to work first in the U S and that is Jamie just mentioned really excited to see this rollout in Germany and the UK.
Jason Kupferberg: Germany as an example, coming coming this this quarter, we've got some really exciting buy now pay later opportunities which are.
Jason Kupferberg: I think it would be very very powerful in a market that.
Jason Kupferberg: Has traditionally not been a credit market, but one that's been connected to bank that we think we can come in with our already connected bank.
Jason Kupferberg: Product and actually give consumers the ability to to make the purchases they need on a buy now pay later products. So again lots of exciting innovation coming and the flywheel starting to spin.
Speaker Change: Our next question comes from the line of harsh <unk> from Bernstein. Your line is open.
Jason Kupferberg: Hello.
Speaker Change: A clarification.
Jason Kupferberg: Sure.
Jason Kupferberg: Yes.
Jason Kupferberg: Hey, Chuck.
Jason Kupferberg: Okay.
Jason Kupferberg: Understood.
Jason Kupferberg: Okay.
Jason Kupferberg: Thanks Chuck.
Jason Kupferberg: No.
Jason Kupferberg: Yes.
Jason Kupferberg: Okay.
Jason Kupferberg: And then.
Jason Kupferberg: Please please.
Jason Kupferberg: Can you check in.
Jason Kupferberg: Okay.
Jason Kupferberg: You broke up a bit.
Jason Kupferberg: Jamie I think so yes.
Speaker Change: So first I think the first part of the question was talk about conversion uplift as we rollout the new.
Jason Kupferberg: Checkout redesign.
Jason Kupferberg: We talked about 100 bps. The conversion uplift is that holding and I'd say, yes that is what we are seeing continue to come through in the results that we have and then your second part of your question was how quickly can we roll this out in Europe, what I would say is a really important point here is that a much higher.
Jason Kupferberg: <unk> of our European merchants are already on our latest integration. So this makes a much faster and easier rollout process for them as we tackle Europe.
Speaker Change: Our next question.
Jason Kupferberg: If we didn't get that whole question, partially we can follow up later.
Speaker Change: Our next question comes from the line of Sanjay <unk> from <unk>. Your line is open.
Speaker Change: Thank you and good morning.
Speaker Change: Oh Vas revenue growth was quite strong and I was wondering Jamie if you could just walk through sort of where the strength was and if it outperformed relative to your expectations and if you expect that strength to continue over the course of the year.
Speaker Change: Yes, good morning.
Speaker Change: So when we look at all that there is one thing I would just call out before I talk about what the actual quarter, which is in the first quarter of 'twenty four.
Speaker Change: Did have lower credit revenue with a lower gain share on our consumer credit partner.
Speaker Change: As we had coming through covered we had some loss normalization happening there. So last year's first quarter was slightly lower in that regard and if you remember we had also pulled back on our merchant lending portfolios to revenue was lower there as well so.
Speaker Change: As we come into this year I mentioned on our fourth quarter call that we.
Speaker Change: We're really back in the market with our rebuilt credit team and just really good capability and we saw that growth come through and again <unk> growth. This quarter was primarily credit driven both consumer and merchant small contribution from interest.
Speaker Change: I mentioned the portfolio is performing well, we feel really good about it were very actively managing it.
Speaker Change: And as we look at the year, we continue to expect mid single digit <unk> growth. So credit will continue to be a primary driver of this year, but you might remember that we also have baked into our forecast about $150 million of impact of interest rate headwinds, which also runs through <unk> as well.
Yeah.
Speaker Change: Our next question comes from the line of Timothy <unk> from UBS. Your line is open.
Timothy: Great. Thanks for taking my question I wanted to dig in a little bit more to Germany, and the UK bleed, though the two largest branded markets outside of the U S, particularly from a gross profit standpoint, I believe there are two of the largest markets for branded two topics I was hoping we could touch on one is a little bit about the competitive landscape in those two markets.
Timothy: Civically and then on the UK I know that there were some efforts to rollout biometrics to helpful. Two factor authentication and I was hoping you could talk a little bit about the progress and the phasing of that initiative.
Timothy: Yes, let me let me just start it Tim.
Timothy: So.
Timothy: As you said two very important markets for us.
Timothy: <unk> markets outside of the U S competitive dynamics, a little bit different so let me unpack them Germany.
Timothy: We are really the market leader, there, where I think we're the number one brand in Germany for the last three years, so very very strong consumer presence very strong merchant presence. It is also a different type of market as I just mentioned it was not.
Timothy: Credit every market. So the way Paypal is used is we're connected to bank and then.
Timothy: Paypal is used as really the way to make an online purchase and so our.
Timothy: Transactions in in E Commerce in Germany are extremely high and that's what gives US a lot of confidence as we now move into offline is we're really going to be really one of the first at scale bank connected.
Timothy: Offline wallets that we think will be able to drive significant penetration into the market. So we're really excited about that as well as bringing some new innovations to market with not only our rewards program, but also the buy now pay later connected element as well so with the brand presence, we got in Germany with the banks already connected and the Onboarding experience.
Timothy: That's just really delightful I mean, it's literally one click from your bank to be able to set up your offline wallet.
Timothy: And with the innovations of rewards and buy now pay later, we're really excited to get into the market there.
Timothy: Okay.
Timothy: Much more competitive.
Timothy: Dynamic there we've really suffered in the last few years with.
Timothy: What I would consider to be one of our poorest.
Timothy: Hap experiences for consumers, we're rolling out a new app experience.
Timothy: In the U K shortly but we've already started with as you mentioned the biometric so we actually got a favorable.
Timothy: Connection with.
Timothy: With the regulator there to enable us to enable our biometrics to be consider two factor authentication, that's rolling out quickly and enabling a much better experience, whereas before it.
Timothy: It really was choppy.
Timothy: And created a lot of friction and a lot of latency and the experienced biometrics is now.
Timothy: Really creating a seamless experience you add on top of that the new App, that's going to be rolling out.
And then our rewards program and all the other innovation that we have.
Timothy: We brought to bear and we think we're going to be competing quite well in the U K and Youll see us leaning in from a go to market perspective, as well to really.
Timothy: Remind consumers that we now have the best product in the market. The last thing I'd say is yes, I was actually just there a few weeks ago, and I think theres, a big opportunity for us and buy now pay later.
Speaker Change: I sat down with a lot of merchants in the market and they are really looking for Paypal to come in.
Timothy: Yes, theres a lot of different.
Timothy: Options that are available now and I think we're hearing for merchants that Paypal is a beloved trusted brand that they would love to be able to have their consumers have.
Timothy: Single onetime checkout or buy now pay later option from a single brand and so we're going to lean in heavily in buy now pay later in the UK as well.
Speaker Change: Our next question comes from the line of Dan Perlin from RBC capital markets. Your line is open.
Speaker Change: Thanks, Good morning.
Timothy: I just wanted to revisit cross border for a moment.
Timothy: And kind of maybe the puts and takes in terms of dynamics that we need to be thinking about but but one of those is just kind of now that we have a situation where the weak dollar how does like purchasing power parity associated with a weaker dollar typically play out for you guys in terms of cross border behavior and then if you can just also give any color as a reminder, kind of.
Timothy: Scenario versus non discretionary spending Vince that tend to fall heavy in cross border. Thank you.
Dan Perlin: Yes, good morning, Dan how are you.
Timothy: I'll start with the discretionary side of it.
Timothy: So when you look at Paypal today, I would say discretionary spend we are a lot more diversified today than we were a few years ago.
Timothy: Now we're about 50 50 split.
Timothy: <unk> between goods and services and even in those categories, we are diverse as well.
Timothy: When you look at that.
Timothy: Just breaking down retail as an example about 10% of that is fashion, but then it's really split across a lot of different things between variety and discount beauty sports pet's toys like lots of different things and so when you look at this.
Timothy: I mentioned before I think we're really positioned well to capture spend as it may shift amongst categories.
Timothy: And we're well positioned around that when you look at the cross border side of it.
Timothy: What I would really say there again, it's really diversified.
Timothy: I talked before about the China to U S direct.
Timothy: Large portion of our cross border is intra European corridors.
Timothy: And so when you start to look at how this looks over the globe. It's just very well diversified and it's really hard to say, how it's shifting dollar is going to impact that and honestly, what will actually happen there, but but I would just say if we take a step back and think about our guidance here. Our process. We're just planning prudently preparing for some level of uncertainty.
Speaker Change: Hey, Paul Poly will make time for one more question.
Speaker Change: Your last question comes from the line of will Nance from Goldman Sachs. Your line is open.
Will Nance: Hey, I appreciate you taking the question.
Will Nance: You said several times on the merchant lending portfolio that you guys are actively managing standards in the current environment I'm. Just wondering if you've made any changes to underwriting or how you would think about changes to underwriting in the face of merchant facing kind of cash flow strains on the back of sort of supply.
Will Nance: Chain dynamics tariffs specifically.
Will Nance: And if you guys have any way of sort of demur.
Will Nance: Dimensionalize and like.
Will Nance: What sort of cash flow strains your merchants may experience if tariffs do go into effect in terms of things like importing importing inventory and things of that nature. Thank you.
Speaker Change: Yes, I think it's difficult to answer the latter part of your question, but if we go back to the merchant lending part of it. This is a portfolio that is actively managed and it's something that a year ago, when Michelle that Gil came in and really reconstituted the team they're very focused on how we can help our small businesses really navigate growth and.
Speaker Change: So the portfolio has a couple of different things in it one is just really helping.
Speaker Change: Small businesses with working capital and inventory buy and we monitor that and underwrite it with an eye towards credit towards cash flow and when you look at this these are things, where we've got cash sweeps with sales as sales come in it's just a very well constructed.
Speaker Change: Portfolio from both an underwriting and from a risk management perspective, and the other side of it is Paypal business loans, which are cash flow based they are typically personally guaranteed and again. These are things that we monitor all the different indicators of the portfolio and we adjust as we go I mean, we did make some adjustments in March two two.
Speaker Change: Weak and fine tune and make our underwriting slightly more conservative, but it's something the team is all over and.
Speaker Change: I think we can react very quickly in a changing environment. Thanks.
Jamie Miller: Thanks, Jamie Alex any final thoughts.
Speaker Change: Thanks, everyone for the call. This morning, I'm very proud of the quarter that the team delivered not only great results, but also just the innovation and the pace that the teams are moving yes.
Jamie Miller: Didn't get a chance to talk a lot about venmo, but I know I mentioned it on the call.
Jamie Miller: We've leaned in there and the innovation is really starting to take hold.
Jamie Miller: We talked about moving into monetization and debit cards just to give you. Another data point, 10% of the new cohort of users are now adopting the debit card right. This is showing our innovation coming to life and funds in.
Jamie Miller: Venmo users that are using and keeping funds in we're seeing funds beyond PDP up over 100% and add funds in auto reload really as we've innovated there are starting to become the habituation for our consumers. So just goes to show that as we are executing and leaning into our strategy our.
Jamie Miller: <unk> is really taking hold so.
Jamie Miller: We're focused we're continuing to scale, our innovation and look forward to updating you along the way take care everyone.
Jamie Miller: Thank you. This concludes today's conference. Thank you for participating you may now disconnect.
Jamie Miller: Yeah.
Jamie Miller: Okay.
Jamie Miller: Yeah.
Jamie Miller: Okay.
Jamie Miller: Yeah.
Jamie Miller: Yeah.