Q2 2019 Earnings Call
If anyone should require assistance during the conference. Please press Star then June your Touchtone telephone.
As a reminder, this conference is being recorded I would now like to introduce your host for today's call Ms. Gabrielle Rabinovitch head of Investor Relations. Please go ahead.
Thank you Shirley good afternoon, and thank you for joining us.
Welcome to pay Pal Holdings earnings conference call for the second quarter 2019.
Joining me today on the call are Ghansham, and our president and CEO and John Rainey, Our Chief Financial Officer, and he VP global customer operations.
We're providing a slide presentation to accompany our commentary.
This conference call is also being webcast and both the presentation and call are available through the Investor Relations section of our website.
We will discuss some non-GAAP measures in talking about our company's performance.
You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call.
In addition management will make forward looking statements that are based on our current expectations forecasts and assumptions and involve risks and uncertainties.
These statements include our guidance for third quarter and full year 2019, our medium term outlook and the impact of our acquisitions.
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 in our most recent annual report on Form 10-K , and quarterly reports on Form 10-Q filed with the FCC and available on the Investor Relations section of our website.
You should not rely on any forward looking statements.
All information in this presentation as of today's date July 24 2019.
We expressively disclaim any obligation to update the information.
With that let me turn the call over to Dan.
Thank you Gabrielle and thanks, everyone for joining us today.
I'm pleased to report that picked all had a solid quarter.
In the second quarter, we generated 4.31 billion in revenue.
Growing 12% year over year on an FX neutral and spot basis.
Or 19%.
Adjusted for the sale of our consumer credit receivables to synchrony.
For the second quarter, we delivered 86 cents of non-GAAP EPS, which included a 14 cents gain from our strategic investments, including Mercardolibre right.
Uber and others.
non-GAAP EPS grew 47% and excluding strategic investments grew by 27%.
Our Q2, non-GAAP operating margin increased by approximately 200 basis points year over year to 23.2%.
This represents the largest year over year increase and our non-GAAP NOI margin since becoming an independent public company four years ago.
Another highlight of the quarter was our growth in both net new actives and engagement.
We added 9 million net new actives in the quarter.
17% year over year.
We now have 286 million active accounts on our platform.
Including 23 million merchants.
And we remain on pace to exceed 300 million active accounts by the end of the year.
Over the past 12 months, we've added 41 million net new actives, a new record for us.
Engagement also continues to consistently improve.
Growing by 9.3% to 39 transactions per active account.
Increasing use of our platform helped to drive 172 billion of TPV in the quarter.
26% on an FX neutral basis.
An increase of approximately a 100 basis points from last quarter.
Total payment volume, excluding ebay grew 30% on an FX neutral basis.
Up 70 basis points from last quarter and outpace the overall payments market as we continue to gain share.
Ebay marketplaces TPV once again declined approximately 4% in the quarter.
And now represents just 9% of our overall TPV.
Down nearly 300 basis points from Q2 last year.
We process approximately 1 billion transactions per month in Q2.
28% year over year.
Mobile TPV grew by 37% to more than 73 billion in Q2.
One touch with a 149 million consumers and 13 million merchants remains the clear leader in mobile checkout.
With nearly two times the conversion of competing wallets.
Helping merchants of all sizes increased sales in the competitive omnichannel retail environment.
One touch now enables over 80% of the Internet retailer 100 in the us.
Venmo continues its significant momentum and is well on its way to becoming a daily part for our consumers financial lives.
Venmo total payment volume increased 70%.
Year over year to 24 billion in Q2.
And we continue to expect to drive nearly a $100 billion in TPV by year end.
Venmo continues to significantly grow its revenues with approximately $15 million venmo users having engaged in a monetizable transaction.
With another quarter of outstanding net new active growth Venmo continues to offer a significant opportunity for merchants to attract a valuable engaged consumer base.
In addition to adding Fandango stitch fix one 800 flowers today ticks and ticket network to our growing list of merchant partners offering venmo as a way to pay.
We continue to enrich the venmo experienced by making it even more engaging and personalized.
In the second quarter, we added bit mode used to the venmo app, allowing users to includes a personalized bit mogi along with the payment notes of their venmo transactions.
As we work to improve the financial health of hundreds of millions of people across the globe Im thrilled that we recently expanded zoom into 32, new send markets throughout Europe .
Customers across Europe can now use zoomed to send money pay bills or reload phones to more than 130 markets internationally.
Launching zooms full capabilities globally is an important development for us as our upgraded tech platform increasingly allows us to deploy capabilities across multiple countries as opposed to the country by country Rollouts, we previously deployed.
This quarter, we announced the Paypal Commerce platform, a new solution that will help our merchants drive their sales volumes and the digital Commerce era.
The Paypal Commerce platform is designed to meet the specific needs of marketplaces.
e-commerce platforms and crowd funding sites by bringing together a comprehensive set of technologies tools services and financing solutions for businesses of all sizes.
Powered by Tapeouts unique two sided network. The Paypal Commerce platform gives nearly any business access to a flexible customizable suite of services that enables global growth simplifies compliance provides of risk protection empowers their end to end payment capabilities.
Our business financing solutions are another way that we are helping businesses grow and achieve their ambitions.
This quarter, we began offering our paper business loan product depict our merchants in Canada, allowing them to access financing to build and sustain their businesses.
As far as the expansion of our business financing solutions to Germany in Q4 of 2018 and Mexico earlier this year in partnership with Mexican lending platform can feel.
Since launching our business lending solutions, we provided access to more than 10 billion in funding.
Through 650000 loans and cash advances to more than a quarter of a newly in small businesses around the world.
In June the UK competition and markets Authority provided final approval of our acquisition of acetyl.
We are now beginning to integrate settles products and teams around the globe, which we expect will significantly strengthen staples in store presence.
Finally, we continue to partner with leading technology platforms and financial institutions to Reimagine financial services.
We believe that the full potential of Fintech can only be realized through partnerships that leverage the best of our collective assets.
In the quarter, we expanded our collaboration with Google to allow businesses to accept Paypal with Google pay through their apps and websites.
This feature is now available in all 24 countries, where Google pay supports Paypal as a payment method.
We both solidified and extended our global partnership with Uber and also announced that we intend to explore future commercial payment collaborations, including the development of Hoover's digital wallet.
As part of this agreement, we invested $500 million in a private placement.
And we couldn't be more excited about deepening our relationship with this innovative partner.
And we are almost complete with our Mccarter library commercial agreement.
This will significantly deepen our strategic relationship and expand our international scope and scale.
We expect this will include integration of Paypal into the Mcardle Libra marketplace.
Open our merchant network through our smart payments button platform to Mccargo Pago customers.
And link our respective consumers together for PDP and international remittances.
These developments represent significant milestones on our journey to be the worldwide payments platform of choice.
Helping to enable global commerce by connecting the worlds, leading marketplaces and payment networks.
These are complex multi faceted partnerships and they take multiple quarters to come to fruition.
As Weve deepened. These relationships, we are frequently seeing the opportunity to deploy capabilities well beyond our initial scoping.
Well the scope expansion has delayed some of our initially planned deployment dates it bodes well for the ultimate scale these initiatives.
And while these delays have slightly affected our revenue guidance for the year.
We remain quite confident that the majority of these will be implemented by year end.
We are also raising our EPS guidance for the year and expanding our operating margin.
And we are confident in the medium term targets outlined at our Investor Day last may.
We certainly have no shortage of opportunities in front of us and we look forward to shaping an exciting future with our partners.
Customers and employees.
And with that I'll turn the call over to John Thanks, Dan.
I want to start off by thanking our customers partners and global team for helping us deliver another solid quarter.
We had strong performance both financially and operationally.
We grew non-GAAP operating income, 22% to $998 million in our reporting records for both operating margin and operating margin expansion.
We also generated more than $1 billion in free cash flow in the quarter.
Which grew 40% on a normalized basis.
Operationally trends in our net new active accounts engagement and TPV remains strong.
Our performance demonstrates the consistent strength of our platform and the scalability of our model.
Revenue in the second quarter increased 12%, 12% on both the spot and currency neutral basis to $4.31 billion.
Adjusting for the sale of us receivables to synchrony revenue growth was approximately 19%.
Acquisitions contributed approximately 1.8 points.
To revenue growth in the quarter.
In addition, the effect of the stronger dollar net of hedging.
Was a revenue headwind of $35 million.
US revenue grew 7% versus Q2, 2018, and approximately 20% adjusting for the credit receivable sell.
International revenue grew 18%.
On a spot basis transaction revenue grew 17% in the quarter.
Revenue from other value added services declined 21% as a result of the receivable so.
On a normalized basis it grew approximately 30%.
In addition, we recognized $58 million in revenue from synchrony related to loan servicing and collections.
As planned synchrony took over these services at the end of June .
Going forward, we will no longer benefit from the revenue related to these services.
In the second quarter transaction take rate was 2.25%.
Compared to Q2 2018, this was a decline of 13 basis points.
Strong growth in PDP contributed to approximately half of the decline.
Ongoing weakness in Ebays marketplaces business and pressure from the stronger dollar on a few key cross border corridors were also responsible for the reduction.
Total take rate in Q2 declined 27 basis points from the prior year.
Approximately 60% of this decline was attributable to the credit receivable sell.
The same factors that affected transaction take rate also contributed to the decline in our total take rate.
Both transaction take rate and total take rate benefited by approximately five basis points from revenue related to our hedge gains.
Volume based expenses increased 15% in the second quarter to $1.9 billion.
Transaction expense was 94 basis points as a rate of TPV, improving four basis points from Q2, 2018, and two basis points sequentially.
The reduction in transaction expense as a rate was primarily due to the timing of the realization of benefits from volume incentives, which were recognized in the third quarter last year.
For the remainder of the year, we expect our transaction expense as a rate of TPV to be in the range of 95 to 98 basis points.
Transaction loss was 14 basis points as a rate of TPV.
The decline of five basis points from Q2, 2018, and four basis points sequentially.
This reduction in transaction loss was driven by improvements in our risk management capabilities.
Loan losses were four basis points as a rate of TPV in line with recent performance.
Transaction margin dollars grew 9% to $2.4 billion in the second quarter.
Transaction margin as a rate was 55% a decline of approximately 120 basis points versus Q2 18.
Over the past four quarters, the credit receivable sale has been a meaningful driver of the decline in transaction margin dollar growth.
We expect growth to Reaccelerate in the second half of 2019 and be in the range, we reported prior to the synchrony announcement.
Non transaction related expenses grew 2% versus last year.
Growth in these expenses was affected by both the lapping of held for sale accounting changes, which resulted in a lower rate of growth year over year.
As well as an increase in expenses related to our 2018 acquisitions.
Normalizing for both non transaction related expenses grew 6%.
On this adjusted basis, we delivered 300 basis points of operating leverage with these expenses, increasing only 11 cents for every dollar increase in revenue.
This is indicative of our sustainability to grow at a low marginal cost.
Across our business, we are pleased with our operating discipline and cost performance our scale continues to afford us leverage opportunities.
On a non-GAAP basis operating income in the second quarter grew 22% to $998 million and our operating margin expanded approximately 200 basis points from Q2 2018.
Adjusting for 2018 acquisitions operating income grew 24% and our operating margin expanded 280 basis points in the quarter.
Other income in the quarter increased by $201 million, primarily due to a $187 million increase in net unrealized gains on strategic investments.
On a per share basis unrealized gains contributed approximately 14 cents after tax.
One cent of this benefit was included in the EPS guidance, we provided in April .
The incremental 13 cents was not in our guidance and resulted predominantly from our investments and mercadolibre rate Neuber.
Consistent with the plans we discussed on our last earnings call. We disclose the expected effect of these unrealized gains on our second quarter earnings in our 8-K released on July 9th.
non-GAAP EPS for the second quarter grew 47% to 86 cents.
Adjusting for unrealized gains of 14 cents this year.
And two cents last year non-GAAP EPS grew 27% in the quarter.
Our strong EPS results reflect the operational outperformance with solid revenue growth efficiencies and cost discipline, all contributing in a meaningful way.
We ended the quarter with cash cash equivalents and investments of $10.7 billion. In addition, we generated more than $1 billion of free cash flow or approximately 24 cents of free cash flow for every dollar of revenue.
Now I'd like to discuss our updated guidance for 2019, and our guidance for the third quarter.
For the full year 2019, we are raising our earnings outlook and lowering our revenue guidance, which I will speak to in a moment.
We now expect non-GAAP earnings per share to grow 29% to 31% and be in the range of $3.12 to $3.17.
Our raised earnings guidance reflects the outperformance of our business in the first half of 2019.
It also incorporates the unrealized gains we have recognized from our strategic investment portfolio.
As a reminder, these investments may create earnings guilty as we move through the year.
Subsequent to quarter end and prior to the release of earnings we plan to continue disclosing the effect of these investments on our results.
We also expect to expand our non-GAAP operating margin by approximately 100 basis. This year, demonstrating our sustained ability to scale our business.
Incremental costs.
For the full year, we are lowering our revenue outlook to a range of $17.6 billion to $17.8 billion from our prior range of $17.85 billion to $18.1 billion.
This new range reflects growth of 14% to 15% for the year and adjusting for the sale of receivables, 18% to 19% growth.
Since we last provided guidance in April a few key factors have contributed to revisions to our forecast.
First as Dan mentioned, we have a few big product integrations with partners that are experiencing delays in part because of their expanded scope.
Second our previous guidance contemplated the implementation of certain price changes that we are now delay.
While the timing has shifted out a few quarters, we still expect to realize the full benefits of our partnership and pricing initiatives.
And finally, approximately 20% of our volume is cross border and affected by changes in foreign exchange rates.
We now anticipate that continued strength in the US dollar will have a greater impact on our revenue in the second half of the year than we previously expected.
These changes to our 2019 revenue expectations are primarily related to the timing of initiatives.
Our medium term outlook for revenue and earnings as provided in May 2018 has not changed.
For the third quarter, we expect revenue in the range of $4.33 billion to $4.38 billion or 18% to 19% growth on a currency neutral basis.
In addition, we expect non-GAAP earnings per share to be in the range of 69 cents to 71 cents, representing 20% to 23% growth.
Our third quarter EPS guidance includes an estimated three cents benefit from unrealized gains we expect to recognize in the quarter.
In closing we are pleased with the progress we're making across many fronts.
We are advancing our strategic priorities and at the same time sustainably improving our cost structure.
The cash flow generating power of our business continues to give us great flexibility as we allocate capital discipline.
We are focused on creating value for our shareholders and strengthening our position as the world's leading digital payments platform for our customers with that I'll turn it over to the operator for questions. Thank you.
Thank you ladies and gentlemen.
I have a question at this time. Please press the Star then one key on your Touchtone telephone we ask that you. Please limit yourself to one question and return to the queue for any follow up. If your question has been answered or you wish to move yourself from the queue. Please press the pound.
And our first question comes from Jason Kupferberg with Bank of America.
Hey, good afternoon, guys, Hey, how are you.
Good.
So just wanted to start with a question on the revised revenue outlook. So we're taking I guess about 300 million outing, John you walked us through three factors.
Driving that any way you can kind of give us a relative sizing on those factors and then if you could also just elaborate on some of the comments you.
Alluded to about these revenues actually being delayed not lost three we interpreting that properly and should we assume that the lions share of this essentially ends up getting recognized in 2020 or does some of that bleed into 21 would love some more color on that thank you.
Sure, Jason so without being.
Specific on any one of the three items I mentioned I would say that the magnitude of them are in the order that I laid them out product integration first pricing second and then macro FX.
The third I think to address your last point.
We expect to realize the full 100% of the benefit from all of these this is simply a delay in the realization of those benefits until 2020.
And now I'll emphasize that when you're a company our size that is growing at the rate that we are.
Often times, we have to make.
Educated guesses about the timeframe a lot of these launches taking place sometimes we do better than what we expected sometimes you get into something and you see scope expansion because of good opportunities are more complexity and that results in a delay such as the case that we're seeing right now, but we still have.
A lot of it.
Excitement about what these opportunities present for us and and do expect to realize the full benefit on a run rate basis.
Yes, if I can just jump in on this Jason I appreciate the question.
Yes. This is a matter of when not if and when we talk about when we're talking about the next several quarters.
And so.
For us we feel like we had strong operational performance in the quarter. If you look at our net new actives.
Those were up by 17% you look at our engagement again up by 9%.
Plus you look at just.
Little things that actually matter a lot like our risk.
Improvements that we've put into place part of that is a result of the acquisitions that we've done with some military that's.
Lowering our risks and and helping our losses.
These are all very sustainable types of things and that while the revenue is delayed but certainly not lost in fact, we're confident in all that revenue will come in the margin improvements are more permanent and because we're just seeing those this isn't taking way expenses from one thing to improve margins. These are sustainable margin improvements based on.
Either better experiences that were putting out or just better capabilities that we now have in the business. So I would say.
We feel really good as we look forward on this it's unfortunate that some of these are slightly delayed but I'll give you. An example, one of these that were delayed was came into us.
Hey men's this is an extremely large strategic partner of ours. It is a brand new vertical that we're putting into our stack.
Yeah.
Involves integrating all of their multiple colors.
Got into our platform involves integrating them into our App and these this is a massive partnership for us it's going to take a little bit longer than we thought but everything we hope for is there and actually more so it's just a good example.
We probably underestimated the amount of work it would take to go and do that and there is also as John mentioned a lot of scope expansion that occurred but that's a great partnership and we'll have other bill payment players that will join as well and so this is a matter of revenues being delayed not lost and we're trying to do this in a way that assures that when we do implement whether it's partnerships for pricing changes. They are done in a world class manner, and so I don't want to jam something in in the quarter I want to make sure that we're building the right sustainable long term things for this business and if we've got a delay something a quarter or two.
So be it to make sure that we do this the right way.
Okay understood. Thank you.
Thank you. Our next question comes from Ken Ken Wang with JP Morgan.
Thanks, Good afternoon.
I want to ask a margin again looks like you are you able to protect the bottom line here, but you're a little more operating leverage against the lower revenue outlook. So what lever is exactly are you pulling to make this happen are you sacrificing growth investments to.
Do it then and I guess more importantly here for a lot of us are.
Do you have more margin levers available to you.
And event revenue continues to face delays.
Thanks.
Attention thanks for the questions.
I'll.
Starting Dan May want to add a couple of things, but let me let me start with the headline that we are not turning away growth opportunities to achieve the leverage and the operating margin expansion that we have in the business.
We we believe that.
We've got significant opportunities and we've talked a lot about these in the past things like what we're doing around customer service. For example, how we're driving the contact rate down how we're actually lowering the cost of that service, even the very way that we developed product, we're becoming more efficient at and then you have to also remember over the last four years, we were propping up an independent public company and that requires investment in things like compliance and a lot of the back office functions and so those are largely behind us and so what you're beginning to see right now is the realization of those economies of scale.
And that's I think fundamentally the main point here, but Theres also an added point that I would point to this quarter, which is slightly different than what you've seen in some of the more recent quarters and that's what we've done in our volume based expenses. So if you look at both transaction expense and transaction losses. They appreciably declined as a rate of TPV from the prior quarters now I called out the reasoning for the transaction.
Expense decline and Thats certainly more of a.
Transitory nature in sort of a timing.
Impact on that but transaction losses is one that.
Has the potential to become more permanent now one quarter does not make a trend. So I don't want to call. This out as what we should expect going forward, but this was truly based upon improved modeling capabilities that we have in our fraud detection of risk management and so we're very encouraged about that and and as we begin to where we continue to refine those models over time, hopefully that type of decrease in the rate of losses for TPV is something that can become more sustainable for us.
Yes, I'd just add on top of that.
When I look at like for instance, our Q2 revenues.
We're right in the range that we predicted and we would have been at the high end of the range were it not for some of these FX headwinds.
And as everyone on the call notice FX headwinds can be against Q1 quarter and with you.
Another quarter and it's why we give a range on that.
Even with that we still grew our revenues by 19% on a normalized basis EPS was up 27% and we generated more than a billion dollars of free cash flow, but most important to me the operational metrics that we really look at whether be net new activities, where they're being engagement whether it be TPV.
We're all.
Close to records for us.
MMS TPV, excluding marketplaces, our ebay was up 30.2% I think thats.
Like in the last six quarters is like at a at a high.
For that are tied for high in the last six quarters. So when I think about our revenues I think about our operating metrics what the drivers of those are they're all really quite strong.
Yes, there are delays in some of these key partnerships in these key partnerships will drive a lot of revenue, but those key partnerships will happen.
We're well underway, we understand exactly what the critical path is.
Going forward on that and the pricing is well we have pricing, it's both up and down but when we put pricing out there I want to make sure that it's transparent that it's easy to be understood that we have all of our processes.
In place to support any pricing changes that we might make.
And just to be sure we execute.
In a world class manner. So I think not only do I think the margin improvements are sustainable and as John mentioned potentially.
There are quite a bit more to be found.
But the drivers of our revenue are quite strong and I anticipate they'll stay that way.
Understood.
Thank you.
Yep, Thanks to engine.
Thank you. Our next question comes from Darrin Peller with Wolfe Research.
Hey, Thanks, guys.
You know look when considering the medium term and look at it obviously looks like from at least the sort of the revenue side does sound like it's short term in nature from what you're saying, but the drivers as you just mentioned Dan are very strong in fact, I think they are better than what your medium term.
Typical guide suggests around.
Whether its TBV or net active gross or even engagement levels. I guess first of all just can you just reiterate if you can still see the same sustainability to that those those drivers you've been seeing.
What gives you the confidence you can see that in the next year or two and then I guess just to follow up on the partnerships I mean, it sounds like some of these are pretty material in terms of opportunity. So not only net new active growth in the drivers is that in terms of the revenue flow through could that cause a pretty big year re acceleration in 2020.
Yes.
So I do believe that the drivers of the business.
Our.
Not just sustainable, but we've got the potential to do better I mean, we've got.
Continued strong growth in our net new actives 41 million over the last 12 months 9 million this quarter up 17%. The 286 million active we have that's up 17%.
Year over year.
And.
23 million merchants on the platform, adding almost a million merchants a quarter right now so and you've seen both Paypal and venmo accelerate.
Versus last year.
On a talk a little bit about them on a second to two year.
Like your revenue point, but look you've got obviously a network effect thats really kicking in right now.
If your merchant we have so many consumers that want to use pay pal.
Or venmo now as a way to pay you almost have to be a part of the network and the same thing from a consumer perspective, we've got merchants everywhere that are accepting us and so that network effect is continuing to kick in.
Very importantly, though most people think about net new actives as the top of the funnel, but when you have as a base as large as ours. The churn rate is just as important and all the improved customer experiences that we've done from choice two additional venmo monetization efforts.
Two P to P flows to our new revised App those are all reducing our churns and making a big difference in the number of net new active.
We've got global expansion, that's happening we're at the tip of that iceberg in global expansion for US obviously, we're getting.
More net new actives from Brazil from India from Japan, but we're just beginning.
In those markets and.
Partnerships like the one that were going to do with regard to Libra.
Ones that we're going to do with that.
There are yet to kick in.
We still yeah, we just rolled out zoom expansion to 32, new send markets, we've got other international markets.
That we're planning to enter into and so I see net new actives as sustainable.
And maybe even.
Being better than where we are and engagement. The same thing is happening. It's just improving I'll give an example of that and this is really quite a positive thing in numerous ways. The new net actives that are coming in on venmo.
Our have more engagement.
Than previous.
Net new actives and that new engagement is around the Monetizable services, because those because that's what they are coming into the coming into a value proposition that has all of that so they are aware of it and they are using it more and more and so you've got.
Increased engagement increased monetization efforts.
And.
And increased revenue I mean on the Venmo Venmo side, we're seeing really nice quarter over quarter revenue growth.
We are well exceeding not just our budget on venmo, but our most recent forecasts on venmo revenues and I really couldn't be more pleased with the efforts that that team is doing with incremental monetization efforts still to come later this year.
Yes, Darrin I would just add a couple of points I think to emphasize some of the.
Items that Dan spoke to but when when you ask like what gives us confidence in our medium term outlook I'd put it in three categories. The first is that our business is performing very well if you take our quarterly results growing revenue, 19% another quarter of 9 million net new actives, expanding operating margin to 200 basis points.
The type of cost performance that our core businesses performing well the second as Dan mentioned is that.
One of the best indicators about the future of our business is the new cohorts of customers that we're bringing on and we are seeing those cohorts be more engaged in the previous cohorts and the third category I would put broadly into just the opportunity set that we have and so when you look at things like the partnership with payment to us or Facebook or what we are doing venmo, what we're doing from a product development standpoint around reward points and cart recovery. All these opportunities in more that we havent listed give us a lot of conviction about our ability to continue to deliver on that medium term guidance yes.
And to your point Darren.
When you think about something like pay mantis and what the revenue opportunity is there. It is quite significant because we're entering into a brand new vertical.
And when we're entering into a brand new vertical it's a lot of work to get it done but the reward.
Is quite large and commensurate with that work as well.
Okay, Alright, Thats really helpful. Thanks, guys.
Thank you there.
Thank you. Our next question comes from Bryan Keane with Deutsche Bank.
Hi, guys.
Just wanted to follow up on the pricing changes that are now delayed I guess, where where the pricing change is delayed and why and then when does it get implemented now.
Brian I'll start with that this John .
We made some changes to our user agreement that allowed us the ability to.
Make certain pricing changes and I would emphasize that I think sometimes the the knee jerk reaction is to assume that all price changes are up sometimes we can decrease prices.
To go after more volume.
So we haven't been real specific about what those are but when we when we implemented a price change we always want to have that associated with a value proposition to the customer.
And when we took a step back and we looked at the effort to improve some of those customer experiences around those price changes it was more complex and what we imagined and we want to.
Be measured as we roll this out we I think.
A theme that you will you continue to hear from US is like we're trying to build a great company over the long term and we're not going to be so rigid and.
Pushing products out to market or.
Otherwise that we do something that is not to the standards that we hold ourselves to so generally thats.
That's how we're thinking about some of these pricing changes we would expect though to go forward with these price changes and perhaps others either at the tail end of this year or early 2020 and realize the benefit from them.
I'd just add on to John's comments, which I think were.
Right on.
The pricing is a second ongoing journey for us we're always assessing.
Better even more transparent ways to serve our customers. We are always looking at the market dynamics out there.
Evolving practices of our competitors and then we look at the value, we provide and we try to price appropriately based on those factors and.
As John said.
We're absolutely determined to be sure that anything we put out into the market that the experience is a great one.
So I understand both transparent with that all the support necessary for it.
And and we'll make sure that happens, but as John said.
We do anticipate all of these go into effect over the next several quarters.
Got it thanks for taking the question.
Yep.
Thank you and our next question will come from David Togut with Evercore ISI.
Thanks, So much you highlighted that venmo was exceeding your revenue growth forecast can you give us some color on.
Where you stand with the biggest drivers.
In terms of Monetizable experiences, whether it be instant withdrawal.
Venmo debit card or pay with venmo with merchants.
Sure David I'll take that there is.
If you look at the composition.
Of the various ways that we can monetize venmo.
It hasn't changed that much from previous quarters.
To date still instant withdrawal is the largest contributor.
Of monetization for Us and then.
The other half roughly of split between Venmo card and pay with Venmo, We do expect those change over time as we've said previously to where ultimately pay with venmo will be the largest contributor of how we monetize venmo.
So in terms of the progress there I would say that.
Well when we look at all of the initiatives that Weve implemented this year or have made progress on this year. This is one probably stands out as performing.
Better than.
What we initially expected going into the year I don't want you to misread My comments I don't think its appreciably different from what we talked about but certainly.
Better than what our initial expectations are so we're still very pleased about the progress that we're making there and.
It's well on track with our expectations.
Thank you.
Thank you. Our next question comes from Heath, Terry with Goldman Sachs.
Great. Thank you.
As we think about the string of deals that you announced back in the spring Luber Mccarter Library Facebook.
Even even metals clearance.
Is there a benefit to the 19 revenue expectations or guidance from those deals or maybe just more broadly when and to what degree do you expect to begin to see an impact from that string of deals.
Yep.
So I'll start off and then.
Maybe John will talk I think we'll talk a little bit more about next year in our next call.
But.
Overall.
Those are two relationships.
That we would do time and time again.
Mccarter Libra.
Is it going to significantly.
Enhance our international scale and scope.
We see a tremendous amount of opportunity as we integrate our two networks together if you think about it just in big generic terms well have some 500 million people on our combined network together.
Carter Pago customers will now be able to access.
Pay Pal.
Merchants around the world paper, how consumers will be able to buy from car to Libra marketplaces.
Merchants and were very excited.
About the potential of linking wallet to wallet.
On the international remittances.
As well and so we see.
A tremendous amount of learning we will get from each other in a tremendous amount of.
Of.
Incremental opportunity as a result of that Hooper, we already had a very strong.
Relationship, but this not only solidifies that relationship, but we are in deep conversations with them on how to expand.
The extent of our partnership and.
Help them drive.
The growth and experiences that they want.
For their customers in our mutual subscribers.
And so that is really quite a bit of an everyday use case.
For us we think that will help on both engagement.
Metrics for us.
At both on the Venmo.
And the.
And the pay Pal side.
These other.
Partnerships that we have certainly going to add.
Two two are.
Our volumes and our capabilities, we have a lot of high hopes.
For what they'll pay can do.
Obviously, a huge vertical.
We've had numerous people talk to us about it our customers are clamoring for it.
We'll do full stack processing around that as well so it will drive quite a bit of.
Incremental volume and revenues for us.
As John has mentioned numerous times partnerships like Facebook.
Take time.
To develop and move forward Facebook like us wants to ensure that they have the right experience, but when you look at the.
The volumes that can be driven there.
How will we will be measured.
And now we think about it as we look at.
And next year, but we're excited about that potential.
Yes, let me add just one thing as it relates to.
Capital allocation and some of the acquisitions that we've already made.
And so I think sometimes what is overlooked is the opportunity for a compounding effect with multiple of these of these acquisitions and so I'll give you two examples.
The first or the acquisitions of Hyperwallet, and some LT, which provide capabilities like payouts and risk as a service that enables us to provide a more.
Comprehensive suite of services and a new product rollout like Paypal commerce platform very important to that.
The second example would be something like guys at all so I think it's.
Generally acknowledged that Latin America is an area that we are less strong.
Certainly that was that influenced our strategic investment meli, but I settle has a presence in Latin America and so we can build upon these complimentary capabilities from either the partnerships or acquisitions that weve taken to strengthen our presence in some of these geographies, where we are less strong today.
Great. Thanks, John really appreciate that.
Thanks, Steve.
Thank you and our next question comes from Lisa Ellis with Moffettnathanson.
Hi, good evening guys.
Maybe a bridging from that last question actually I can you give an update on your M&A plans given it has now been over a year since civility in Hyperwallet should we be thinking that additional acquisitions are imminent or is this.
Is that part of your strategy sort of back Burnered, given the number of and the scope of these partnerships that we're working on.
And also I guess ill tuck in there given the three mega mergers elsewhere in the ecosystem are you.
Still exclusively focused on tuck ins or are you sort of rethinking the possibility of potentially larger scale deals. Thank you.
Any other questions.
[laughter].
Well those are all good questions. So.
Look I just.
Say that from an M&A perspective, I think in general, we're pretty well positioned we've got a ton of.
Internal innovation rate that is going on.
Our tool sets for our engineers.
But the productivity improvements are dramatic.
There and so we're seeing more and more releases more more experiences that we can put out we obviously have a lot of strong partnerships and a lot of capabilities that we can digest from those partnerships as well.
John mentioned, it but obviously our balance sheet is only getting stronger with $10.7 billion of.
Cash like assets on that we generated over a billion dollars of free cash flow.
We still.
Our consistent in that we're looking to do anywhere between one and 3 billion.
Tuck in type of acquisitions that help us either.
From a time to market perspective.
Our geographic expansion.
Or things that get scale and scope.
Through through things like partnerships so.
We look at.
Hundred.
Of potential acquisitions every single quarter.
I think you can expect us to be acquisitive.
Going forward.
That will be a part of who we are on an ongoing basis.
I don't.
As I think about.
These.
Of consolidation in the merchant acquiring space, we're partners with all those combined entities.
I think there is a rationale why they needed to do that as online and offline starting to blur as some needed feet on the street others needed online acquiring.
Capabilities I would say those mergers in another themselves.
Don't make me feel like there is a need to do a larger acquisition, but we've never ruled out.
A larger acquisitions.
They just need to clear a very high strategic fit and hurdle for us.
But we look at.
The potential for acquisitions from smaller to larger and we will continue to do so.
Terrific. Thank you.
Yes, you bet. Thanks, Thank you and we have time for one final question from George Mihalos with Cowen.
Hey, Thanks, Thanks for squeezing me in guys, maybe just building on that that capital allocation theme I think John .
You guys Didnt buyback any stock this quarter, how are you thinking about the buyback going forward relative to just some of the other capital allocation priorities M&A and like.
Sure George.
It's good to speak with you so.
If you go back to May of last year, when we laid out our capital allocation priorities. They still remain the same.
And thats that over that medium term timeframe of the next call. It three to five years, we expect that approximately 40% to 50% of our free cash flow will be used to return to shareholders.
And that we will spend on average about $1 billion to $3 billion a year.
With acquisitions and strategic investments.
Now as I'm sure you appreciate.
That.
We're going to be opportunistic from one quarter to the next and sometimes there are competing priorities.
In the quarter and also times, it's worth noting that.
Because of things we may be working on we may be subject to blackout dates as well in terms of when we can go buy back stock so.
I would discourage you from reading too much into the fact that we didn't buy back stock, we still intend to buy back.
The amount that we've talked about but again we.
I think we have the sort of the.
The fortunate position to be opportunistic given the.
The opportunity set that's out there in the industry and so we'll we'll kind of bounce around from one quarter to the next with how we allocate capital but over that medium term, we'll stick to those tenants that we provided.
Thanks, very much George for that question and thank you everybody for joining US today, we really appreciate your time and we look forward to speaking with all of you soon thanks.
Ladies and gentlemen. This concludes today's question and answer session. Thank you for participating in today's conference call. This concludes the program you may now all disconnect and everyone have a great afternoon.