PayPal Holdings, Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to PayPal Holdings' Earnings Conference Call for the First Quarter 2024. [Operator Instructions]
Good morning. Thank you for joining PayPal's First Quarter 2024 Earnings Conference Call. Joining me today is Alex Chriss, our President and CEO; and Jamie Miller, our CFO.
Thank you, Ryan, and thank you to everyone for joining us this morning. This quarter, we delivered a solid set of results, and the year is off to a good start. Our new leadership team is operating well together, and we are really starting to get our arms around the business. You will see in our numbers and the read-through that our efforts are beginning to make a difference. We also see substantial need for continued retooling of the company, how we work with our customers and how we execute. We are encouraged by the progress to date but remain realistic that we still have a lot of work to do and a lot of opportunity to drive profitable growth ahead of us.
Thanks, Alex. Good morning, everyone. We had a solid start to the year with first quarter results that were above our expectations. As Alex mentioned, it's still early in the company's transformation. We are getting deeper in understanding both our challenges and our opportunities with much greater clarity.
[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang with JPMorgan.
Just I wanted to ask on transaction margin dollars, if you don't mind, the acceleration there. Maybe can you give us a little bit more detail on the growth across the main businesses, branded checkout, unbranded and what we've been calling other? And of course, on the other side, love to hear if there's any change in thinking there on the strategy to reclaim growth or even divest some of those assets.
Yes. Thank you, Tien-Tsin. Let me hand it over to Jamie to walk you through transaction margin, and then I'll take the more strategic piece on other and how we think about the year.
I'll just walk you through the drivers for transaction margin growth during the quarter. We were happy with the positive growth progression. I mentioned in my prepared remarks, we've got a lot underway to really position the company for positive TM growth over time.
Yes. Let me just sort of take a step back, Tien-Tsin, and talk about how we've been thinking about the year. You've heard us talk about this as a transition year. The way we've really been focusing the team is on sort of 3 different components to make sure that we're set up well for profitable growth into the future.
Your next question comes from the line of Darrin Peller with Wolfe Research.
I think it would be helpful, if you don't mind, just first revisiting some of the initiatives around unbranded and your conviction and the timing around the impact from them on -- perhaps on transaction margin.
Yes. Thank you, Darrin. So again, just to sort of paint the high picture on unbranded, this is an important segment for us, both on -- for enterprise and for small business. We have to nail the basics, right? So our customers are looking for the best auth rates, the best uptime, the best availability, the best reliability. And those are things that we are now providing.
Your next question comes from the line of Timothy Chiodo with UBS.
I wanted to [indiscernible], 2 parts really, one around mechanics, one around the uplift. On the mechanics, there might be 2 ways to go about this. One is to make it a part of your unbranded offering, and it could be either part of your negotiations on pricing, it could be a separate fee. But any way you look at it in that scenario, would be more of an, if Fastlane, then Braintree does the processing. But the alternative way would for it to be more of an as-a-service and available on a processor-agnostic basis. Wanted to see, first, if you can give us color on which routes you might be able to take, or maybe both.
Yes. Thanks, Tim. Let me take the first part and see if Jamie wants to add anything in. We are really excited about Fastlane as it now gets to market. We are live with a handful of early partners, and the results just continue to impress.
No, I think you've said it all. I really think Fastlane reinforces our holistic value prop, both for branded and for unbranded. And the focus on merchant checkout conversion, and that being at our core, I think, drives a strong value prop, and it will support strong pricing over time.
The only thing that I would -- just last point is this conversion rate with Fastlane, what's so exciting to me is not just the 40% that's coming in, it's unrecognized users leveraging our brand and the 80% conversion rate of guest checkout for returning users. But this is just early days. This is with a handful of merchants.
Your next question comes from the line of Ramsey El-Assal with Barclays.
Alex, could you comment on the European Commission ruling to open up the iPhone NFC hardware on the handset, and whether you see that as a competitive opening for PayPal in Europe? I know there's some rumblings in the U.S. as well about that type of a move. I mean, how ready from a product perspective are you to take advantage of a more open NFC environment?
Yes. Thank you for the question, Ramsey. So let me set the context so that it's clear how we think about it. First, we must play in an omnichannel world. We have established ourselves as the leader in the market in online. And our customers love us and use us globally for online checkout.
Your next question comes from the line of Jason Kupferberg with Bank of America.
I just had a 2-part question. The first, just following up on the transaction profit dollar growth. I know you're now expecting slightly positive for the year. I guess that would seem to imply maybe a little bit of deceleration from the Q1 levels, even though the second half comps are a little easier. So just wanted to get a sense of whether that's conservatism or just some normalization of things like transaction and loan loss that helped you in Q1.
So just to walk through a little bit of the first half, second half dynamics on transaction margin dollars. As I talked about before and you noted, I mean, Q1 in particular benefited from a few tailwinds. And we do expect those will be less meaningful as we move throughout the year.
And just to underline Jamie's point, we have not put -- or we have put limited upside to this innovation that we've talked about in these expectations. And so again, this is about us having the flexibility, us ensuring that we take the right time and do the right thing by the customers as well as building the long term. But those are not built in to the rest of the year.
Yes. And you asked about branded as well. And when we look at that, we had a nice quarter in terms of TPV and revenue. It was a healthy contributor to our transaction margin dollars. We did have some benefit this quarter from leap day. But by and large, we expect branded revenue trends to be pretty consistent with last year as we look at that.
Your next question comes from the line of Mike Ng with Goldman Sachs.
Just 2 for me. First, I was just wondering if you could just talk a little bit more about the drags on the smaller part of -- from the smaller part of the portfolio and transaction margin dollars. When does that kind of work itself out of the system?
Great. On the smaller parts of the portfolio, I guess what I'd say at a macro level, we had seen a pretty significant drag on that last year. It is coming through this year at a smaller rate. I mean, part of these are products we've deprecated. Some of these are, frankly, acquisitions that we just haven't invested in. And as Alex mentioned, we're going through a process of really looking hard at these.
Yes. Let me talk about -- up-level and talk about Venmo for a minute and the opportunity there. So again, on the positive side, we have the leading P2P platform with incredible customer base with disposable income 22% higher than the U.S. average, 60 million monthly active users and 90 million 12-month actives. So this is an incredible platform for us to work at.
Your next question comes from the line of Bryan Keane with Deutsche Bank.
Solid first quarter results here. My question is just still more on the big picture. The naysayers on PayPal would say the company is structurally challenged with the rise of payment methods like Apple Pay. Alex, I know you've been at PayPal now for a little over 6 months. What do you think the naysayers are missing on the competitive advantages PayPal still has in the market? In particular to grow branded?
Thank you, Bryan. Thanks for the question. So a couple of thoughts here that I think people are maybe not appreciating enough. The first is 60% of the market is still what I would consider to be nonconsumption. 60% of the market still does not use any mark. So that's what we're playing for.
That's great. And just had one follow-up. We are getting a few questions on the pending CFPB regulation on late fees. Any impact on PayPal from CFPB caps on late fees?
So first, while PayPal is not directly impacted by that regulation, we are indirectly impacted through our revenue share with our consumer credit partner. There's a lot of uncertainty right now around both timing and implementation of that. And as I mentioned before, our guide excludes the impact of that, just given the uncertainty.
Your next question comes from the line of James Faucette with Morgan Stanley.
Wanted to go back to Fastlane. And Alex, you made the comments around making Fastlane available to all merchants and deriving -- so that they can derive the benefits of it. How should we think about that in terms of what needs to be done, timeline for progression, et cetera? It sounds like you're going to start moving beyond at least those initial merchants that are using it now. But just trying to think about like how that ultimately could end up with most of the first -- the merchants served by Braintree, and then ultimately, the merchants served by PayPal more broadly.
Yes. Thanks, James. Here's the best way to think about it. First and foremost, we have to have the best innovation in the market. We -- it was important for us to get some early customers up and running and using it. And the data continues to hold and certainly delight these merchants.
That's great. Appreciate the color there, Alex. And then you mentioned you're getting a little bit of improvement in Venmo transaction margin. How much of that is coming from increased acceptance of Venmo as a payment option versus finding ways to reduce costs in transacting Venmo and P2P transactions, et cetera? Just trying to understand kind of what the drivers there are and what the potential could be.
Yes. It is a combination. What I'd say is we're seeing Pay with Venmo really starting to take off. Obviously, it's -- in the U.S., it's an incredibly well-loved brand. And when people see that button, it's an opportunity for them to use those dollars that I mentioned earlier that are in their account. So that's an exciting piece online.
That is all the time we have for questions. I will turn the call back to Alex Chriss for closing remarks.
Fantastic. Thank you, Sarah. And thanks, everyone, for joining us today. As you can tell from our results and the comments today, we're making steady progress on our transformation efforts. We had a good first quarter, and we are deep in execution mode. And with time, we will return this company to profitable growth that I know we can deliver. So thank you all.
This concludes today's conference call. You may now disconnect.