Jason Kupferberg, the payments, processors, and IT services analyst here at Bank of America, and we're very excited to have with us, for the first time, Alex Chriss, President and CEO of PayPal. As most of you know, Alex joined last year, and so obviously, it's your first time at our conference. Thanks for being here. Hopefully, you'll be a repeat performer.
Of course.
Well, thanks for that.
Thanks for having me.
Yeah.
It's good to be here.
Yeah. Yeah, absolutely. So let's do a little bit of a status check. You've been in the seat for eight months. Talk about some of the bigger changes that you've made. You've been super busy, obviously. There's been a lot of announcements from PayPal. So what are you most excited about? How do you feel about the road ahead? Kind of level set there.
Well, it's great to be here. Very, very excited. It has been 8 months, and quite a whirlwind. When I came in, there were probably 3 things that I really wanted to focus on in the first few months. The first was ensuring that we had a world-class team. As you've noticed, I've changed out most of the leadership team, and now I'm just absolutely excited with and thrilled with the leadership team that we have. I think top to bottom, my leadership team is now an incredible team and working very well together, and you're probably noticing almost every week now, we're bringing in now the next layer of leaders underneath.
We added a leader of our ad business last week, as well as a new consumer leader that's leading product for PayPal and Venmo. So we're just continuing to build out the leadership team. So that was one. The second is really focus and prioritization. As you've probably heard me talk in the past, I think we were doing too many things that each were interesting but not necessarily fully focused on what could be the most impactful, most customer-backed innovations that would drive the needle for the business. And so I've really been focused on the innovation we put to market, but really focus on prioritization. And then the third is really around velocity and impactful innovation. How do we move faster?
Our customers are counting on us, whether they're consumers, merchants, large enterprises, or small businesses. How do we really build delightful innovation? We're sitting on one of the largest two-sided ecosystems in the world and have just a tremendous opportunity to leverage data and leverage this global ecosystem to delight customers. So velocity and innovation. And I think all three of them, you know, if I were to status check eight months in, if you'd asked me, would I be happy to be here eight months ago? I don't think I could have imagined building this leadership team and moving at the pace that we are. So a long way to go, but a heck of a start.
Yeah, for sure. For sure. I think one of the things that the street has appreciated in the short period of time you've been here is that from day one, that earnings call you got on back in November, you said, "Profitable growth is job number one" right? And you made that crystal clear to the street. And so I guess now, sitting here today, as we kind of unpack that theme, what are the most critical initiatives in your view that you need to execute on to fulfill that mission of profitable growth?
Yeah. Look, every company is at a different stage and gets to decide what they want their true north and their North Star to be. For me, it's now a time at this stage of the company to focus on profitable growth. I've been consistent from day one. It's where we've organized the company around. It's the way we do our operating mechanisms and the conversations that our leadership team has with each other, and the way that we're compensated. And so that is the North Star for the company. In terms of where we're focused, we have existing levers, things like continuing to take our lead in branded checkout, and continuing to deliver and delight customers.
There's lots of opportunity there for us to continue to fill in the gaps of innovation that we've been letting customers down on that can continue to drive growth, but take that number one branded checkout position and continue to grow it. On unbranded, this is a processing business that we have established growth in and established a beachhead in over the last few years. Now is the time for us to take all that great innovation, the value-added services, the proof points that we put into the market, and price to value, and ensure that we're driving profitable growth from a processing business as well.
You add on top of that new innovation that we brought to market, things like Fastlane, that enable us to now delight customers with a best-in-class checkout conversion experience, and we believe that's a wonderful opportunity to monetize. And then there's assets like Venmo, which again, has a tremendous brand, growth, and affinity with an affluent customer base that uses us and loves us on a daily basis. But also a base that we haven't really focused on monetization. And so whether it's debit card penetration, whether it's omnichannel, whether it's Pay with Venmo, these are all levers for us to pull. But the thing I'd leave you with is the mindset of the organization has shifted.
So now as we look top to bottom throughout the organization, through every one of our assets, we're asking ourselves the question: Is this an asset that should be driving profitable, profitably, and are we getting the most out of it? Or what decisions do we need to make in order to get there? And so it's just a mindset shift with this new leadership team, and very excited about those decisions going forward.
Might there be some trimming as part of all that whole exercise, or?
For sure. I think as you think about going top to bottom and you ask that question-
Right
... there's-
Right
You know, naturally some things will fall out that may be important customer businesses, but not strategic for us and don't, and doesn't deliver the profitable growth that we want. There will also be assets, and I mentioned this on the last earnings call, like Xoom, that we look at and ask the question: Hey, this is a business that hasn't been driving profitable growth that we would want.
Right.
Strategically, are there decisions and choices that we can make to deliver a different outcome?
We can get more out of it, yeah.
We believe there is.
... Yeah. Okay. So let's just say, you know, we're sitting here from a year from now and transaction profit, which I think most investors would agree is the most important metric for the company, for the stock. Let's just say that that has seen some real meaningful acceleration, sustainable acceleration. Is it your feeling that it will have been Fastlane and better Venmo monetization that would be the most likely drivers of that, relative to some of the other irons you have in the fire, PPCP, next gen core checkout, etc.? Just as we start to think about, like, which ones are most important to monitor.
First, we're, you know, any good business is building horizons across time.
Right.
And so we have a very clear horizon planning process that allows us to think about how do we drive profitable growth short, medium, and long term? To answer your question about short term, it's likely the largest levers that we already have. So branded checkout, we think, and we've already put some innovation into the market in terms of improved checkout, particularly on mobile, where we've just had an inferior experience. And obviously, that's a large growth opportunity in checkout overall, and one that we've been punching below our weight in. And so as we start to put out new innovation for consumers, things like passkeys, leveraging Face ID to be able to check out, we're reducing friction in that checkout.
These are customers that are trying to check out today with PayPal, and we're failing them. Latency is too high, the friction is too high. As we fix that, that drives short-term incremental transaction margin improvement. So we should see that as we start to have the conversations, particularly with some of the larger enterprises on pricing to value with Braintree and our unbranded processing, as well as with Fastlane. Those are, again, short-term levers that I think a year from now, I would want to start to see that impact. And then Venmo, again, is you know, obviously at a smaller scale from where it is, but I expect the levers are meaningful.
And again, now that we're really focused on that, on those monetization levers, we can start to pull them.
I'll ask you a follow-up on core checkout, because, I mean, we and I think most people probably feel like it's, it's PayPal's single greatest asset, right? It's the button, right? That's how the company was founded, and the brand is very strong globally. But there's obviously been a lot of controversy and debate that has emerged over time around the competitive landscape and online checkout, you know, branded buttons, other ways to pay online. You know, what's your perspective on that when it comes to competition and, and, and market share? And I guess, what is PayPal doing differently now to sort of accelerate rollout of next gen checkout? I mean, that's kind of a general initiative we've heard about for a number of years from the company.
Yeah. So a few things that I would hit on. First, we are still the number one player in branded checkout. We have the largest customer base and are still the number one player from a share perspective. That said, there are initiatives we need to pull in order to improve. Step one, we need to make sure that for our existing customer base and new customers coming in, we have the most frictionless, easy experience. The place we're falling down right now the most is through mobile. And so I just talked about some of the innovations that we are already putting into market.
Some we can push directly to consumers now through the app, some we need merchants to adopt, but overall, reducing friction, particularly on mobile and making it an easy process, that improves our potential when it comes to mobile. Second, we need to make sure that we have an omnichannel solution. So taking customers that are using us right now and love us from an online perspective, and giving them that opportunity to purchase and use PayPal everywhere they want to shop, is just an opportunity sitting in front of us. Globally, we have customers that cannot tap to pay and check out with PayPal, and that is a big opportunity for us to be able to enable. Third, we need to make sure that we provide a value proposition that is differentiated from competition.
There's lots of branded options right now, which is different from where it was a decade ago. We still have a unique situation because of our two-sided network with merchants, to enable our merchants to connect using data with our consumers and provide merchant-funded rewards to incentivize consumers to check out through PayPal. That's leveraging data, that's leveraging a two-sided network that we are the only ones that have access to, and it's providing the connections between merchants and consumers in a differentiated way. So we have to make it frictionless. We have to make sure that they can pay everywhere they want to, and we need to make sure that there's a value proposition that's differentiated. That's our game plan, to continue to be the number one and hopefully grow that share in branding.
How much easier is it nowadays for the merchants to do the integrations, to get access to next gen checkout, and any way to quantify that?
Well, merchants need two reasons in order to make a move. They're very busy, they've got lots of things. They're trying to run their business, whether they're large enterprises or small businesses. There's two things they need in order to make a move and change their integration. One is they need a value. They need to know that there's a reason for them to do it. In the past, we haven't provided them great value proposition to be able to make the move. Today, we have. If you take everything from package tracking to Smart Receipts, to now with Fastlane, we're providing merchants really the best conversion lift through both branded and guest checkout than I think they've ever seen. And the demand that we're getting from merchants now is incredibly exciting.
We just had our C360 conference back at the beginning of May. We had a number of merchants that were there where we got to really unveil our innovations with them, and I was getting notes from, you know, it was a mid-sized airline. I got a note from the CEO saying, "This is the most exciting conversion lift we've ever seen in our history. We cannot wait to get on with Fastlane." So step one, there has to be a value proposition. Step two, it has to be easy for them to do because they all have long roadmaps, they have limited resources, and you have to make it easy. We are leveraging no-code, low-code integrations.
We're leveraging AI to be able to take their old integrations, plug it into our AI, and actually spit out code that they can leverage to be able to get up and running. We've taken a two-week integration and in some cases, brought it down to two hours. And so that kind of innovation and ensuring that we're both giving them value, as well as delivering a seamless, frictionless way for them to get up and running, is our two-pronged approach to be able to, get as many merchants on as fast as we can.
2 weeks to 2 days. That's impressive. Yeah.
2 hours. 2 weeks to 2 hours.
Oh, 2 hours. Okay. I got to fix that in my notes. Okay, thank you. One more on branded. So it grew 7% in Q1. You know, a little bit of help from leap year, like everybody had. I think you were expecting for the year pretty steady trends there, right? What's your perspective on how supportive the macro backdrop is right now to kind of maintain that stability as you go through the year? Because I think to some extent, PayPal tends to skew a little bit discretionary when it comes to online purchases.
You know, our expectation is we're seeing consistent trends as we did in 2023.
Okay.
So, you know, no, no real adjustments. We're now a number of months into the fiscal year-
Yeah
... and we're sort of, we're sticking with that consistency.
Okay. So nothing has surprised you intraquarter?
No.
Okay. Okay, good to hear. So another priority of yours has definitely been credibility and transparency. That seems to be another one of your pillars that you laid out day one. You know, first quarter of this year obviously showed upside to numbers. Just give us more perspective on how the company's guidance philosophy has evolved, you know, how you and Jamie have put that in place and, you know, what some of the hallmarks of that are.
Yeah. Well, this has been really important. It was something Jamie and I talked about from day one, and it's been wonderful to have her by my side as we go through the organization and really think about what are the disclosures that we need to be able to give to all of you, to make sure that you understand the contours of our business, and that that can actually track the right information on how we're growing. And it's important for us to build credibility with consistent results. You know, we've been very transparent that this is a transition year. We want the flexibility to make the changes and the decisions that we need as we set up this business for the long term. And we're in this for the long term.
We want this to be a very consistent, profitable, growing company. And so, our ability to make sure that we're giving you the right information and our say-do ratio is high is important. Second part of your question is, we did have a strong Q1. Transaction margin growth was 4%. Non-GAAP EPS was 27%. And look, Q2 is off to a strong start as well. You know, we, we—our outlook was mid, was low double-digit non-GAAP EPS growth. I think we're trending ahead of that right now, and expect, again, this is the first half of the year.
Yeah.
This is gonna be nonlinear as we look towards the rest of the year, but and we want that flexibility to make the decisions. But, first couple of quarters, looking strong for us.
I want to come back to the ad business. You mentioned it very briefly, but that was an interesting announcement last week. Tell us more about it.
You know, again, there are very few companies that, that have the scale that we have, and both sides of, of an ecosystem. So if I think about what merchants and consumers need, merchants need to find customers. They are spending a lot of money right now in really sort of spray and pray, advertising to try to find their next customer. Consumers are looking to find the best, the best product at the best price from the best merchant, and one that they can trust. Those are two sides of a network that are desperately searching through the dark to try to find each other.
We have unique purchase data from those consumers, where we can build a profile of what they've actually purchased and their intent of what they're going for, because we see them shopping, and we see what they're actually buying. We can take merchants and understand who their target customer is because we see who's actually buying. We can provide an ecosystem that connects those dots together.
Bringing in an ad leader, thinking about the data and the profile information that we can start to build for consumers, thinking about how we leverage the ability for merchants to take that really low ROI ad spend right now and target it towards profiled users that they only pay for when they actually convert, is a really big opportunity for us, and one where, again, I think we're differentiated in the market at our scale and at the data that we're starting to see. Merchants are already, you know, quite excited to have access to that. We now have a big-time leader in place, and excited to see that lever for growth.
That's something that starts to come to fruition more 2025, 2026, or?
You know, it takes time to build any of these networks.
Sure.
The good news is, the hardest part of this network, to be honest, is scale on both sides-
Right
... of the merchants and consumers.
Right.
We have that, and we have the data. So now it's really about creating the commercial side of this, and connecting the dots. And with the leadership we have now, you know, we'll be looking for that over the next couple of years.
... Let's come back to unbranded for a minute. I mean, Braintree has really scaled very impressively over a number of years, and, you know, now it's upwards of, you know, 40% of your total payment volume. So as you think about increasing the margins there, just maybe take us inside some of those pricing conversations with the enterprise merchants a little bit, and, you know, maybe you can talk about PPCP as part of that as well-
Sure.
You know, more on the SMB side, because you obviously have a wealth of experience in the SMB world.
Yeah. So let's take these in two different segments. First, let's talk about enterprise, really, the Braintree side of the business. You know, pricing conversations are never fun or easy, but they get a lot more exciting when you have innovation to bring to the table.
Mm-hmm.
The conversations we're having with some of our largest enterprises right now is about these: here are the value-added services we built. Here's the value and the uplift we can drive in conversion. Here's the improvement we can drive in returns, in reducing returns for you. And here's Fastlane, which is now targeting 60% of their checkout, which is all guest checkout, and providing a significant lift to their conversion. So when you put all of that together and then have a conversation about pricing, again, no one wants to talk about pricing, but it's a heck of a lot easier to have those conversations. And so, they're very... I'm very encouraged with those early conversations, and, and we're moving forward to price to value.
The PPCP side of things, again, this is really a focus on small businesses. The biggest challenges that small businesses have is trying to really pull together all the different services that they need to run their business, right? They are oftentimes just a handful of employees trying to survive, trying to delight their customers, and when they're cobbling together 17 different applications to run their business, it becomes a real nightmare. And so PPCP brings together under one umbrella, an end-to-end solution for them to have branded payment options, whether it's us, whether it's Apple Pay, anything that they need in order to be able to check out.
An unbranded process that allows them to scale, that they know will be with them if they want to scale up to an enterprise, that if they want to scale globally, that gives them cross-border, that gives them everything that they need in order to be a successful small business, and brings together any of the other elements that they need. So, the ability to offer buy now, pay later, right? All under, under one umbrella, so they don't have to go out and try to find these other pieces. This sort of one-stop shop has been a huge success, and really, we're only early in the market with this.
Right.
And as I mentioned, in earnings, we have 7% of our volume now running through PPCP, so I expect to continue to see that grow over the next few quarters. The opportunity, though, with PPCP and just our small business in general, the way I would want you to think about it, is this is really about share of wallet of a business's needs to be able to run and grow their business, right? They're focused on money in, money out, and access to capital in order to run their business. What PPCP does is allows them to sell end-to-end solution and delight their customers.
But there are so many other things that over time, because we have that one-stop shop that I'm excited to bring in, and again, I have lots of experience thinking about that, whether it's, you know, how they want to pay their employees, how they want to pay, other businesses and vendors, to how they want to bring in new customers. I think this is, you know, real opportunity size if you think about share of wallet of their overall spend.
So the 7% number, like you said, you disclosed on the call, I mean, just order of magnitude, I mean, where does that number need to get before you can really move the needle on overall unbranded margins? Just, just given the sheer size of the Braintree business, right? I'm just thinking about, you know, kind of the, the relative size of SMB volumes versus, you know, Braintree volumes.
The way I think about, you know, without getting into each and every one of the disclosures is some of our biggest profitable growth comes from small businesses-
Yeah.
and comes from international. Those are two areas where we're continuing to double down.
Mm-hmm.
I think, you know, as I said on that call, that PPCP customer, their ARPC is 2x, and so you will start to see momentum as they're taking on more of our products, as they're starting to grow. Their TPV is higher.
Right.
So it is all goodness as we continue to focus on small business, and then it's beyond just payments processing. It's all the other services they need to be able to run and grow their business. So for me, this is about the PPCP adoption is one part about the volume because we know that it monetizes better.
Yeah.
It's a second part about the relationship that we have with small businesses and the opportunity to serve them more.
Following up on Fastlane for a minute, I think you had said should be available in the U.S. in the second half of the year, generally available. You've been doing some pilots in recent months. But tell us a bit about the go-to-market strategy there, and you know, how much effort, for lack of a better word, is required for a merchant to actually implement Fastlane? And is it much easier for, you know, an existing Braintree merchant?
Yeah. So, just as a quick reminder of what Fastlane is, this is really targeting the guest checkout experience, 60% of checkout. Because of the breadth that we have of our customer base, we're able to create an uplift for customers that are returning customers. So 80% conversion rate versus a 40, 45, 50% conversion rate for a regular guest checkout experience. So this is a massive win for merchants. Depending on the merchant, and again, just to be clear, we are in sort of beta right now with a handful of merchants, seeing exactly the conversion uplift that we would want and preparing ourselves to really go GA in the second half of the year and building demand. So part of our go-to-market now is building demand-...
Making sure that our merchants are lined up because they all want access to Fastlane before the holidays, so they can get that uplift as we get through the holidays. From an integration perspective, again, we're investing heavily in reducing that integration uplift, that integration lift for them. It really is two weeks or less for most large merchants to be able to bring Fastlane on board. We'll be lining them up as much as we can in the back half of the year. For some of the small businesses that are on platforms, once those platforms integrate, so imagine a BigCommerce integrates, then it's just a flip of the switch for a small business to be able to turn on Fastlane.
So those are really our two short-term go-to-markets, levers for the back half of the year, which is: how do we get some of the largest enterprises on board, and how do we get some of these platforms on board so that we can get as much volume, through Fastlane before the holidays as possible? And then, you know, 2025 will really be about, you know, getting everyone else on board.
Right. And then kind of monetization to sort of follow adoption, right? I think you had kind of alluded to that on the earnings call, right?
Yeah, look, I mean, all of our contracts now come with monetization built in. We're not doing, monetization-free, contracts.
Right.
But from a friction standpoint, I'm less worried about monetizing in the back half of this year and more about, let's get the volume up and running so that for 2025, we're in a good position.
How are you guys kind of balancing trade-offs between growth and operating leverage? I mean, you took some cost actions earlier this year. You seem to have suggested there could be more still coming. So how should investors think about that? I mean, is there still a, you know, a big pool of OpEx to address here? And to the extent you go after that, whatever it might be, later this year or next year, are you reinvesting a lot of that? Are you dropping it to the bottom line, you know?
You know, this, it's a really good question, and, if we were a perfectly efficient organization, it would be harder to answer. Here's the reality. We're going to focus on growth, and there are levers that we've already talked about that, we are already investing in. Ensuring that checkout is well funded and ensuring that they have the right resources, whether it's engineering resources or go-to-market resources, ensuring that as we roll out our new consumer experiences, that consumers know about them, and that we've got the right go-to-market experiences. We will invest in those growth opportunities and invest for growth.
That said, we also have a lot of opportunity from an OpEx perspective to continue to create drive automation, to ensure that we're being more efficient in how we actually bring products to market, more efficient in leveraging AI, in our customer service organization. So there's lots of opportunity for us to pull OpEx in and then ensure that we're investing in the most important levers for growth.
As we think about, again, coming back to this theme of transaction profit, dollar growth, you know, we've talked a lot about the revenue inputs to that, but obviously, transaction expense is a pretty big number, too. Are there certain avenues you're exploring to perhaps manage that down a little bit?
You know, it is a big line item for us.
Yeah.
And so those conversations are always happening. We're always looking for ways to continue to manage, but again, I think, you know, for us, we're looking top to bottom on ways that we can drive transaction margin profit.
Let's circle back to Venmo-
Yeah
... for a second, because I wanted to get your perspective, just as you think about over the longer term, however you might define that, you know, what's, what's really gonna be the key to scaling Venmo monetization? In other words, is it, is it gonna be Pay with Venmo? Is it gonna be the card products? Is advertising gonna get rolled in here?
Yeah.
Just how are you thinking about it?
You know, the best part for me with Venmo is when you have a large, passionate customer base, you really just need to meet your customers where they are.
Right.
Right? Venmo customers are looking for us to provide really, bank alternative for them. They're looking for money in, money out opportunities, and we just haven't provided that for them. They're getting money in from friends and family. They're getting money in, from direct deposit. We haven't made that as easy as we should. And once that money is in, most of it's exiting because we haven't given them great opportunities for them to keep their balance with us and then be able to spend it in an omnichannel world. So you've heard me talk about Pay with Venmo is a great opportunity to leverage e-commerce payments, and we're starting to see great traction there. Providing debit card adoption gives them an opportunity for them to now pay in an offline world.
Leveraging tap-to-pay for Venmo, where they can just pull their phone out and leverage the balance that's sitting there to be able to buy, you know, anything that they need in a physical world, is an important lever. Being able to now provide a return when if they're saving balance with us. Like, this is just sort of the mindset that our customers have-
Mm-hmm
... that we haven't delivered for them. All of those come with monetization opportunities. So I don't feel like we're searching around for what are the monetization opportunities. They're there, sitting there in front of us, and our customers are demanding them. We just have to now integrate them into the product and make it part of the flow. And you've seen us start to do that. Our onboarding flow now includes debit card as part of the onboarding. We didn't have that before. And as we start to bring that in, adoption rates are trending higher. So we just need to meet our customers where they are.
Last quick one, because we're out of time. At what point should the investment community think it might be reasonable to introduce some kind of new multi-year financial algorithm?
Look, we are. It goes back to the disclosure conversation. We are absolutely trying to work to once we have confidence, as we get through this transition year, to provide you what the building blocks look like over a multi-year period, we'll be out and give you that visibility.
Fair enough. Thank you. Really appreciate it, Alex.
Great to be here. Thank you, all.