Good day, ladies and gentlemen, and welcome to PayPal's Investor Call to discuss its acquisition of HoneySign's Corporation. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's call, Ms.
Gabrielle Rabinovich, Head of Investor Relations. Please go ahead.
Thank you, Andrew. Good afternoon and thank you for joining us today on short notice. Welcome to PayPal's investor conference call to discuss our announced acquisition of Honey Science Corporation. I'm joined by Dan Schulman, our President and CEO John Rainey, our CFO and EVP, Global Customer Operations and Jeremy Jonker, our Senior Vice President and Global Head of Corporate Development and PayPal Ventures. We're providing a slide presentation to accompany our commentary.
This conference call is also being webcast and both the presentation and the call are available through the Investor Relations section of our website. Will discuss some non GAAP measures in talking about our company's performance. 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 the anticipated financial impact and benefits of this transaction and the expected timing of the closing of this transaction. Our actual results may differ materially from those discussed on this call.
You can find more information about risks, uncertainties and other factors that affect our results in our most recent annual report on Form 10 ks and quarterly report on Form 10 Q filed with the SEC and available on the Investor Relations section of our website. You should not rely on any forward looking statements. All information in this presentation is as of today's date, November 20, 2019. We disclaim any obligation to update the information. With that, let me turn the call over to Dan.
Thank you, Gabrielle. Good afternoon, everyone, and thanks for joining us today. This afternoon, we announced that we have an agreement to acquire Honey Science Corporation. This acquisition has the potential to be transformative for us and we could not be more excited about its impact on the overall value we provide to merchants and consumers. Honey's core mission is to help consumers shop and save money by providing them with a comprehensive set of tools to discover new products, find the best savings, rewards and value.
Honey's mission is fully aligned with our vision and the combination represents a very exciting development for PayPal. It enables a large step forward in our commitment to provide powerful services and tools for merchants and consumers, move beyond our core checkout proposition and significantly enhance the commerce experience for our 300,000,000 total customers, which by the way we just recently passed 300,000,000. So that's not rounding, an actual number. Some of you may not be familiar with Honey, so I thought I'd briefly introduce you to the company. The company is a leading technology platform that helps shoppers save money online and earn rewards on the products that they care most about.
Honey also helps merchants target consumers in the product discovery process by developing highly relevant and personalized offers using its proprietary platform. Honey has continued to grow and evolve from its origins as a web tool into an expanded suite of products and services that includes a mobile shopping assistant, an offers platform, a rewards program, financial tips, price tracking tools and alerts. Honey has been proven to drive incremental sales conversion for both small and midsized businesses and large enterprise merchants by introducing new customers to their products and brands. The company was founded in 2012 by George Bruin and Ryan Hudson and it's headquartered in Los Angeles. In 2018, which was their last year of fully audited results, Honeywell revenue exceeding $100,000,000 growing at more than 100% and was profitable.
Honey currently has approximately 17,000,000 monthly active users and works with 30,000 merchants and many of the world's most well known brands including Expedia, Macy's, Priceline, Walmart and Sephora. As part of the acquisition, Honey will retain its headquarters and brand and George and Ryan will continue to lead the Honey team as part of PayPal's global consumer product and technology organization reporting to John Coons. We believe the acquisition of Honey will be a springboard for PayPal's broader commerce initiatives, differentiating both our consumer and merchant value propositions. On the consumer side, we intend to simplify the digital shopping experience by making it easier for consumers to discover new products while saving time and money. These services dramatically enhance our commerce offering, allowing us to provide a unified experience for shopping, payments, and financial tools.
We completed a comprehensive screen of other players in the market and by far and away Honey offered the most extensive commerce product suite as well as significant scale and impressive growth. We are confident that the combined company can enable merchants to provide offers that are personalized, timely and easy to redeem. We aim to optimize the commerce experience across channels and devices, help drive incremental conversion and engagement, and target new segments
of customers for our merchants.
The addition of Honey and its complementary capabilities to the PayPal network will significantly deepen our engagement with our 300,000,000 consumers and merchants at the earliest stages of their commerce journey. We see a massive opportunity to continue to expand the value of our global platform with highly differentiated services in the rapidly growing commerce market. I'd like to close by saying that we're thrilled to have this great team join our PayPal family. I believe that this will be a transformative acquisition for PayPal and more importantly will add new forms of value for our consumers and merchants. It significantly accelerates our capabilities and widens our market relevance.
It will drive greater levels of consumer engagement, provide additional tools for our merchants to increase sales and improve conversion and significantly enhance PayPal's overall value proposition. And with that, I'd like to turn the call over to John. Thanks. As Dan discussed, this
is a highly strategic transaction that will allow us to deepen our commerce capabilities and play an even greater role in our consumers' daily financial lives. Honey has a strong growth profile and significant scale. We are excited about how this transaction expands our market opportunity, builds out our product portfolio, addresses key needs of our consumer and merchant customers and brings a great team of people to PayPal. As we noted in the press release, the purchase price for Honey is approximately $4,000,000,000 We will be funding the transaction with cash. This transaction will result in several attractive financial benefits for PayPal and our shareholders.
We expect that the transaction will be accretive to our revenue growth next year, and we plan to update our outlook for 2020 when we report our full year 2019 results in January. In addition, Kurning's earnings profile is very attractive. The company was profitable in calendar 2018, and we expect that this transaction will be accretive to non GAAP EPS in 2021. We expect this acquisition to close in the Q1 of 2020, subject to the completion of customary closing conditions, including regulatory approvals. There is no change to our previously communicated capital allocation plans.
The strong cash generating power of our business in conjunction with our existing cash position, overall balance sheet flexibility and debt capacity gives us meaningful firepower to pursue additional strategic opportunities. To close, I'm excited to welcome everyone at Honey to PayPal. I'd like to thank our employees, our customers, our partners and our shareholders for your continued support. We look forward to updating you on this transaction. With that, we'll open up the call for questions.
Operator, please go ahead.
Thank
Our first question comes from the line of Tien Tsin Huang with JPMorgan Chase.
Hey, thanks so much. Real interesting deal. Touches both the merchant and the consumer. I was curious, how if you were to think about the synergy potential and what it would bring across the PayPal franchises, would it be your branded business, marketplaces, Braintree, things like that? How would you prioritize the potential synergy across those businesses?
Hey, James. It's Dan. I'll answer that first and then maybe John or Jeremy will chime in afterwards. So I would say the reason that we love this so much is it's right in the sweet spot of like what we call an entangled value proposition. We have a 2 sided network, now 300,000,000 active users on it, some 24,000,000 merchants and 275,000,000 plus consumers.
And being able to intersect right in that middle, something that we've been looking to do for quite some time. We are looking to become a daily part of our consumers' lives. It's a very important strategic part and part of our vision of how we move to being the largest open commerce platform. And so I would say, 1st of all, it's probably if I had to make a choice, I'd say it's predominantly on the consumer side, although there's obviously a lot of merchant benefits. They've got 17,000,000 monthly active accounts on the consumer side right now.
They're predominantly in the U. S. Today, although they have some international presence and we'll obviously move this out throughout the world. It's still predominantly Millennium and that's a good intersection with both the Venmo as well as PayPal base. But we think there's a tremendous amount of synergy.
We're obviously going to move the Honey services through API sets they already have in place into our apps. They'll be embedded in our consumer apps, both PayPal as well as Venmo. And we think this is like moves us up in the entire shopping process instead of being at the checkout page, creating a number of tool sets to assure efficient payments, efficient processing, we can now actually move up because almost 40% of all e commerce is done through some sort of trigger event. There's a personalized offer that comes in. There's a deal that somebody sees.
And this is and we think that Honey actually has the leading platform and set of capabilities around that. And that adds tremendous amount of relevance to our consumers. Obviously, on the merchant side, look, we're trying to be a full service platform to help whether it be SMBs or large enterprises compete in the digital era. And having the ability to create personalized offer sets based on demand curves that customers, consumers are putting into money, like they've got a full drop of here's the product, here's the price that I want to pay, but we actually are going to be able to understand those demand curves. Merchants can put in customized offers against that, create incremental conversion.
We're seeing that already when we look really carefully at where Honey is and what they're doing with those 30,000 merchants. So we're pretty excited on the merchant side, but it's predominantly if you had a look at the synergies and revenue synergies, it would be consumer and it
would be branded. Yes. I'll just add, Tien Tsin. If you look at our acquisitions last year, they're predominantly focused on the merchant side. And as we've talked about with you for a long time, we need to have balance to make sure both sides of that network are equally strong and that we are investing appropriately in each side.
And as Dan noted, like if you had to pick 1 or the other, I think the consumer side stands out here. But what is unique about this asset is it really does fit well into our platform and that it addresses both the merchant side through increased conversion, higher sales for merchants, but also has a very compelling consumer value proposition as
well. Thank you.
Thank you. And our next question comes from the line of David Togut with Evercore.
Thanks so much. Appreciate the description on the ecosystem benefit. Can you talk a little bit about see going forward on like checkout conversion ratio, account growth, transaction per accounts, one tonne has been integrated into PayPal?
I think, Dave, first of all, thank you for the question and thanks for taking on short notice. So what we really like most about acquisition, I mean by the way, Honey has got a broad suite and comprehensive toolset. They've got it's not just one thing that they have. They have 5 or 6 major services and capabilities and so many more coming down the pike, growing extremely quickly, accretive to revenues, profitable back in 2018, accretive for us in 2021. So we love the business itself on a standalone basis and love what that's going to do for our customers and for our respective financials.
But what we love most about this transaction is what it does around the rest of the PayPal ecosystem. We think that this is going to drive many more transactions through our branded checkout, much more engagement in terms of engagement per active account. We think that this actually starts to position us in a way with merchants that combines sort of offers, shopping, payments together in an integrated solution. And so to me, the bigger part of this is what it does to the overall PayPal ecosystem, even though the Honey business itself is growing at a substantial clip and we're quite impressed with what that team has been able to do. But this deal is really about the rest of the PayPal ecosystem.
Yes. I'll just add, David, if you have a chance to look at the investor deck that we put out, we note that there are some differences in the way that they calculate some of their KPIs versus ours. And we'll work to align those as we close the transaction and start begin to integrate that to our financial
of of the 17,000,000 monthly active users that Honey has today, 90% of them are active every single month. So if you play that forward with underneath our ownership and cross selling to our user base, there's a real amazing opportunity here for us to try not only to drive cross sell, to drive habituation engagement, which actually will lead to monetization. So we're pretty excited about the 90% attach rate as well. Thank
you. And our next question comes from the line of Jason Kupferberg with Bank of America.
Hey, guys. Congrats on the acquisition. I wanted to see if you could tell us a little bit more about the size of Honey and maybe a little bit more granularity on growth and profitability? I know you made a couple of general comments there. And then just a few words on the revenue model would be helpful as well.
Sure, Jason. It's good to speak with you. I'll start on the first part and maybe turn it to Jeremy on the revenue model. The last year of audited financials that they have for 2018, about $100,000,000 in that year, growing at 100%. And that's one of the things that we love about this company is that the growth profile that it has at scale and in that year, it was a profitable company.
As we noted in our prepared remarks, we expect that this will be accretive to our bottom line in 2021. But we haven't closed the transaction yet, and so we'll give the impact on 2020 when we give our full year projections on our Q4 earnings call at that point in time.
Yes. And Jason, just on the revenue models, it's pretty simple. It's actually a commission based revenue model today. Obviously, that has the opportunity to change underneath our ownership and how we actually think about personalization and offers going forward.
Thank you. And our next question comes from the line of Lisa Ellis with MoffettNathanson.
Hi. Good afternoon, guys, and congratulations. I can attest my 13 year old daughter and her friends are obsessed with Honey. So you are tapping into
the Gen
Zs as well, not just the millennials. Can you describe a little bit more detail, just so we kind of get a vision for it, how Honey you're envisioning will be integrated into the consumer experience for the PayPal or Venmo user? Meaning, is this going to be a reason for the user to open and use their PayPal or Venmo app more frequently? And if so, how? Or is this more like Honey runs in the background similar to how OneTouch does?
Thanks.
Yes. Great question, Lisa. So one of the things that we really like about Honey versus many of the other companies we scanned here And we see you know this since you're sort of uses this. Most of the other companies, they really don't have a consumer connection. They basically if you want to look for is there something that is an offer on something you're interested in, you've got to go to their website, to somebody else's website, search on that, then go to checkout, and then apply that offer or coupon whatever it may be to that.
Basically Honey goes right to the consumer. They stay right with the consumer and that's really kind of what we want to embed into our app, so that somebody is creating these droplets, creating these demand lists and then constantly going into their app looking to see like, okay, did that happen? Can I then buy straight from the app in that? And by the way, we may say if this happens, then we'll automatically do this for you You can check-in your app to see if that happened. And so we are really excited about the ability for Honey to constantly be scanning to see whether or not these personalized offers can come in directly to our PayPal and Venmo users.
So opening your app, seeing that you have actually a notice that you've got a personalized offer, there's some sort of deal and then we can complete that payment right then and there, I think is a really powerful combination of 2 capabilities. And I think significantly improves engagement with the consumer. And as both John and Jeremy said and I said in my opening remarks, we think also will significantly increase our branded checkout as well. And I'll say obviously on the merchant side, embedding this into our merchant tools, dashboards, etcetera, will enable us to both work hand in hand with some of the larger merchants in creating customized demand schedules and personalized offers, but also a ton of self help for small businesses as well that want to figure out how they can go to different segments of customers and provide personalized offers right for them.
Thank you. The only thing I would add there is just emphasize 2 things. One is, I know we talked a lot about price tracking, but there's this is a big deal around discovery. And this allows PayPal truly to move up the funnel and actually start in the discovery process, not just the price tracking savings of payment.
Yes. And I'll add to that as well, Lisa, because we've talked with you and the investor community for a long time about the benefits of PayPal moving up the shopping experience. And this is a strong step in that direction where it allows us to really be much more involved with consumers at the beginning of their shopping experience versus just an option on a way to pay after they've already selected their item. Yes.
I mean, it ties right in. It's like a logical extension for what we do with JetLords, which was one of our smaller acquisitions. But we were able to then sort of experiment with that and see the real value that we could create and then we really needed to take that how do we take that to scale.
Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research.
Hey, thanks guys. Congrats on the deal. Can you just start off, maybe just touch on the overlap between the 17,000,000 users that they bring and your existing customer base, both on the consumer and the merchant side? And maybe if you can comment on how many of the 17 $1,000,000 both on the merchant and consumer have already been modified so far?
So Darren, it's a great question. I think we'll actually provide additional guidance and detail here in the future. But at a high level, Honey's consumer base is roughly 79% female, 70% millennial. So it probably has a high overlap with our Venmo user base. But ultimately, we're very excited about actually taking these capabilities and putting it through the rest of our ecosystem.
So this is not just a play around demo. This is actually just as important with PayPal and also for our merchants.
The other thing, Darren, is that while there is some overlap obviously with the Honey user base, what's exciting about this is the opportunity to scale that to the 250,000,000 plus PayPal and Venmo consumers that don't have this. And moreover, they've got 30,000 merchants today. We've got 23,000,000 to 24,000,000 merchants that will then have access to this. And that just contemplates the existing set of consumers we have today. Like you can imagine with this platform what we can do from geo expansion and things like that.
We think this a pretty exciting opportunity.
Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank.
Yes. Hi, guys. I wanted to ask, how quickly can Honey scale into PayPal's merchant and customer base? Because I guess I'm not sure if integration is automatic or do you need consumer merchant buy in? Or is there an integration process you need with the merchant?
And then kind of part 2 to that is, can the merchants push discounts promotions just to Honey only, so that creates this separate network or is Honey scanning for rebates and rewards across the entire web? Just curious
how that might work. Thanks.
So I'll answer the second question first. Today, they're actually utilizing a number of affiliate networks and so their content isn't necessarily exclusive. However, over the course of the last 12 months, they have engaged in direct offer and exclusive content with 110 merchants. So they are in the process 12 to 24 months. Hyper 12 to 24 months.
Hyperwallet is a great experience where we're able to integrate that within 4 to 5 months. We believe we can have Honey integrated within the PayPal and demo apps within 6 to 12 months.
Thank you. And we have time for one last question from George Mihalos with Cowen.
Congrats on the acquisition and thanks for squeezing me in. John, just a quick question. You talked about the business being profitable and accretive in 2021. I'm assuming there'll be some level of dilution in 2020 as you invest in the integration and the like. And then ultimately, when we think of Honey on a standalone basis, would this not be accretive to the overall margins of the company in addition to your commentary about it being accretive to growth?
Thank you.
So we'll give the 2020 impact on our earnings call, but you're right to infer from our comments the fact that we said that it's dilutive in 2021. You can expect some marginal dilution I'm sorry, accretive. Let me restate that to be clear. It's accretive in 2021. You can deduce that there is some marginal dilution in 2020, but we'll get the impact of that.
And what we tried to do by giving the 2018 numbers is and also suggesting what their profitability profile was at that point in time to give you some ways to think about framing this. But again, we'll give the specifics after we close and we finish our own planning process for 2020.
Great.
George, thanks for that question. I know this was really short notice for a lot of you to join us and we really do appreciate it. We are really excited about the potential of this acquisition. I mentioned that we think it can be transformative because we believe that. We believe it can be transformative on the consumer side and the merchant side.
We want to be a daily part of our consumers' lives. We want to be we want engagement to naturally increase by combining things like shopping and payments and rewards all together. And so we think that this is an acquisition that does all of that for us and takes full advantage of our rapidly growing 2 sided network. And we're one of the few companies that can actually take an asset like this just so complementary and plug it right into both our merchant and consumer bases and see the possibility of very significant synergies as a result of that. So thank you very much for joining us and we appreciate your time and look forward to speaking with you soon.