All right, thanks everyone for joining. My name is Tien-Tsin Huang. I follow the payments and IT services sector and I was just telling Dan Schulman, of course, CEO from PayPal, how grateful I am to have him. I know he's super busy, you know, traveling the world and I'll say it up front, like I've seen Dan present in a lot of different settings. You know, I always enjoyed hearing him talk, whether it was from American Express, we've had you at these different events, which again, I'm always grateful to have the conversation with you. The thing I always liked about you the most, Dan, was hearing you speak at the NYU. I'm not an NYU guy, but not smart enough. I always thought you had such a great connection with your professors and the students.
I know we always get caught up in the numbers and branded, unbranded payments, but, I just wanted to say that upfront, Dan. I always appreciate it, sort of the way you connect with people and the stuff that matters. Thanks again for being here.
Thank you.
Let's get right into it. I guess if you don't mind, Dan, fireside chat. I've taken a lot of questions from the audience, and we'll take questions from the portal as well. If you don't mind, let's start off with sort of your views on e-com and the health of the consumer. I know we want to benchmark PayPal growth, whether it's branded or unbranded against e-com. How do you see e-com trending today, year to date, as well as going forward?
First of all, thanks for those kind words, Tien-Tsin, I appreciate it. You know, the year's off to a better start than we originally anticipated. You know, we saw our TPV accelerate by about 300 basis points from Q4, 200 basis point acceleration in branded checkout, and 100 basis point acceleration in unbranded from Q4, both above our expectations. Look, I think that e-commerce is probably off to a bit of a stronger start than most of us expected. You know, we had pretty muted expectations coming into the year. I thought it'd be anywhere from -2% to +2% globally. I now think that's more likely to be in low to mid-single digits growth as I look forward.
I think, we've got to remember that a lot of e-commerce revolves around discretionary spend. And there's definitely been a move, post-pandemic into, more kind of services, entertainment, travel, away from goods. Now, that'll normalize back. But you've also had pressure on discretionary, because of inflation. Inflation is moderating a little bit here in the US, and we're probably seeing a bit of a return to more discretionary spend. Across the world, it's still stubbornly high. When I look at comps for us.
Mm-hmm.
I look at other discretionary retailers like Target, their e-commerce was - 3%. Home Depot was -3%. Best Buy was negative 13% on their e-commerce. I feel pretty good about our 6.5%. I think, you know, in general, we probably held a couple of markets we grew on the branded side, and we clearly took share on the unbranded side.
Good. I know you have, you know, less exposure to some travel and some of these areas, so it's really hard to index. I think it's somewhat underappreciated, the benchmarking exercise, which I know isn't easy. Thanks for going through that.
Yeah.
Yeah, let's go into the numbers. You did outperform on revenue and EPS. I know the sticking point for the quarter was around margins. What surprised on the margin outlook in your mind? Do you mind running through that again for us?
No. I mean, we did have a good Q1. We beat pretty handily on the revenue side by about 150 basis points of growth at 10.4%. I think really importantly, you know, I think most people came into the year thinking we were gonna grow mid-single digits on revenue. We kinda came out of the first quarter saying it's gonna be high single digits. We also exceeded on EPS pretty handily and took our EPS growth up from 18% to 20% EPS for the year. We also put out PPCP. You know, we took down our non-transactional OPEX by 12%. You know, our monthly active users, which are 20-30 times more valuable than just an active user, also grew.
The quarter on new cohorts are performing extremely well. We had a good Q1. The one place that people pressed on, was our transaction margins. They grew by about 1% in the quarter. You know, look, over a five-year period from 2017 through 2022, we've grown our transaction margin dollars by an average of about 13%.
Mm-hmm.
We are kind of in a place right now where there are a couple of things that are putting pressure on that. One is, you know, e-commerce is slower growth than it's typically been. I truly believe that will begin to normalize. I think, you know, you're not gonna have e-commerce growth in the low to mid-single digits. It'll be to the mid to high single digits over time. We're extremely well-positioned when that rebound happens. Also, cross-border, which is a very high-margin piece of our business, is under pressure as well, but we're beginning to see that normalize. I mean, China was, you know, like at negative 30% growth over the last couple years. That's beginning to move in a really positive direction as are other markets.
Even the UK is beginning to rebound. Obviously, the big thing that happened is that our unbranded really is being a lot more successful in the market than we anticipated. We've put a lot of resource and effort in fixing our unbranded platforms, in launching things like PPCP. We grew something like 40% year-over-year last year. You know, we expected that to come down, and we're seeing a really strong pipeline. We're seeing existing customers give us more volume. The reason we took down our transaction margin expansion from 125 basis points to 100 is just because we're seeing more growth in a part of our business that's lower margin. We've got clearly well-thought-through plans in place to increase the margin structure of the unbranded business.
I'm sure we'll talk about that.
Mm-hmm.
As well as continue to grow, our branded checkout, which is not just the bread and butter of PayPal, but our highest margin, opportunities as well.
Yeah. I know you shouldn't have to apologize for growing very fast, even if it's a, even if it's a lower margin piece of the business. Before we get into the details, I get this question a lot, Dan. When might that mix shift turn and turn in your favor? Are we far away from that, or is it somewhat imminent?
You know, I don't even know what that question really means when you say turn in our favor.
Yeah.
I'm not gonna tell our sales force to slow down.
Right
Unbranded, because unbranded is massively strategic to us. First of all, unbranded, carries with it our latest checkout integrations. When we have our latest checkout integration, we either hold or grow share against anybody out there. You know, part of the blessing and curse of PayPal is we have massive scale, 35 million active merchants who use us, but we have 20 years of legacy out there as well. Upgrading that to our latest checkout integrations, which are best in class, is incredibly important. Any time we upgrade somebody onto our unbranded, with that comes our latest checkout integrations, both across PayPal, Venmo, and Buy Now, Pay Later. I wanna grow that unbranded as fast as we can. I also wanna grow the profitability of it as well.
We know exactly what we need to do there as well. We need to expand internationally 'cause there are better margins. We're predominantly on Braintree domestic right now. We're gonna move down market with PayPal Complete Payments, PPCP, which has higher margin structures, and we're adding value-added services on top of that that have higher margins. Those will take some time to play through our margin structure, but they absolutely will as the year progresses and as we go into 2024. We're executing really well right now. When we say we're gonna do something, we typically do it. We typically do it on time. This is, I'm talking about our product roadmaps right now, and they're making a difference in the market.
We have a real good game plan around driving margin structure around unbranded, and I hope it continues to take shape going forward 'cause over the long run, that will be a real positive for us.
Yeah. I think the improvements to checkout, I mean, that's big. I know we've been talking about it for years. There's still a lot of white space with guest checkout being such a big part of the market. Can you dig in a little bit more for the audience? What is this advanced checkout gonna look like? Will it put PayPal in more of a level playing field experience-wise as with Apple Pay, for example? Just give us a little bit more feel for what that means.
Yeah. Well, there's so much to it. First of all, our goal is to be best in class. Not to be on par with anybody, to be best in class. We have a lot of assets to leverage on that for merchants. Merchants want checkout providers that are cross-channel. In other words, not just mobile. They want mobile, desktop, laptop, whatever it may be. They want cross-operating systems because, you know, 75% of the world is still Android. iOS is obviously an incredibly important part of that ecosystem, but it's a part of it. We have more checkout choices than anybody else. Our wallet is more robust than anybody. Our scale is larger than anybody. As I mentioned, it's really our legacy that we need to upgrade. We are taking this step-by-step.
We are reducing latency. We've reduced latency by 40% over the last two years. We're gonna reduce it another 10% this year. Every second that we improve from latency, it generates a large amount of revenue for us because it's conversion checkout. Passwordless is going up another 10% this year alone, we've increased that quite dramatically so that people don't need to put in their password. They can do kind of a one-click checkout.
Mm-hmm.
Over a third of our top 100 merchants are on our latest integrations, will be about 50% by year-end on that. As we roll out PPCP our, you know, PayPal Complete Payments platform into our channel partners, they bring with them a lot of the long tail of our merchants as well. Once they upgrade to PPCP, if they're a hosted channel provider, then all of that merchant base, which is really the higher end of the small business and the lower end of the mid-sized business, automatically upgrade to our latest checkout. When somebody's on our latest checkout, conversion rates go up anywhere from 3% - 10%, which is a massive improvement. Again, as I mentioned, when you're on our latest checkout, we either hold or grow share against anybody on that.
We have a number of what I would call basic hygiene initiatives underway. We've made a huge amount of progress on that. We also are thinking about what is the next generation of checkout. How do we win, not just against other wallet players, but how do we take guest checkout? How do we use our unique datasets? Last quarter, we did almost 6 billion transactions through the platform, last quarter alone. That is and by the way, that doesn't include a lot of the PSP traffic that we put through as well. We have a unique and extraordinary large dataset. When you think about how we can combine that with various forms of machine learning, neural networks, advanced forms of AI together with our dataset, we think we can kind of redefine the full checkout experience for merchants.
Not just improve the PayPal part of it, but look at the entire checkout and how do we create that to become a one-click process for our merchants? We're starting to roll that out to merchants. Just did that at our sales conference. Huge excitement around, like, how game-changing that could be. We're thinking about all the things on the here and now, and there are a lot of basic blocking and tackling that needs to get done, a lot of friction that needs to be taken out of the process, a lot of in-app native transaction that has to occur. We're executing against that, and we're really now thinking about what's that next generation of checkout look like and how can that be fully differentiated from any player out there.
I know you've mentioned legacy a couple times, Dan. When we do our surveys, and I know others do it as well, even with sort of a big legacy user base, the share is still very dominant, whether it's across iOS, especially within Android. I mean, it's 5x more popular from our work relative to Google Pay. My question is this: With guest checkout still a big opportunity, you still have a subsegment of the market that's doing card on file. Is there a lot of competition for branded checkout in your mind in terms of direct wallet competitors? I know we get a lot of questions around this, but how do you see the competitive landscape? Are we looking in the wrong places? Is it more card on file guest checkout that's the competition?
What's your view?
Yeah. Well, all digital wallets are probably 35%-
Mm-hmm.
Of online checkout right now. There is a lot of white space for digital wallets to take share from, you know, card on file, vaulting, guest checkout, manual entry of cards. You know, we're focused on all parts of that. I do think, you know, we wanna be best in class of digital wallets because I think if you're best in class in digital wallets, you will naturally take share from that other white space of the online market space. You know, I looked at your survey very carefully. I think it's really actually quite interesting in your survey. If you look at from 21 to 22.
Mm-hmm.
Not 22 to 23, because that's only about a quarter that you can look at. Look at all of 21 to 22. PayPal grew. I'm gonna show you these and remind you. PayPal grew in its preference and its share of checkout-
Right
Substantially, while Apple Pay actually came down in that's sort of, like, not a thing that most people would have expected. From 2022 to 2023, Apple Pay has grown, we've come down a little bit.
Yeah.
If you look at 21 to 23, just at that, we're up in share, we're up in preference. I think a lot of the things we're doing are making a real difference. That's really important as well. My expectation, my full expectation is that as the year continues on, that our growth in our branded checkout will accelerate. You know, that's something, I mean, for everyone to take a look at, 'cause obviously, if our branded checkout growth accelerates, that will help on the transaction margin dollar side of it as we start to put value-added services on unbranded, which our customers are demanding, as we roll out PPCP and go down market with higher margins, as we roll out more and more internationally that have higher margins, that will also play into our transaction margin dollar growth.
The one really important thing about saying that now we are looking at high single digits in revenue for the year is the jump off as we go into 2024.
Yep.
Is massively different than what people were expecting before. If we can grow core branded, start to put in more value-added services and higher margin stuff into our branded, and begin to see more engagement around our monthly active users because of what we're doing in the digital wallet, that bodes pretty well as we look out towards the end of the year and into 2024.
Yeah, no, I'm glad to hear you say that as we think about exit rates with respect to branded. I know there's a lot going on there, but you've mentioned PPCP, PayPal Complete Payments. It's easier for me to say it than the acronym. I feel like moving down market with this PPCP, I mean, that's a big deal considering who sits there, but there's still a lot of opportunity to go after that SMB space. You've owned that from a branded standpoint.
Mm-hmm.
How... What can we learn from the branded experience to win with an unbranded? I heard you loud and clear that it's gonna bring with it a lot of flywheel and opportunities to get to advanced checkout, sure. The opportunity to seize it though, Dan, how real is that? It sounds like the partner plan will be important, pricing will be important, but how do you see that maturing as you go after this? 'Cause it is new.
Yeah. there is massive pent-up demand.
Okay.
For our unbranded offer through both our channel partners and through small and mid-size businesses. It's a huge market. What do we have? Something like 35 million active accounts. You know, most of those are small and mid-size businesses. It is our bread and butter. We have inside sales force and a sales force that approaches both channel partners and the upper end of small business and lower end of mid-size. We've had a legacy product there, none of you will recognize, it's called PayPal Payments Pro, that is like a 10-year-old product, completely insufficient to addressing that market, really an old architecture that we are deprecating right now, which is always painful when you deprecate something.
Sure.
Those customers are not well served on that architecture and need to move to PPCP. PPCP is state-of-the-art, unbranded platform. Comes with all of our latest checkout integrations on top of it, value-added services, orchestration plays, the same thing that we've done up market, but much more kind of platform-oriented. Up market is more customized with Braintree. We've got a lot of channel partners and large channel partners quite interested in it. We'll announce more of those as the year goes on. I expect PPCP to be one of our most successful product launches that we had. We had a great product launch with Buy Now, Pay Later. I think we're one of the top two or three players in the world on that right now.
I think PPCP will be just as impactful as we go into the lower end of the marketplace. We've never really had a product to compete there. We now have a very competitive product to do that, and we have a lot of relationships to build on and a lot of demand to take advantage of. We have very high hopes, and we have a very robust funnel of opportunity, and that'll start to come through as the year goes on.
Okay, good. Look, there's a lot of irons in the fire, as they say, going on, and PPCP is definitely one that we're interested in.
Us too.
In tracking. You're balancing a lot of this with a narrower focus, and we've seen non-transaction expense come down quite a bit. I think you're now expecting that to be 10% down, if I remember correctly, Dan?
Yep.
It sounds like you expect non-transaction expense to continue to decline thereafter. It's the obligatory question, right? How much more room to cut before you cut muscle?
Yeah. Well, I'd say just the first thing is we're not gonna cut muscle. I mean, cutting muscle is always, you know, being a, an athlete and a martial artist and.
Mm-hmm.
An older one. like, cutting into muscle is never helpful. Being in good shape is always helpful. You know, we were negative 12% OpEx. I think people were wondering whether we would get our cost structure back in line, right? There's no question about it. I think being negative 10% this year, honestly, is just the beginning of what we need to do. We, like many other companies, added a lot of expense during the pandemic to keep up with demand. At the end of this year, if you look at just our classic run rate, we'll be back on track with our classic OpEx run rate over, like, a five-year CAGR period, but not better than that. Not better than that.
With all of the productivity, all the benefits that we get from platform consolidation that we're doing, modernizing our platform, our products are getting better. We're having less calls coming into customer care. We have a lot of productivity work that we can yet do, and you're clearly gonna see that come into next year as well. AI is going to redefine the workplace for not just PayPal, but for all companies. Like, I think if you think about technology trends, you think about the cost of compute, the cost of transport, the cost of service, those have all come down massively, you know, with technological advantage. The one thing that has not come down is the cost of software.
I think we are like in a Gutenberg moment right now with software, where you are gonna be able to use forms of AI to do all of your quality control through that, which is a massive cost element for it. New software is gonna be done in an automated fashion. Then you look at front office, back office, legal, marketing. This is not about cutting into muscle. This is about doing things more efficiently, better, at much lower cost. That is gonna continue for quite some time. This isn't like, you know... I know I've heard, "Well, Dan, you're gonna be around, you know, for X amount more time.
What do you think the next CEO will do?" Like, being efficient, looking at forms of productivity, using AI to go and be more and more efficient and better, like, any CEO you bring in will be looking at all those things. It just makes sense to go and do that because it's not just a cost exercise, it's getting better at the basic things that you're doing. You use, obviously, AI to differentiate yourself on your value proposition as well as we were talking about. AI, to me, is both a productivity play, not so much cost, but just getting better at the things you're doing, but it will obviously drive cost improvements, but really a value proposition play.
I think, you know, when you think about our cost structure, clearly the things we're doing continue on into next year, and I think continue on for many years to come. You drive branded share of checkout, which increases your margin structure. You increase your unbranded. You keep winning out in the market there because it drives your checkout. You put on, you know, more profit streams. It opens up actually new transaction streams for you. You drive your digital wallet to make sure that you drive engagement with your consumers and have a place where merchants and consumers can interact more frequently. I think that plan is the plan we've been on for the last like year and a half.
At least from my perspective, when I look out over the next year or so, I can't imagine that we'll be on a plan that'll be much different than that.
Okay. Sticking with that, and I do wanna talk about the CEO transition here. With generative AI, I know it's at the tech conference, people are gonna get sick of me asking people about it, but I'll ask it anyway. You know, dating back to whether it was Virgin or American Express or now PayPal, when you think about these tech waves with generative AI, it feels like, I don't wanna say incumbent companies, but the larger companies with a lot of data, a lot of history, a lot of users, et cetera, stand the most to benefit as well as be hurt by generative AI. I'm curious, where does this rank for you know, in terms of opportunities to amplify what you just said in terms of productivity, software development, you name it.
I don't think you can underestimate it. I do think you're right. I think larger companies or companies that have unique sets of data, that have a lot of experience, as we do in machine learning and neural networking, in forms of AI, will have some advantage. Although there's a lot of open source AI that's gonna go out there. Meta, you know, I think did something very different than a lot of the other players are. You're gonna have a lot of open source, and open source is always quite powerful in there. I don't think any of us should underestimate the power of what AI will open up. It will open up new value propositions for sure, and it will redefine the structure of work. That doesn't mean that new jobs won't grow in importance.
Mm-hmm.
If I look at things like the legal profession, there's no way you can keep the hourly model. Like, there's no way that whole business model doesn't radically change. I mean, at least 40% of what's done today on that, on research and everything, can be done almost instantaneously. And I think every part of the organization, and we've got a full effort right now looking at every part of the organization. How is it redefined? How does it get better? What does it do to our cost structure? What does it do to our hiring going forward? What does it do to our value proposition? How do we leverage what is very unique to PayPal? Everybody always wants to know, like, what do people want to buy? What are they?
We know not just what people's intentions are, but exactly do they buy or not? What do they look at? We have very unique sets of data that can be massively helpful to retailers and to consumers in the whole shopping journey.
Okay. Good. No, thanks for going through that. Time flies. We have four minutes left. Have to ask you, I guess, on the, on the CEO search. Thinking about what you just said and all the foundations of PayPal that you're, you did a good job of going through. Is the bias for you and the board to search for someone that has more of a technology sort of product orientation? Is it more important to have domain expertise around banking and fintech? Is there another factor that you think is important? I'm just curious what's top of mind.
Yeah. Well, first of all, it's really, it's very bittersweet to leave PayPal. I love the company. I think it's got so much potential in front of it. I've been there for nine years. I'm 65, I'll be almost 66 when I retire, it's time for somebody new to take this to the next chapter and its next potential. The board is moving as rapidly as it possibly can to identify the next CEO. We're looking at all those criteria, obviously. You know, we wanna find somebody who's got tech experience, heavy product, understands a regulated industry as well, because that's extraordinarily important. Part of our special sauce is we are world-class at compliance and risk management. We have great relationships with the regulators and government officials around the world.
It enables us to do things that others might not be able to go and do. They're moving as quickly as they can. They understand how important that decision is. They wanna be deliberative about it, but move as expeditiously as possible. That's what's happening inside our boardroom right now. I'm excited about the list of potential candidates that we have. Let's see where all that comes out.
I assume, I know Gabrielle Rabinovitch has done a great job as Acting CFO. Is that a sequential decision with the CEO first and then the CFO decision thereafter?
Well, you're right. Gabs has done a great job, and we've worked very closely together...
Yeah.
Over the last year and a half, and I've got nothing but massive respect for her. The board's really focused on the CEO search right now and getting to a decision as rapidly as they can.
Okay, good. Look, I mean, like I said, Dan, like I said in the very beginning, like I worked on the original IPO of PayPal, then the eBay transaction.
Yep.
You coming through and the tough changes that you made with consumer choice, right? Moving away from the eBay run model and moving more open, things like that. I mean, those were tough changes to make to get you guys to the point here to still be talking about it. I think back then, people thought PayPal was a dinosaur.
Yeah.
There was worry about competition and everything else, and here we are still talking about sort of the next step from share. I'll leave you with this question then. Given that, PayPal survived a lot of different themes, sort of what do you think is sort of the next battle or hurdles that PayPal really needs to overcome? Forget about the short-term macro and what we've talked about before. The bigger picture, what's sort of the bigger challenges you think that the next CEO is gonna have to take here?
Well, there's always gonna be competition.
Yeah.
I mean, it's an incredible marketplace. If we didn't have any competition, probably wouldn't be as great a market. You know, history's been littered with people that have come after PayPal. I remember when I first came on, you know, you had all the wireless carriers coming after payments. You had all the merchants that were gonna come after it with MCX coming after it. You had the networks coming after it. You had then the single integrated button player that was coming after it. PayPal, you know, has quadrupled its volumes in the last nine years, tripled its revenues, tripled its profitability during all of that timeframe. There'll always be competitors. We'll always need to adapt, and move and not stand still on that, but we have. We're gonna continue to go and do that.
I think people probably underappreciate the amount of assets that we have, and the amount of customer goodwill and brand strength that we have. We're now executing extraordinarily well. It's taken a little while to get our legacy platforms in a place where we can iterate and experiment at a quite a rapid pace. We do 50,000 software releases a year now. We were doing a couple of hundred when I first came in. I think there's massive opportunities still. The financial system is redefining itself. I think we're gonna look at different types of rails that'll be faster and less expensive. I think we are well-positioned to play in that marketplace.
I think, you're gonna see a lot more people come into the system, and I think the system is gonna be way more efficient than it's ever been before. I'm as excited today as I was when I joined PayPal. There are probably as much doubts today as when I joined. There were a lot of doubts, but we just keep iterating, we keep executing, and that's what we're focused on. If we do that, I think we'll have a great future ahead of us too.
Yeah, no, PayPal's been a survivor. It's been a fighter like you. You've been a fighter. Again, grateful for all the time that we spent together, Dan, debating the, the business and, hopefully get to chat.
Great.
In different settings like this.
Yep. Thanks, everybody.
Thank you, Dan.
Yeah.
Appreciate you.