PayPal Q1 2026 Earnings Report

PayPal EPS Results

• Actual EPS: $1.34
• Consensus EPS: $1.27
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.33

PayPal Revenue Results

• Actual Revenue: $8.35 billion
• Expected Revenue: $8.05 billion
• Beat/Miss: Beat by +$303.09 million
• YoY Revenue Growth: +7.20%

PayPal Announcement Details

• Quarter: Q1 2026
• Date: 5/5/2026
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 5, 2026
• Conference Call Time: 8:00AM ET

PayPal (NASDAQ:PYPL) operates a global digital payments platform that enables consumers and merchants to send and receive payments online, on mobile devices and at the point of sale. The company provides a broad set of payment solutions, including a digital wallet, merchant payment processing, checkout services, invoicing and fraud-management tools. PayPal’s platform is designed to support e-commerce, in-person retail and person-to-person transfers, targeting both individual consumers and businesses of varying sizes.

Key products and services in PayPal’s portfolio include the PayPal wallet and checkout ecosystem, the Venmo peer-to-peer mobile app, Braintree’s developer-focused payment gateway, Xoom for international money transfers, and PayPal Credit and buy-now-pay-later options. The company has also expanded into value-added services such as merchant lending, point-of-sale solutions through acquisitions, coupon and discovery tools, and limited cryptocurrency buying, holding and selling features in select jurisdictions. PayPal’s services are available across a wide set of international markets, enabling multi-currency transactions and cross-border commerce for merchants and consumers around the world.

Founded in the late 1990s (originally as Confinity and later merged with X.com) and widely associated with the early growth of online payments, PayPal became part of eBay in 2002 and later spun off as an independent public company in 2015. Over time PayPal has grown through a combination of organic product development and strategic acquisitions. As of mid-2024, the company’s executive leadership transitioned from longtime CEO Dan Schulman, who led PayPal through a period of significant expansion, to Alex Chriss, who assumed the chief executive role. PayPal continues to focus on expanding its digital wallet capabilities, merchant services and international reach while navigating evolving regulatory and competitive environments in global payments.

PayPal Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: New CEO and reorganization: Enrique Lores announced a refocus around three lines of business (Checkout/PayPal; Consumer Financial Services/Venmo; Payment Services/Crypto), a stronger consumer emphasis, and plans to simplify decision-making and accelerate technology modernization and AI to improve execution.
• Positive Sentiment: Cost-savings plan: Management expects at least $1.5 billion of gross run-rate savings over 2–3 years from delayering and broad AI/automation adoption, with those savings to be redeployed into growth and capital return.
• Positive Sentiment: Q1 operational and cash performance: Total payment volume accelerated (11% spot, 8% currency-neutral), Venmo and PSP delivered mid-teens TPV growth, transaction margin dollars ex-interest grew 3%, non-GAAP EPS rose 1%, and free cash flow remained robust supporting ongoing buybacks.
• Negative Sentiment: Near-term headwinds and guidance risk: Management flagged Q2 pressure (low single-digit revenue growth, TM dollars down ~2–3%, and non-GAAP EPS ~-9% year-over-year), modest branded checkout growth (≈2%) and regional softness (Europe/travel) that may weigh on near-term results.

Presentation

[Operator]

Good morning, and welcome to PayPal's first quarter 2026 earnings conference call. My name is Sarah, and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winoker, PayPal's Chief Investor Relations Officer. Please go ahead.

[Steve Winoker, Chief Investor Relations Officer at PayPal]

Thanks, Sarah. Welcome to PayPal's 1st quarter 2026 earnings call. I'm joined by CEO Enrique Lores and Chief Financial and Operating Officer Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties.

[Steve Winoker, Chief Investor Relations Officer at PayPal]

Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings, and on our website, those elements may change as the world changes. Over to you, Enrique.

[Enrique Lores, President and CEO at PayPal]

Thank you, Steve, and thank you to everybody for joining us this morning. I'm stepping into this role at an important moment for PayPal. I appreciate the opportunity to serve as CEO, and I'm confident we will accelerate the growth of the company while improving profitability and cash flow. That is why I'm here. At the same time, I'm also realistic that we need to make significant changes to improve the strategic and operational issues the company has faced.

[Enrique Lores, President and CEO at PayPal]

Today, I will share what I have observed since joining the company, how we're shaping our strategic direction, and the actions we are taking to move forward with focus and discipline. During my time on the board, I developed a good understanding of PayPal's strengths, opportunities, and areas for improvement. Over the past two months, I have listened to and learned from our customers, our teams, and our investors.

[Enrique Lores, President and CEO at PayPal]

This has helped to deepen my view of where we are, where we need to go, and how we get there. I will begin with a few initial observations. First, our foundation is strong. The company has valuable assets in our brands, our risk and underwriting capabilities, our technology, and most importantly, our team.

[Enrique Lores, President and CEO at PayPal]

Our scale and global reach set us apart and are difficult to replicate. The hard-earned trust our customers place in us every day is a critical advantage. Second, we operate in markets defined by growth and rapid change. It is during this period that leading companies find ways to differentiate themselves by innovating, delivering new and superior solutions, and driving durable growth. This is where PayPal needs to focus. Third, one of our core strengths is our two-sided network, serving both consumers and merchants.

[Enrique Lores, President and CEO at PayPal]

In recent years, PayPal has put more energy into the merchant side of the network. Strengthening the value we offer to the hundreds of millions of consumers who choose PayPal and Venmo is a key priority. Doing that, we increase the value of our platform for merchants and create a stronger foundation for sustainable growth.

[Enrique Lores, President and CEO at PayPal]

Fourth, due to years of underinvestment, we need to accelerate the modernization of our technology platform. Moving faster to become cloud native and aggressively adopting AI in our development processes will help us significantly increase developer productivity and shorten time to market. Fifth, we need to simplify how we operate, streamline decision-making, and clearly define accountability to strengthen execution. Finally, there is potential to significantly reduce the company cost structure.

[Enrique Lores, President and CEO at PayPal]

Simplifying the organization and accelerating the adoption of AI across the company will generate significant savings that can be reinvested in growth and used to respond to business headwinds, improving our overall financial profile over time. With this as a context, we need to recommit to the fundamentals. That includes becoming a technology company again, sharpening our focus on consumers, aligning the company around three strong businesses, and simplifying how we work with clear accountability and a stronger emphasis on execution.

[Enrique Lores, President and CEO at PayPal]

I expect that it will take a few months to completely define our new plan, but I think it is important to start sharing the direction we are taking and some of the actions we have underway. Let me start by sharing the framework we are using to define our strategy.

[Enrique Lores, President and CEO at PayPal]

We see three distinct, attractive, and in many ways complementary market opportunities where focused investment and sharper execution can meaningfully improve our growth trajectory: checkout, consumer financial services, and payment services. Each has clear near-term levers to improve the performance of our existing assets, as well as compares medium-term growth opportunities. In every case, we have a strong right to win.

[Enrique Lores, President and CEO at PayPal]

I will take each in turn. Let me start with checkout. This is a large and growing market where we deliver meaningful value to consumers and merchants. Within checkout, we also see strong consumer demand for flexible payment options, including buy now, pay later solutions. This is becoming an important driver of consumer acquisition, while also delivering clear benefits to merchants through higher basket sizes.

[Enrique Lores, President and CEO at PayPal]

The second opportunity is in consumer financial services. Consumers are increasingly turning to digital platforms to handle everyday financial activities.

[Enrique Lores, President and CEO at PayPal]

This is also a large market opportunity, worth more than $200 billion annually in just our top six markets, and it is growing at low double digits. What is most attractive about this market is not only its size and growth, but also the customer lifetime value opportunity we can tap into. The third opportunity is in payment processing and value-added services.

[Enrique Lores, President and CEO at PayPal]

The PSP space represents significant untapped value for us, driven by the continued shift to digital channels and the increasing complexity of global payments. We're aligning the organization to unlock these growth opportunities. Previously, our teams were organized primarily around the customers we serve: consumers, small businesses, and large enterprises.

[Enrique Lores, President and CEO at PayPal]

That structure resulted in organizational complexity with multiple dependencies and handoffs that slowed decision-making and weakened execution. Checkout, for example, touched all customer groups and markets, creating a multidimensional matrix for roadmap prioritization.

[Enrique Lores, President and CEO at PayPal]

The changes we announced last week will organize the company into three lines of business, each with a single leader. Checkout solutions and PayPal, consumer financial services and Venmo, and payment services and crypto. Importantly, we are bringing together the two sides of the network to maximize our competitive advantage.

[Enrique Lores, President and CEO at PayPal]

Simplifying our operating model and clarifying accountability means that each leader will own clear outcomes, and our teams will be able to focus on our most important growth priorities. We're also using these changes to simplify and delayer our organization. We have formed a new AI transformation and simplification team that will help us work more effectively and drive our enterprise-wide AI agenda. Let me now outline how we are thinking about the path forward across each of our businesses.

[Enrique Lores, President and CEO at PayPal]

Checkout solutions, PayPal is primarily a checkout-focused business and is the highest priority for the company and me. It brings together our consumer and merchant ecosystems under one unified strategy. This structure will enable us to fully leverage our two-sided network and accelerate innovation across both sides of the platform.

[Enrique Lores, President and CEO at PayPal]

Our intent is not to chase transitory share in any given quarter, but rather to focus on segments and verticals where we can deliver differentiated value to our customers. I have also emphasized that strengthening the consumer side of the network is key to increasing the value we deliver to merchants. Driving habituation through the adoption of our financial services offerings is an important step toward enhancing the consumer value proposition and reinforcing the power of our two-sided network.

[Enrique Lores, President and CEO at PayPal]

Our PayPal+ loyalty program, which we introduced in the U.K. and will expand to additional markets, is another important step. Over the medium to long term, we have a number of compelling innovative initiatives underway. We will take a disciplined approach to prioritization, focusing resources on areas with the greatest potential to drive durable growth and shareholder value.

[Enrique Lores, President and CEO at PayPal]

Within this portfolio, we will be highly selective as we evaluate our broad set of initiatives, including digital wallet interoperability, biometric functionality, and additional programs under consideration. Within Consumer Financial Services and Venmo, we have been making good progress in the last few years and have built a strong portfolio of related products. Awareness and adoption remain well below their full potential.

[Enrique Lores, President and CEO at PayPal]

Our focus is on becoming more central to our customers' financial lives, and our goal is to enable consumers to send, spend, save, invest, and borrow seamlessly.

[Enrique Lores, President and CEO at PayPal]

Venmo will be a key component of our growth plans moving forward, supported by its strong brand and younger demographic. We are in a strong position to expand in this space, deepen engagement, and increase customer lifetime value. Payment services and crypto unifies our processing and platform capabilities into a single scalable offering for merchants.

[Enrique Lores, President and CEO at PayPal]

We will bring together the company's unbranded processing capabilities, including Braintree, and value-added services such as fraud management, authorization optimization, and global payment infrastructure. They are designed to support businesses of all sizes with flexible, high-performance payment solutions.

[Enrique Lores, President and CEO at PayPal]

We are also well positioned to capture and monetize this growth. Stablecoin is also part of this, enabling faster, lower cost transactions. We have made good progress with PYUSD, which became the largest federally regulated stablecoin in December, and we recently expanded its availability to 70 markets globally.

[Enrique Lores, President and CEO at PayPal]

At the same time, we have much more opportunity to scale our offerings and accelerate growth in this space. Across the company, we need to modernize our technology platform to enable greater speed and interoperability across our offerings. As I said earlier, leveraging AI more extensively in our development processes will significantly help us with this effort. Supporting our growth plans is the opportunity to realize cost savings.

[Enrique Lores, President and CEO at PayPal]

First, we will remove duplication and layers from our organizational structure. Second, we will accelerate our AI adoption and automation across our operations. Combined, the savings will be significant. We expect to see at least $1.5 billion of gross run rate savings over the next two to three years. Jamie will discuss more on this point later in the call.

[Enrique Lores, President and CEO at PayPal]

Let me touch briefly on some highlights from the quarter before Jamie takes you through our results in more detail. Our first quarter results show some improvement in branded checkout. Branded checkout TPV growth was 2% on a currency neutral basis, up from 1% last quarter. We continue to see strength in key parts of the business, with Venmo and PSP delivering mid-teens TPV growth.

[Enrique Lores, President and CEO at PayPal]

Transaction margin dollars, excluding interest on customer balances, grew 3%, with contributions from credit, Venmo, and PSP. Non-GAAP earnings per share grew 1%. We also continue to generate robust free cash flow, giving us ample room to invest and return capital to shareholders through buybacks and our dividend.

[Enrique Lores, President and CEO at PayPal]

On the operational side, our team accomplished a lot in the first quarter. From securing apps in presentment on key merchants to enabling interoperability for peer-to-peer payments between PayPal and Venmo.

[Enrique Lores, President and CEO at PayPal]

To close, I am confident in our ability to put this company on a more durable path to long-term growth and shareholder value creation. We have a strong foundation, and we are now organized to move with greater urgency.

[Enrique Lores, President and CEO at PayPal]

We have a well-defined framework, and we will continue to define our strategy and prioritize our plans in line with it. I look forward to sharing more progress as we move ahead. Finally, I want to thank our teams for their continued focus and execution, and our customers and shareholders for their trust. I will now turn it over to Jamie.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Thanks, Enrique. The team and I are energized by the focus, clarity, and disciplined prioritization you are already bringing to PayPal. We have a strong market position and a solid foundation, and I'm confident we're set up to move faster from here.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Turning to the financials in more detail on slide seven, PayPal delivered a solid quarter with both transaction margin dollars and non-GAAP earnings per share coming in moderately better than our guide. Total payment volume accelerated to 11% at spot and 8% currency neutral in the first quarter, reaching over $460 billion.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Online branded checkout volume growth improved slightly from the fourth quarter, while enterprise payments and Venmo both accelerated into the mid-teens. First quarter revenue grew 7% on a spot and 5% on a currency neutral basis.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

TM dollars, excluding interest on customer balance, grew 3% in the first quarter. The drivers of our TM dollar growth were broad-based, led by credit performance, Venmo monetization, PSP profitability, and loss improvement across multiple products. Growth in these areas more than offset the headwind from investments we are making to strengthen our branded checkout position and drive higher engagement, habituation, and incremental activity over time.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

First quarter non-GAAP earnings per share increased 1% to $1.34. Compared to our guidance, non-GAAP EPS benefited from stronger transaction margin dollar growth with some offset from higher non-transaction operating expense.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

We expect the second quarter to reflect more pressure on a year-over-year basis, driven by the non-recurrence of certain prior year items and the timing of anticipated cost savings and investment, both of which I'll walk through in more detail shortly.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Importantly, these are factors we anticipated, and we remain confident in our full year 2026 guidance. Adjusted free cash flow, which excludes the timing impact from the origination and sale of pay later receivables, was $1.7 billion or nearly $6.8 billion on a trailing twelve-month basis.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Turning to slide eight, we continue to drive deeper, more active relationships with our customers. Monthly active accounts increased 1% to $225 million. Transactions per active account, excluding PSP, improved sequentially to 6% growth. Moving to slide nine, total payment volume in the first quarter grew 11% at spot and 8% on a currency neutral basis to $464 billion.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Working our way down the page, branded experiences TPV, which includes online checkout, PayPal and Venmo debit, as well as tap-to-pay, grew 5% compared to 4% in the fourth quarter. Debit card and tap-to-pay spend represent a small portion of branded experiences volume today, they continue to grow rapidly, up 60% year-over-year.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Venmo TPV continues to reach new highs, accelerating sequentially to 14% growth year-over-year and marking the sixth consecutive quarter of double-digit growth. Online branded checkout volume growth improved slightly compared to last quarter, up 2% on a currency neutral basis.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Compared to the fourth quarter, we saw a slight improvement in the U.S., with softer performance continuing in Europe. Pay with Venmo and buy now, pay later continue to outpace the market, taking share from other payment methods and growing 34% and 23% respectively.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

P2P and other consumer volume growth remains healthy, up 10% in the first quarter and reflecting the debit card and Venmo momentum I just mentioned. Turning to PSP, volume growth accelerated to 11% from 7% in the second half of 2025. Within PSP, enterprise payments again showed notable strength with volume growth accelerating to the mid-teens from a combination of growth in profitable front book business, high retention, and growth alongside our existing merchant base.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Driving higher attachment of value-added services continues to be a key focus to improving yield and monetization as we move through 2026. Moving to more financial detail on slide 10, transaction revenue grew 7% on a spot basis to $7.5 billion.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Other value-added services revenue grew 10% to $852 million, driven by strong contribution from consumer and merchant credit, partially offset by lower interest rates. Transaction take rate declined by 6 basis points to 1.62%. Excluding the impact of foreign exchange hedges, transaction take rate declined about 4 basis points.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

This output was driven by a combination of factors, including branded co-marketing investments and rewards, as well as higher growth in Venmo and enterprise payments. TM dollars ex interest on customer balances grew 3%. Within volume-based expenses, transaction expense as a percentage of TPV was 90 basis points, increasing slightly year-over-year from mix shift to enterprise payments.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Transaction loss as a percentage of TPV improved slightly year-over-year to 6 basis points. This reflects our team's ongoing work to continue to improve and strengthen onboarding, fraud prevention, and risk management capabilities.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Non-transaction related OpEx increased 8%. This higher increase relative to our guide was driven by our decision to pull forward a combination of technology, marketing, and product investments, which will continue into the second quarter, making our OpEx profile more first half weighted this year. As a result of higher investments, non-GAAP operating income was down 5% in the quarter to $1.5 billion.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Moving to capital allocation. In the first quarter, we completed $1.5 billion in share repurchases, bringing our trailing 12-month total to $6 billion. We ended the quarter with $13.5 billion in cash and cash equivalents and investments, and $11.6 billion in debt. Moving to guidance on slide 11 for the second quarter and for the full year 2026. While first quarter was a solid start to the year, it's early.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

The macro and geopolitical environment remain complex, and we operate in a dynamic, highly competitive industry. The company is also in the midst of a significant multi-year transformation during which we are taking steps, including the business realignment discussed today to better organize around our key market opportunities and drive stronger execution. With that as a backdrop, we are reiterating our guidance for the full year.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

We see a significant opportunity to enhance customer lifetime value by driving consumer engagement through a combination of scaling new experiences, improving presentment, and increasing consumer selection with rewards and loyalty. We continue to expect our targeted growth investments to represent approximately a three-point headwind to transaction margin dollars growth in 2026, while driving durable long-term benefits in the years ahead.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

We have conviction in the impact these initiatives can drive in the future, but it will take time to keep scaling our programs and experiences. For online branded checkout specifically, our guidance continues to reflect slightly positive to low single-digit branded checkout TPV growth for the full year. Quarter-to-date, we are seeing trends at the low end of our full year guidance, and these are reflected in our second quarter guide.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Compared to the first quarter, we have seen slower growth in the travel vertical, as well as more muted growth in Europe. As Enrique discussed, we see significant opportunity to further improve productivity and reallocate resources to our highest returning initiatives. While we've made real progress over the past few years, there is meaningfully more we can do.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

We are realigning the organization to sharpen strategic focus, eliminate duplication, and remove layers, enabling faster decision-making and clearer accountability. In parallel, we will be accelerating efforts to deploy AI and automation across our operations and technology platform, which we expect will both improve the customer experience and drive meaningful internal efficiencies.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

These efficiencies will come from organizational realignment, process redesign through AI and automation, procurement and vendor rationalization, and optimizing our local footprint. Together, these represent two distinct waves of savings, the first from structural realignment, and the second from accelerating AI adoption and automation to comprise the vast majority of the more than $1.5 billion cost savings program we will execute over the next two to three years.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

A portion of this opportunity was already contemplated in the 2026 guidance we provided last quarter.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Looking ahead, we expect to deploy these cost savings to reinvest in growth and respond to business headwinds, improving our overall financial profile over time. During 2026 and into 2027, we will be transitioning teams, establishing new ways of working, and building systems and processes to run the business aligned with the structure we have announced.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

In the coming months, as we launch the full scope of this program, we plan to share more details on the expected cadence of savings and our reinvestment framework for the years ahead. We intend to follow that up with external reporting, including segments sometime next year. Turning to more specifics for the second quarter, let me start by noting that the second quarter has the most demanding year-over-year comparison this year.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

You may recall that last year, second quarter had a point and a half of transaction margin dollar benefit from the renewal and expansion of a relationship with a key payment partner, as well as very strong credit performance. This year, our transaction margin dollar investments also ramp through the year, and pressure will be more pronounced in the second quarter compared to the first.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

In 2Q of last year, non-transaction OpEx also benefited from discrete items within general and administrative expense, including a non-recurring decline in indirect tax expense. The 2Q tax rate was below the full-year average.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Pulling all this together, for the second quarter, we expect low single-digit revenue growth on a currency-neutral basis, a low single-digit or approximately 3% decline in transaction margin dollars, transaction margin dollars excluding interest to decline low single digits or approximately 2%, mid-single-digit growth in non-transaction OpEx, and non-GAAP EPS to decline by high single digits or approximately 9%.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

For the full year, we are reiterating our guidance. We continue to expect transaction margin dollars to decline slightly or be roughly flat, excluding interest on customer balances, approximately 3% growth in non-transaction operating expenses, and non-GAAP EPS ranging from down low single digits to slightly positive. Our guidance continues to assume approximately $6 billion in share repurchase and at least $6 billion of adjusted free cash flow.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

I'd like to wrap up by thanking the PayPal team for their continued focus and dedication. We have a solid foundation to keep building on as we drive value creation by executing on PayPal's transformation. With that, Steve, let's go to Q&A.

[Steve Winoker, Chief Investor Relations Officer at PayPal]

Before we open the lines for Q&A, I'd like to ask everyone to limit themselves to one question so we can get to as many of your fellow analysts as possible. Sarah, please open the line.

[Operator]

Thank you. At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Harshita Rawat with Bernstein. Your line is open.

[Harshita Rawat, Analyst at Bernstein]

Hi, good morning. I want to ask about branded checkout. Enrique, Jamie, can you maybe talk about the market dynamics in Europe? Also over time, what can we expect to see as execution improves and kind of like the realistic growth versus e-commerce we should expect? Thank you.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Good morning, Harshita. I'll talk a little bit about the market dynamics in Europe, and then Enrique, perhaps you want to talk about the overtime execution focus we have. You know, when you look at branded checkout, I would say that we're operating in a dynamic environment.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

When you look at the consumer generally, you know, while it's remained strong, you know, we are seeing some skewing in the middle income, which candidly in the U.S., you know, that was one of our bigger improvement points in that cohort. When you look internationally, what we were really seeing is a little bit more pressure from high oil prices. Certainly gas prices, but more importantly, travel in Europe was something that we saw, you know, slightly at the end of the quarter, but really more this quarter.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

You know, when you look across Europe, I would say generally speaking, we've got areas growing quite well, but we're still under pressure in places like the U.K. With respect to Germany, I would say the quarter, you know, we continue to see moderation there like we had seen in the fourth quarter.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Still growing, but at a slower rate. And generally pretty consistent, you know, combination of macro softness, competitive intensity, some natural normalization as a longtime market leader. But having said that, I think what's important, and this is where I'll maybe hand off to Enrique, you know, we began investing, taking all of the things we were doing with respect to branded checkout over the past couple of years and really bringing those to Europe mid-year last year and leaning into those investments.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

As Enrique's come in, I think his country-to-country level focus has been really important and I think will be a real acceleration for that. Enrique, maybe you wanna unpack that a little bit.

[Enrique Lores, President and CEO at PayPal]

Yes. I think in Europe we have an opportunity to improve execution by improving our focus in the countries. During the last eight weeks, I have been twice in the U.K., once in Germany, to understand in depth what is the situation and to work with the team to see what improvements we need to make.

[Enrique Lores, President and CEO at PayPal]

As Jamie was saying, there is a combination of macro effects, but also local competition. We have enough tools in our side to be able to compete and to be able to grow, and this is what we are going to be doing. Overall, answering your other question about branded checkout, we are taking a lot of actions to change the trajectory of the business.

[Enrique Lores, President and CEO at PayPal]

Of course, we need to continue with investments we did a quarter ago we started a quarter ago to improve presentation, to improve selection. We have especially focused on the top 50 customers. We are starting to see progress there. We also need to continue to improve the experience of our customers so they get a better experience when they check out with PayPal.

[Enrique Lores, President and CEO at PayPal]

We have other opportunities that we started to mention in the prepared remarks that I think in the future are gonna be very meaningful. We have been more focused on the merchant side of the network than on the consumer side, and we need to rebalance that focus and rebalance that investment. For example, the loyalty program we just launched in the U.K. is gonna be an element of that.

[Enrique Lores, President and CEO at PayPal]

There are other things that we need to do in that space. There are also specific verticals, high-value verticals where we can have a more differentiated value proposition, especially we combine with financial services. This combined with an improvement in execution that by really understanding what our priorities are and simplifying how we make decisions, we think the combination of all that will have a significant impact in the business going forward.

[Operator]

Your next question comes from Timothy Chiodo with UBS. Your line is open.

[Timothy Chiodo, Managing Director and Lead Equity Research Analyst at UBS]

Great, thank you. I want to see if we could talk a little bit more about the $1.5 billion of gross run rate cost savings that you outlined today. Jamie, I appreciate that you mentioned over the coming months you'll be giving more detail around the cadence and sort of reporting around the progress there.

[Timothy Chiodo, Managing Director and Lead Equity Research Analyst at UBS]

One area of the expense base that often comes up in investor discussions is the customer support line item. It's roughly $1.7 billion or so, and I fully appreciate, and I think investors do as well, that there's many countries, there's lots of compliance, there's lots of support, there's people answering the phone in local language. There's a lot of complexity there.

[Timothy Chiodo, Managing Director and Lead Equity Research Analyst at UBS]

I was hoping you could maybe bring to life a little bit more of some of the tasks or roles or some of the activities within that bucket that might be more applicable to this cost savings initiative. In general, any other broader thoughts around kind of areas of low-hanging fruit that you see for the $1.5 billion? Thanks a lot.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Yeah. Good morning, Tim. Maybe I'll talk a little bit about the cost, some of the components of how we're tackling it, and a little bit around the AI benefit, and then Enrique, you might wanna chime in as well. When we look at the at least $1.5 billion in cost, we really see this coming in a couple of different phases.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

The first is really around structural realignment, and you've heard us announce our reorganization last week. This is about duplication, it is about layers, it is about org structure. Really focusing and aligning our teams for top to bottom execution and improving our execution speed, candidly. With that also comes, you know, a lot of opportunity for costs and remixing there.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

The second piece, which I think is really a little bit more along the lines of your question around CS&O, is aggressive deployment of AI. You know, with respect to customer experience, how we touch customers in service and support and operations, and equally with respect to risk and the modernization of our risk platform and how we deploy AI as we do that.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

AI has really across the board opportunity, particularly in CS&O, but candidly across the company. I think we've made really good inroads. We're seeing, you know, good engineering productivity. We're seeing different elements of acceleration in different functions. I think the full top to bottom acceleration is gonna be really important. To your point, you know, as we really lay this out, I think there's two things to note. Number one, we do plan to reinvest savings for growth.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

A lot of what Enrique talked about with respect to the company's strategy, and not just branded checkout where we're leaning into the consumer value prop more, but really building out financial services with Venmo, really leaning into PSP in deeper ways to grow. That reinvestment piece is an important element of this. As you said, we'll lay out more of this in the coming weeks.

[Enrique Lores, President and CEO at PayPal]

I think the changes that AI will enable us to do to drive are gonna be very significant. This is why we created a group last week reporting to me that is gonna be in charge of driving function by function, process by process, this AI transformation. This is not about adopting AI as a technology, where we have done many pilots in the company and we have seen what is possible.

[Enrique Lores, President and CEO at PayPal]

It's really about understanding how can we redesign the key processes. Once the redesign is done, adopt AI, and this is what we have seen that really will drive significant savings. Not only savings, it will help us to move faster, and it will help us to bring and to deliver a better customer experience.

[Enrique Lores, President and CEO at PayPal]

The two key areas where we see the biggest opportunity in the short term, one is technology development. As I mentioned before, this is going to really help us to accelerate some of the improvements, some modernization we need to do in our platform. The second is customer support. As you were saying, Tim, this is a large cost for us today. With AI, we believe we can both reduce cost, but also improve the experience that we will provide to customers.

[Enrique Lores, President and CEO at PayPal]

The fact that we have multiple languages that we need to support multiple languages, multiple businesses, just highlights the opportunity of really reducing the cost by automating and driving it and doing it in an even better way for our customers.

[Operator]

Your next question comes from James Faucette with Morgan Stanley. Your line is open.

[James Faucette, Managing Director at Morgan Stanley]

Thank you very much. I wanted to follow up on that question and not only how we should think about reinvestment and, you know, the other side of it, capital return, and how you're going to decide how to apportion savings to one or the other. In particular, what are the proof points that you're gonna be looking at, whether it be ongoing engagement, growth in customers.

[James Faucette, Managing Director at Morgan Stanley]

Just help us think through the KPIs and how you're going to make sure that you're allocating capital most efficiently. I know you have big ambitions for both, but nuance there is, I think, important this morning.

[Enrique Lores, President and CEO at PayPal]

Yes, I think this is a great question, and you will see us doing much more work and reviewing that with all of you in the coming quarters. What we have defined so far is what is the strategic framework that we see for the company. We have outlined that we see three big growth opportunities where we think we can both grow revenue and operating profit, and we are aligning the company and the strategies of the company to make that happen.

[Enrique Lores, President and CEO at PayPal]

As we do that, we will identify what are the best opportunities that will drive the best return. Also, we are going to be very rigorous, I would even say ruthless, in the prioritization we are going to apply because the company has today multiple attractive initiatives. We have also several more small businesses.

[Enrique Lores, President and CEO at PayPal]

In the coming quarters, we need to decide in which ones we double down and we increase investment to increase our ability to execute and our chances to be successful, and in which ones we are going to be de-investing, stopping or doing something different.

[Enrique Lores, President and CEO at PayPal]

This is a process that between now and the next quarter we will be doing, as we do that, we also will identify what are the key KPIs per business so you can track the progress that we are making. We are just starting the what we call the transformation process. This is going to take some time, it's not something that immediately will happen.

[Enrique Lores, President and CEO at PayPal]

The combination of the assets that we have, the ability that we have to invest and the rigor we are gonna apply makes us confident that we will be able to really improve the performance of the company over time.

[Operator]

Your next question comes from Darrin Peller with Wolfe Research. Your line is open.

[Darrin Peller, Managing Director at Wolfe Research]

Hey, thanks, guys. Enrique, can you just walk through your thought process on your review of your assets in the company in the sense of, you know, which assets you actually absolutely feel like you must keep as part of the go-forward entity?

[Darrin Peller, Managing Director at Wolfe Research]

If there are assets you've identified that you would consider selling, where you stand on Venmo, is that potentially something that we should consider, that the company would consider wanting to sell for the right price? And then your thought process on synergies or dis-synergies of keeping assets together, whether it's Venmo with the rest of the business or Braintree with the rest of the business. If you could just walk through your thought process on that'd be great.

[Darrin Peller, Managing Director at Wolfe Research]

Thank you.

[Enrique Lores, President and CEO at PayPal]

Sure. Let me start by saying that our number one priority, my number one priority is to maximize shareholder value. At this point, I believe that the best approach is to invest in our three core businesses, PayPal, Venmo, and Braintree, to drive profitable growth. In each of them, we see the opportunity of making it happen.

[Enrique Lores, President and CEO at PayPal]

To do that, as we explained before, we are gonna be simplifying the priorities for each of them, identifying what are the core areas where we need to invest. At the same time, we need to modernize the technology platform that will be helping the three of them, and we need to simplify how we work and drive cost reductions to drive these investments.

[Enrique Lores, President and CEO at PayPal]

I think what is important is that we believe that there are significant synergies across the three businesses that make them stronger together. For example, we see customer synergies in driving cross-selling and helping each business to penetrate and to grow with different customers.

[Enrique Lores, President and CEO at PayPal]

We also see synergies in the technology and offering space. As we develop some of the financial services options that we have been discussing before, they will be benefiting the, for example, PayPal and Venmo. We also see strong synergies in key capabilities as risk management and identity. At this point, our play is to grow profitably the three businesses, because this is what we think will create the maximum value for shareholders.

[Enrique Lores, President and CEO at PayPal]

On top of these three business, I just mentioned before, there are many other initiatives in the company that we are gonna be vigorously prioritizing to make sure that we leave those in the plan where we see we have the highest opportunities to success, and that we use this to fund those activities that we will stay focused on.

[Operator]

Your next question comes from Sanjay Sakhrani with KBW. Your line is open.

[Sanjay Sakhrani, Managing Director at KBW]

Thank you. Good morning. Enrique, thank you for all your commentary. Obviously, you've had a very unique window as the new CEO, having been on the board. I'm just wondering if you could just drill down specifically on how you intend to do things differently from sort of the previous administrations to affect the change.

[Sanjay Sakhrani, Managing Director at KBW]

Jamie, just one question, 'cause I'm getting a lot of these questions on the trend line that you saw, that you mentioned, trending at the low end of the range, and some of the choppiness. I guess, if the higher fuel prices persist, do you feel like there's risk to the second half, you know, first, you know, relative to what you've incorporated in the second quarter? Thank you.

[Enrique Lores, President and CEO at PayPal]

Sure. Let me start with the first part of your question, and then Jamie will take the second part. I think what we're going to do starts from the development and the analysis that we have done on where the company is today, what is working, and what areas need to be changed.

[Enrique Lores, President and CEO at PayPal]

From a strength perspective, I would say that the company has very unique and high quality assets. The combination of the scale that we have, the technology that we have, some of the key capabilities around risk management, underwriting, the value of the brands, and the global presence are very unique assets that are difficult to replicate. The same time, we operate in market with high growth, and we have very relevant presence in these markets.

[Enrique Lores, President and CEO at PayPal]

We also have seen that there are some areas where we need to make some changes. We need to accelerate the modernization of our technology stack so we can continue to deliver compelling solutions to our customers. We need to rebalance the focus we have in our dual side in the two-sided network between merchants and consumers.

[Enrique Lores, President and CEO at PayPal]

During the last year, we have paid much more attention to merchants, and we need to rebalance that and increase our investment in consumers. We also need to simplify how the company works and reduce the complexities that the current model brings. On top of that, we clearly have an opportunity to reduce our cost structure, and this is what we are doing. Based on that, we have built a transformation plan that we are gonna be executing.

[Enrique Lores, President and CEO at PayPal]

The plan starts by identifying what are the highest opportunities in the three markets where we operate and investing significantly investing behind them and review and aligning the priorities towards that. Second is we, as we identify these priorities, they are gonna be different for each of the market opportunities. In the PayPal side, it's by continuing to grow and improve the performance of the checkout business.

[Enrique Lores, President and CEO at PayPal]

I mentioned before the combination of continuing some of the work that we have done until now, by also rebalancing the focus on consumer, combining with some of the financial services that have shown us that we can improve the value proposition and identifying the vertical categories where we can offer a more differentiated solution. This will help us to grow. In the case of Venmo, it's about growing our attach rate to financial services and improving ARPU.

[Enrique Lores, President and CEO at PayPal]

In the case of our processing business, it's all about maintaining the growth that we have and continuing to add value-added services. Third point is really the process to simplify the priorities and defining what areas we're going to focus, in what areas we're going to reduce our focus, which I mentioned before we will be doing in the coming quarters.

[Enrique Lores, President and CEO at PayPal]

Fourth is about accelerating the process to modernize our technology stack module by module to make sure that in the coming quarters, we really address some of the gaps that we have identified from a technology perspective.

[Enrique Lores, President and CEO at PayPal]

Fifth is to complete the reorganization of the company that we have started, simplifying how we work and aligning the work and aligning the priorities to the segments that we have identified. Finally is to complete the execution of the cost program that we have announced today.

[Enrique Lores, President and CEO at PayPal]

It's a very aggressive transformation plan. We think that by executing that, we will be able to improve significantly the performance of the company, and we have started the process now as we have been mentioning the call today.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

Great. Sanjay, with respect to your question on, you know, what we're seeing with consumer and some of the impact on growth, I guess first what I would say is, you know, we are reiterating our full year guidance. We continue to expect slightly positive to low single digit branded checkout TPV growth.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

That's what we've seen so far this year. Compared to first quarter, as I mentioned, we are seeing some impacts on the travel vertical. We are very focused on execution. As we get into, you know, deeper into the second quarter, comps get easier and candidly in the second half as well. Also we're laser focused on our initiatives and really driving improvement there.

[Jamie Miller, Chief Financial and Operating Officer at PayPal]

We've been prudent, I think, in how we've set our branded checkout guide and our expectation for lower growth this year than last year and we're confident with where we are today.

[Operator]

Your next question comes from Jason Kupferberg with Wells Fargo.

[Jason Kupferberg, Analyst at Wells Fargo]

Thank you guys. Enrique, I wanted to talk about just current product strategy in checkout. I mean, you guys have the fully optimized button now. Wondering if you are planning on any big changes there?

[Jason Kupferberg, Analyst at Wells Fargo]

Do you just feel like there's room to improve execution of the rollout of the current product? If we can get an update on the progress of the rollout, that would be great. Would just love your take on how long it might take to actually fully roll out that fully optimized version of the new checkout button because it seems like that's key to ultimately getting some structural re-acceleration in branded volume. Thanks.

[Enrique Lores, President and CEO at PayPal]

Thank you. In the short term, it's all about continuing the execution of the plans that we had until now. We have continued to make progress using the same metric we reported in the last couple of quarters. Today, we have the customers, 45% of the non-vaulted customers are already experiencing the new, simplified version.

[Enrique Lores, President and CEO at PayPal]

We have continued to make progress quarter-over-quarter, and the plan is to continue to that in the coming quarter. It's not only about that, it's also what we have learned is this is one element of the many that we need to do. When we combine our new checkout process with financial services and BNPL, we see also significant improvement and significant acceleration of growth.

[Enrique Lores, President and CEO at PayPal]

When we see better marketing and more customers are more attracted to use our button, we see also improvement. We need to continue to build end-to-end plans to make sure that we improve across the board, and this is what you're gonna see us doing. This is why execution is going to be so critical for us. It's not only about what we bring to market, it's about how do we maximize the value from it by having all the different functions and groups of the company focused on it.

[Operator]

Your next question comes from Tien-Tsin Huang with J.P. Morgan. Your line is open.

[Tien-Tsin Huang, Managing Director at J.P. Morgan]

Good morning. Thank you. I wanted to ask about modernizing the tech platform and becoming a tech company again. Does this include platform consolidation specifically? I'm asking 'cause modernizing the tech stack brings with it obviously a lot of risks, and I know you appreciate that, Enrique Lores, given where you're coming from.

[Tien-Tsin Huang, Managing Director at J.P. Morgan]

What's your assessment on the risk of modernizing? Why it hasn't been done already, and how integrated or distinct are the technology stacks across the three businesses? If you can detail that as well, that'd be great. Thank you.

[Enrique Lores, President and CEO at PayPal]

Thank you. The process we have started to go and modernize the tech platform module by module, and as we do that, drive integration or complete integration in some cases across the three businesses. As you said, all these changes have some risk, but on the other side, we have a very competent team, and this is a process that has already started.

[Enrique Lores, President and CEO at PayPal]

I think one of the key differences will be that we are gonna be investing in making that happen, and this is why the cost structure and savings that we have announced today are gonna be so critical. They will be helping us to make these investments possible, because we think it's critical for us to do that for the company to continue to succeed and for the company to continue to grow.

[Operator]

Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

[Dan Perlin, Managing Director of Research at RBC Capital Markets]

Thanks. Enrique, I wanted to just kind of turn back a minute to the commentary around the consumer side. Kind of in multiple parts of the prepared remarks, even through kind of answering some questions, it sounds like there was a deficiency relative to the merchant side of the network to being focused on this consumer side.

[Dan Perlin, Managing Director of Research at RBC Capital Markets]

What I'm wondering is, as you were on your listening tour really talking with merchants, do you feel like they were telling you that they didn't have the conviction that maybe you had that level of engagement with the consumer, and therefore you feel like you need to make bigger investments there, or is there another angle to that? Thank you.

[Enrique Lores, President and CEO at PayPal]

Thank you. I think it's a combination of what I heard from merchants, but also what I saw happening in the countries and what I saw happening in the front line. I think it's not so much that we will focus less on merchants. It's about to improve the value proposition we offer to consumers, how can we communicate that, how do we make it more visible.

[Enrique Lores, President and CEO at PayPal]

I saw that because if I think about what has happened during the last few quarters, we have launched a lot of great innovation to market, we haven't had enough effort, enough investment in the countries to make it real.

[Enrique Lores, President and CEO at PayPal]

We have moved to launch the new, the next version before really maximizing the value that we got from what we were launching. Let me use an example. In Germany a few months ago, we launched a fantastic solution leveraging NFC. We launched the solution, it had great initial reception, and then we didn't invest enough for it to be adopted broadly by consumers.

[Enrique Lores, President and CEO at PayPal]

By consumers adopting it, the impact on merchants would have been very positive, but we just didn't have the effort, the focus, the team, the investment to make it happen. This is an example of the type of things you will see us doing, and this is what we mean by rebalancing the focus we put on the two-sided network.

[Enrique Lores, President and CEO at PayPal]

If consumers perceive a stronger value proposition, they will transact with PayPal when we buy something from merchants.

[Steve Winoker, Chief Investor Relations Officer at PayPal]

Hey, Sarah, we have time for one last question.

[Operator]

Thank you. Our last question will come from Bryan Keane with Citi. Your line is open.

[Bryan Keane, Managing Director at Citi]

Good morning, guys, and thanks for fitting it in. Enrique, when you think about the merchant, specifically in your conversations, do you think You know, how aggressive will you guys be in sunsetting platforms and forcing them onto the new technology in order to help reduce friction? Kinda that's question one.

[Bryan Keane, Managing Director at Citi]

Then the second part of that is: What about, you know, a lot of investors are asking about the price. Is the price too high? Can you lower price for PayPal in order to drive faster branded volumes? Thanks.

[Enrique Lores, President and CEO at PayPal]

Yes. In the last two months, I have had many, many conversations with merchants, and one of the key things I have learned is, with all of them, we have opportunities to improve our solution and to complete our solution addressing specific needs.

[Enrique Lores, President and CEO at PayPal]

Whether this is a merchant in the travel space that needs help in cross-border selling and cross-border activities, or a merchant in the retail side that needs help with customers that buy and return, and that we can help to reduce the returns because of the data that we have. We have a lot of opportunities to improve the value of our products and do it in a way that we can replicate it across multiple merchants. The opportunity is clearly there, and again, in every conversation, I have seen it.

[Enrique Lores, President and CEO at PayPal]

To do that, we need to complete the modernization of our technology platform, as we have been saying. To do that, merchants will have to move to the new platforms, and we will do that in a way that we minimize the work and the effort that it will take with them, from them whenever will be possible.

[Enrique Lores, President and CEO at PayPal]

To continue to improve the solution, we will have to drive and move to the new platforms. I think the key message is really the opportunity that we see, the opportunity that merchants are telling us we have, and the fact that we really, by doing that, we will have an opportunity to also offering additional services that will help us from a margin perspective and to compensate potential price pressure that we will have in the more commoditized business.

[Enrique Lores, President and CEO at PayPal]

The answer is about adding these incremental value added services, which is what we are gonna be doing during the coming quarters.

[Steve Winoker, Chief Investor Relations Officer at PayPal]

Enrique, any final thoughts?

[Enrique Lores, President and CEO at PayPal]

Well, first of all, thank you everybody for your questions. As we have today, discussed today, we have both strong assets, a clear opportunity, and a path forward that is grounded in improving our execution. Our focus now is to deliver, and I really look forward to continue to update all of you in the coming quarters, especially as we report our second quarter results in late July. Thank you.

[Operator]

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Participants

Executives

• Enrique Lores, President and CEO
• Jamie Miller, Chief Financial and Operating Officer
• Steve Winoker, Chief Investor Relations Officer

Analysts

• Bryan Keane, Managing Director at Citi
• Dan Perlin, Managing Director of Research at RBC Capital Markets
• Darrin Peller, Managing Director at Wolfe Research
• Harshita Rawat, Analyst at Bernstein
• James Faucette, Managing Director at Morgan Stanley
• Jason Kupferberg, Analyst at Wells Fargo
• Sanjay Sakhrani, Managing Director at KBW
• Tien-Tsin Huang, Managing Director at J.P. Morgan
• Timothy Chiodo, Managing Director and Lead Equity Research Analyst at UBS