$PYPL PayPal Q1 2026 Earnings Conference Call

Ajouté : 2026-05-06

[00:00:00]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 Wker, PayPal's chief exe investor relations officer. Please go ahead.

[00:00:22]>> Thanks, Sarah. Welcome to PayPal's first quarter 2026 earnings call. I'm joined by CEO Enrique Loris and Chief Financial and Operating Officer Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. 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.

[00:00:57]Thank you, Steve, and thank you to everybody for joining us this morning.

[00:01:02]I'm stepping into this role at an important moment for PayPal.

[00:01:07]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.

[00:01:19]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.

[00:01:34]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.

[00:01:49]During my time on the board, I developed a good understanding of PayPal 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.

[00:02:07]This has helped to deepen my view of where we are, where we need to go, and how we get there.

[00:02:15]I will begin with a few initial observations.

[00:02:20]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. Our scale and global reach set us apart and are difficult to replicate.

[00:02:42]and the hardearned trust our customers place in us every day is a critical advantage.

[00:02:51]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.

[00:03:11]This is where PayPal needs to focus.

[00:03:16]Third, one of our core strengths is our twosided network serving both consumers and merchants.

[00:03:25]In recent years, PayPal has put more energy into the merchant side of the network.

[00:03:32]Strengthening the value we offer to the hundreds of millions of consumers who choose PayPal and Venmo is a key priority.

[00:03:41]Doing that, we increase the value of our platform for merchants and create a stronger foundation for sustainable growth.

[00:03:51]Fourth, due to years of underinvestment, we need to accelerate the modernization of our technology platform. Moving faster to become cloudnative and aggressively adopting AI in our development processes will help us significantly increase developer productivity and shorten time to market.

[00:04:16]Fifth, we need to simplify how we operate, streamline decision making and clearly define accountability to strengthen execution.

[00:04:27]Finally, there is potential to significantly reduce the company cost structure.

[00:04:34]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.

[00:04:54]With this as a context, we need to recommmit 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.

[00:05:19]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.

[00:05:35]Let me start by sharing the framework we are using to define our strategy.

[00:05:41]We see three distinct attractive and in many ways complimentary market opportunities where focused investment and sharper execution can meaningfully improve our growth trajectory. Checkout consumer financial services and payment services.

[00:06:00]Each has clear near levels to improve the performance of our existing assets as well as compelling medium-term growth opportunities.

[00:06:11]And in every case, we have a strong right to win. I will take each in turn.

[00:06:20]Let me start with checkout.

[00:06:23]This is a large and growing market where we deliver meaningful value to consumers and merchants.

[00:06:31]Within checkout, we also see strong consumer demand for flexible payment options, including buy now pay later solutions.

[00:06:42]This is becoming an important driver of consumer acquisition while also delivering clear benefits to merchants through higher basket sizes.

[00:06:54]The second opportunity is in consumer financial services. Consumers are increasingly turning to digital platforms to handle everyday financial activities.

[00:07:07]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.

[00:07:21]What is most attractive about this market is not only size and growth but also the customer lifetime value opportunity we can tap into.

[00:07:32]The third opportunity is in payment processing and value added services. The PSP space represents significant and tapped value for us driven by the continued shift to digital channels and the increasing complexity of global payments.

[00:07:52]We're aligning the organization to unlock these growth opportunities.

[00:07:57]Previously, our teams were organized primarily around the customers we serve, consumers, small businesses, and large enterprises.

[00:08:07]That structure resulted in organizational complexity with multiple dependencies and handoffs that slow decision making and weakened execution.

[00:08:19]Checkout, for example, touched all customer groups and markets, creating a multi-dimensional matrix for roadmap prioritization.

[00:08:29]The changes we announced last week will organize the company into three kinds of business, each with a single leader, checkout solutions and PayPal, consumer financial services and Venmo, and payment services and crypto. And importantly, we are bringing together the two sides of the network to maximize our competitive advantage.

[00:08:55]Simplifying our operating model and clarifying accountability means that each leader will learn clear outcomes and our teams will be able to focus on our most important growth priorities.

[00:09:10]We're also using these changes to simplify and delayer our organization and we have formed a new AI transformation and simplification team that will help us work more effectively and drive our enterprisewide AI agenda.

[00:09:30]Let me now outline how we are thinking about the path forward across each of our businesses.

[00:09:39]Checkout solutions and 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.

[00:09:56]This structure will enable us to fully leverage our two-sided network and accelerate innovation across both sides of the platform.

[00:10:07]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.

[00:10:21]I have also emphasized that strengthening the consumer side of the network is key to increasing the value we deliver to merchants.

[00:10:31]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 and our PayPal plus loyalty program which we introduced in the UK and will expand traditional market is another important step over the medium to long term. We have a number of compelling innovative initiatives underway. We will take a discipline approach to prioritization focusing resources on areas with the greatest potential to drive durable growth and shareholder value.

[00:11:17]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 VMO. We have been making good progress in the last few years and have built a strong portfolio of related products but awareness and adoption remain well below their full potential.

[00:11:50]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.

[00:12:04]Venmo will be a key component of our growth plans moving forward supported by its strong brand and younger demographic.

[00:12:14]We are in a strong position to expand in this space, deepen engagement and increase customer lifetime value.

[00:12:25]Payment services and crypto unifies our processing and platform capabilities into a single scalable offering for merchants.

[00:12:35]We will bring together the companies and branded processing capabilities including brain tree and value added services such as fraud management, authorization, optimization and global payment infrastructure.

[00:12:51]They are designed to support businesses of all sizes with flexible higherformance payment solutions.

[00:12:59]We are also well positioned to capture and monetize its growth.

[00:13:06]Stable coin is also a part of this enabling faster lower cost transactions.

[00:13:13]We have made good progress with PYUSD, which became the largest federally regulated stable coin in December, and we recently expanded its availability to 70 markets globally.

[00:13:28]At the same time, we have much more opportunity to scale our offerings and accelerate growth in this space.

[00:13:37]across the company. We need to modernize our technology platform to enable greater speed and interoperability across our offerings.

[00:13:47]As I said earlier, leveraging AI more extensively in our development processes will significantly help us with this effort.

[00:13:58]Supporting our growth plans is the opportunity to realize cost savings.

[00:14:04]First, we will remove duplication and layers from our organizational structure. Second, we will accelerate our AI adoption and automation across our operations.

[00:14:19]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.

[00:14:39]Let me touch briefly on some highlights from the quarter before Jamie takes you through our results in more detail.

[00:14:47]Our first quarter results show some improvement in branded checkout.

[00:14:53]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 VMO and PSP delivering mid TPD growth.

[00:15:14]Transaction margin dollars excluding interest on customer balances grew 3% with contributions from credit VMO and PSP.

[00:15:24]Non-GAAP earnings per share grew 1%.

[00:15:30]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.

[00:15:42]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.

[00:15:59]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.

[00:16:10]We have a strong foundation and we are now organized to move with greater urgency.

[00:16:17]We have a well-defined framework and we will continue to define our strategy and prioritize our plan in line with it.

[00:16:26]I look forward to sharing more progress as we move ahead.

[00:16:31]And finally, I want to thank our teams for their continued focus and execution and our customers and shareholders for their trust.

[00:16:42]I will now turn it over to Jamie.

[00:16:46]>> 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.

[00:17:03]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.

[00:17:17]Total payment volume accelerated to 11% at spot and 8% currency neutral in the first quarter, reaching over $460 billion.

[00:17:28]Online branded checkout volume growth improved slightly from the fourth quarter, while enterprise payments and Venmo both accelerated into the mid- teens.

[00:17:38]First quarter revenue grew 7% on a spot and 5% on a currency neutral basis. TM dollars excluding interest on customer balance grew 3% in the first quarter.

[00:17:51]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.

[00:18:17]First quarter non-GAAP earnings per share increased 1% to $1.34.

[00:18:24]And compared to our guidance, non-GAAP EPS benefited from stronger transaction margin dollar growth with some offset from higher non-transaction operating expense.

[00:18:35]We expect the second quarter to reflect more pressure on a year-over-year basis driven by the nonrecurrence 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. Importantly, these are factors we anticipated and we remain confident in our fullear 2026 guidance.

[00:19:01]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 12-month basis.

[00:19:15]Turning to slide eight, we continue to drive deeper, more active relationships with our customers. Monthly active accounts increased 1% to 225 million.

[00:19:26]Transactions per active account excluding PSP improved sequentially to 6% growth.

[00:19:34]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.

[00:19:46]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.

[00:20:00]While 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.

[00:20:12]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.

[00:20:24]Online branded checkout volume growth improved slightly compared to last quarter, up 2% on a currency neutral basis.

[00:20:33]Compared to the fourth quarter, we saw a slight improvement in the US with softer performance continuing in Europe.

[00:20:41]Pay with Venmo and buy now pay later continued to outpace the market, taking share from other payment methods and growing 34% and 23% respectively.

[00:20:53]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.

[00:21:04]Turning to PSP, volume growth accelerated to 11% from 7% in the second half of 2025.

[00:21:12]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. Driving higher attachment of value added services continues to be a key focus to improving yield and monetization as we move through 2026.

[00:21:40]Moving to more financial detail on slide 10, transaction revenue grew 7% on a spot basis to 7.5 billion.

[00:21:49]Other value added services revenue grew 10% to $852 million driven by strong contribution from consumer and merchant credits partially offset by lower interest rates.

[00:22:03]Transaction take rate declined by six basis points to 1.62%.

[00:22:09]Excluding the impact of foreign exchange hedges, transaction take rate declined about four basis points. This output was driven by a combination of factors including branded co-arketing investments and rewards as well as higher growth in Venmo and enterprise payments.

[00:22:28]TM dollars X interest on customer balances grew 3%.

[00:22:34]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.

[00:22:47]Transaction loss as a percentage of TPV improved slightly year-over-year to six basis points. This reflects our team's ongoing work to continue to improve and strengthen onboarding, fraud prevention, and risk management capabilities.

[00:23:03]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. 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.

[00:23:44]We ended the quarter with 13.5 billion in cash and cash equivalents and investments and 11.6 billion in debt.

[00:23:55]Moving to guidance on slide 11 for the second quarter and for the full year 2026.

[00:24:00]While first quarter was a solid start to the year, it's early. The macro and geopolitical environment remain complex and we operate in a dynamic, highly competitive industry.

[00:24:13]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.

[00:24:30]With that as a backdrop, we are reiterating our guidance for the full year. 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.

[00:24:51]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.

[00:25:06]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.

[00:25:15]For online branded checkout specifically, our guidance continues to reflect slightly positive to low singledigit branded checkout TPV growth for the full year. Quarter to date, we are seeing trends at the low end of our fullear guidance and these are reflected in our second quarter guide.

[00:25:35]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. And while we've made real progress over the past few years, there is meaningfully more we can do. We are realigning the organization to sharpen strategic focus, eliminate duplication, and remove layers, enabling faster decision-making and clearer accountability.

[00:26:11]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.

[00:26:27]These efficiencies will come from organizational realignment, process redesign through AI and automation, procurement and vendor rationalization, and optimizing our local footprint.

[00:26:40]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. A portion of this opportunity was already contemplated in the 2026 guidance we provided last quarter.

[00:27:07]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.

[00:27:18]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. 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.

[00:27:52]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. 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.

[00:28:16]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.

[00:28:27]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 fullear average.

[00:28:44]Pulling all this together for the second quarter, we expect low singledigit revenue growth on a currency neutral basis. A low singledigit or approximately 3% decline in transaction margin dollars.

[00:28:58]Transaction margin dollars excluding interest to decline low single digits or approximately 2%.

[00:29:05]Mids singledigit growth in non-transaction operating expenses and non-GAAP earnings per share to decline by high single digits or approximately 9%.

[00:29:17]For the full year, we are reiterating our guidance and we continue to expect transaction margin dollars to decline slightly or be roughly flat, excluding interest on customer balances.

[00:29:30]Approximately 3% growth in non-transaction operating expenses and non-GAAP earnings per share 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.

[00:29:52]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.

[00:30:04]With that, Steve, let's go to Q&A.

[00:30:08]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.

[00:30:18]Sarah, please open the line.

[00:30:21]>> 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.

[00:30:34]Your first question comes from Harshida Rawat with Bernstein. Your line is open.

[00:30:41]>> Hi, good morning. Um, I want to ask about branded checkout. Um, Enrique Jamie, can you maybe talk about the market dynamics uh in Europe? Uh, and also over time um what can we expect to see as execution improves and kind of like the realistic growth uh versus e-commerce we should expect? Thank you.

[00:31:04]Good morning Harsha. I'll talk a little bit about the market dynamics in Europe and then Enrique perhaps you want to talk about the overtime um execution focus we have you know when you look at um branded checkout I would say that we're operating in a dynamic environment when you look at the 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 US 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 um pressure from higher o oil prices. Um certainly gas prices, but more importantly travel in Europe was something that we saw, you know, slightly at the end of the quarter, but but really uh more this quarter. And you know, when you look um across Europe, I would say generally speaking, um we've got areas growing quite well, but we're still under pressure in places like the UK. Um 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. Still growing but at a slower rate. Um and and generally pretty consistent, you know, combination of macro softness, competitive intensity, um some natural normalization as a longtime market leader. Um, but 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 and as Enrique's come in, I think his country level focus has been really important and I think will be a real acceleration for that. But Enrique, maybe you want to unpack that a little bit. Yes, I think in in Europe we have an opportunity to improve execution by improving our focus in the countries.

[00:32:57]During the last eight weeks, I have been twice in the UK, 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.

[00:33:07]And as Jamie was saying, there is a combination of macro effects but also local competition. But we have enough tools in our in our site 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. Of course, we need to continue with investments we did a quarter ago to we started a quarter ago to improve presentment to improve selection and we have specially 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 with PayPal. And we have other opportunities that we started to mention in the prepared remarks that I think in the future are going to be very meaningful.

[00:34:02]We have be more focused on the merchant side of the network than on the consumer side. And we need to rebalance those that focus and rebalance that investment. For example, the loyalty program we just launched in the UK is going to be an element of that. There are other things that we we need to do in that space. There are also also specific verticals, highv value verticals where we can have a more differentiated value proposition especially if we combine with financial services and this combined with an improvement in execution that by really understanding what our priorities are and simplifying how we make decisions.

[00:34:42]We think the combination of all that will have a significant impact in the business going forward.

[00:34:49]Your next question comes from Timothy Chito with UBS. Your line is open.

[00:34:56]>> 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. And Jamie, I appreciate that you mentioned over the coming months you'll be giving more detail around the cadence and some reporting around the progress there. But 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.

[00:35:27]There's people answering the phone in local language. There's a lot of complexity there. But 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 and in general any other broader thoughts around kind of areas of lowhanging fruit that you see for the 1.5 billion. Thanks a lot.

[00:35:49]>> Yeah, good morning Kim. Um so 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 um the AI benefit and then Enrique you might want to chime in as well. Um when we look at the one the the at least 1.5 billion in cost. Um we really see this coming in a couple of different phases. The first is really around structural realignment and you've heard us announce our reorganization last week but this is about duplication. It is about layers.

[00:36:18]It is about org structure but really focusing and aligning our teams for toptobottom execution and improving our execution speed candidly. Um but with that also comes you know a lot of opportunity for cost and and and remixing there. The second piece which I think is really a little bit more along the lines of your question around CSN is aggressive deployment of AI. um you know with respect to customer experience, how we touch customers in service in 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 AI has really across the board opportunity particularly in CSNO but 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 but I think this full toptobottom acceleration is going to be really important. And 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. So, a lot of what Enrique has 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 and in deeper ways to grow um that reinvestment piece is an important element of this, but um as you said, we'll we'll lay out more of this in the coming weeks. And I I think the the changes that AI will enable us to do are going to to drive are going to be very significant when this is why we created a group last week reporting to me that is going to be in charge of driving function by function process by process this AI transformation and 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 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. But not only savings, it will help us to move faster and it will help us to bring and to deliver a better customer experience.

[00:38:35]The two key areas where we see the biggest opportunity in the short term, one is technology development. And as I mentioned before, this is going to really help us to accelerate some of the improvements and modernization we need to do in our platform. And the second is customer support. As you were saying, Tim, this is a large cost for us today.

[00:38:56]And with AI, we believe we can both reduce cost but also improve the experience that we will provide to customers. And the fact that we have multiple langu 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.

[00:39:21]>> Your next question comes from James Faucet with Morgan Stanley. Your line is open.

[00:39:29]>> Thank you very much. Um I wanted to follow up on uh that question and and not only how we should think about reinvestment and and you know the other side of it capital return and and how you're going to decide how to aortion savings um to one or the other. Uh and in particular what are the proof points that you're going to be looking at whether it be uh ongoing engagement growth in uh customers. um 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 um big ambitions for both but but nuance there is I think important this morning.

[00:40:10]>> Yes, I think this this is a great question and you will see us doing much more work and being and reviewing that with all of you in the coming quarters.

[00:40:20]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. As we do that, we will identify what are the best opportunities, opportunities that will drive the best return and 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 and 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 deinvesting stopping or or doing something different. And this is the process that between now and the next quarter we will be doing and we will be 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.

[00:41:33]We are just starting the the what we call the transformation process. This is going to take some time. So it's not something that immediately will happen.

[00:41:41]But the combination of the assets that we have, the ability that we have to invest and the rigor we are going to apply make us confident that we will be able to really improve the performance of the company over time.

[00:41:56]>> Your next question comes from Darren Peller with Wolf Research. Your line is open.

[00:42:03]>> Hey, thanks guys. Enrique, can you just walk through your thought process on your review of your assets in the company in a sense of, you know, which assets you actually absolutely feel like you must keep as part of the go forward entity. If there are assets you do, 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. Uh and then your thought process on synergies or disynergies of keeping assets together whether it's Venmo with the rest of the business or Brainree with the rest of the business.

[00:42:38]Uh if you could just walk through your thought process on on that that'd be great.

[00:42:42]>> Thank you.

[00:42:42]>> Thank you. So let me let me start by saying that our number one priority my number one priority is to maximize shareholder value. And at this point I believe that the best approach is to invest in our three core businesses PayPal, Venmo and Brainree to drive profitable growth because in each of them we see the opportunity of making it happen. To do that as we explained before we are going to 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 know we need to modernize the technology plat 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. 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 crosselling and helping each business to penetrate and to grow with with different customers. We also see synergies in the technology and offering space. And as we develop some of the financial services um options that we have been discussing before, they will be benefiting the for example PayPal and and Venmo. And we also see strong synergies in key capabilities as risk, risk management and identity. So at this point our play is to grow the three grow profitably the three businesses because this is what we think will create the maximum value for shareholders. On top of these three business, I guess I just mentioned before, there are many other initiatives in the company that we are going to be regorously 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.

[00:44:47]>> Your next question comes from Sanjay Sakarani with KBW. Your line is open.

[00:44:54]Thank you. Good morning. Uh Enrique, thank you for all your commentary.

[00:44:58]Obviously, you've had a very unique window as the new CEO having been on the board. Um 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.

[00:45:15]And then Jamie, just one question because I'm getting a lot of these questions on the trend line that you saw that you you mentioned uh trending at the low end of the range um and some of the the choppiness. I guess if the higher fuel prices persist, do you feel like there's risk to the second half? Um you know, first, you know, relative to what you've incorporated in the second quarter. Thank you.

[00:45:40]>> Sure. Let me let me start with the with the first part of your question and then Jamie will take the the second part. I think what 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.

[00:45:59]From 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 technologies 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. At the same time, we operate in market with high growth and we have very relevant presence in these markets.

[00:46:30]But 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. 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 and on top of that we clearly have an opportunity to reduce our cost structure and this is what we're doing.

[00:47:14]So based on that we have built a transformation plan that we are going to be executing and 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.

[00:47:35]Second is we as we identify these priorities. They are going to be different for each of the market opportunities in the PayPal side is by continuing to grow and improve the performance of the checkout business.

[00:47:48]And 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 is about growing our attach rate to financial services and improving our pool. And in the case of our processing business is all about maintaining the growth that we have and continuing to add value added services.

[00:48:29]Third point is really the process to simplify the priorities and define in 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. 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.

[00:48:58]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. And finally is to complete the execution of the cost program that we have announced today. So 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 as we have been mentioned in the call today.

[00:49:31]>> Great. And then Sanjay with respect to your question on um you know what we're seeing with consumer and some of the impact on growth. I I guess first what I would say is, you know, we are reiterating our fullear guidance and so we continue to expect slightly positive to low singledigit branded checkout TPTV growth and that's what we've seen so far this year. Um compared to first quarter as I mentioned we are seeing some impacts on the travel vertical. Um, but we are very focused on execution as we get into, you know, for deeper into the second quarter, comps get easier and and candidly in the second half as well. But also we're laser focused on our initiatives and and really driving improvement there. Um, and 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 and we're confident with where we are today.

[00:50:22]Your next question comes from Jason Cuperberg with Wells Fargo. Your line is open.

[00:50:29]>> Thank you guys. Um, 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. Do you just feel like there's room to improve execution of the roll out of the current product? And and if we can get an update on the progress of the roll out, uh, that would be great.

[00:50:50]And uh we just love your your take on how long it it um it might take to actually fully roll out that fully optimized version of the new checkout button because it seems like that's that's key to ultimately getting some structural reaceleration um and branded volume. Thanks.

[00:51:06]>> Thank you. In in the short term is all about continued execution of the plans that we had until now and 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 nonvolted customers are already experiencing the new the simplified version. So we have continued to make progress quarter over quarter and the plan is to continue to that in the coming quarter. But it's not only about that it's also what we have learned is is this is one element of the many that we need to do. We need to when we combine our new checkout process with financial services and BNPL, we see also significant improvement and significant acceleration of growth. When we see better marketing and more and the customers are more attracted to use the our bottom, we see also improvement. So 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 going to see us doing. And 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.

[00:52:29]>> Your next question comes from Tenzin Hang with JP Morgan. Your line is open.

[00:52:37]>> Good morning. Thank you. I always ask about u modernizing the tech platform and becoming a tech company again. Does this include platform consolidation specifically? I'm asking because modernizing the tech stack brings with it obviously a lot of risks and I know you appreciate that Enrique given where you're coming from. So what's your assessment on the risk of modernizing why it hasn't been done already and how integrated or distinct are the technology uh stacks across the three businesses? If you can detail that as well that'd be great. Thank you.

[00:53:08]>> Yes, >> thank you. So the process we have started to to go and modernize the tech platform module by module and as we do that drive right 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. I think one of the key differences will be that we are going to be investing in making that happen and this is why the cost structural savings that we have announced today are going to be so critical. They will be helping us to make these investments possible but 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.

[00:54:00]Your next question comes from Dan Pearland with RBC Capital Markets. Your line is open.

[00:54:09]Thanks. Um, Rica, I wanted to just kind of turn back a minute to the commentary around the consumer side. Um, kind of in multiple parts of the prepared remarks, then even through kind of answering some questions, it sounds like there was a deficiency uh relative to the merchant side of the network to being focused on this consumer side. And I'm what I'm wondering is as you were on your listening tour really talking with merchants, do you feel like they uh 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.

[00:54:47]>> Thank you. I think is is a combination of what I heard from merchants but also what I saw happening in in the countries and what I saw happening in the front line. And I think is is not so much that we will focus less on merchants. is about how do we improve the value proposition we have we offer to consumers and how we improve how could we communicate that and how do we make it more visible and I saw that as we as because if I think about what has happened during the last few quarters we have launched a lot of great innovation to market but we haven't had enough effort enough investment in the countries to make it here and we thought and we have moved to launch the neo the next version before really maximizing the value that we got from what we were launching and let me 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 to for it to be adopted broadly by consumers and by consumers adopting in us 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. So 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 because if consumers perceive a stronger value proposition they will transact with PayPal when they do a when we buy something from merchants. Hey Sarah, we have time for one last question.

[00:56:31]>> Thank you. Our last question will come from Brian Keane with City. Your line is open.

[00:56:39]>> Good morning, guys, and and thanks for fitting it in. Um, Enrique, when when you think about the merchant specifically in your conversations, do you think, you know, how aggressive will you guys be in in suns setting platforms and forcing them onto the new technology in order to uh help reduce friction kind of that's question one and then and 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 uh for PayPal in order to drive faster uh branded volumes. Thanks.

[00:57:15]>> Yes. So 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. And whether this is a merchant in the travel space that needs help in crossborder selling and crossber 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 return 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. So then the the opportunity is clearly there and again in every conversation I have seen it. To do that we need to complete the modernization of our technology platform as we have been saying and 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. But to continue to improve the solution, we will have to drive and move to to the new platforms. But I think the the key message is really the opportunity that we see, the opportunity that merchants are sell 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. The answer is about adding this incremental value added services which is what we are going to be doing during the coming quarters.

[00:59:01]>> And Ricky any final thoughts?

[00:59:03]>> Well, first of all, thank you everybody for your questions and 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.

[00:59:30]Thank you.

[00:59:32]>> Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.