PayPal Holdings, Inc. (PYPL) Earnings Call Transcript & Summary

All right. We're going to get started with the next session. Joining us next is Enrique Lores, President and Chief Executive Officer of PayPal, Enrique, thank you for joining us today. Really excited about the conversation.

Thank you for having me here.

All right. Before we get started, I'm just going to read a quick disclaimer. Please note that Enrique's remarks may include forward-looking statements. Please refer to the company's SEC filings including its most recent Form 10-K and 10-Q for a discussion of risks and uncertainties that could cause actual results to differ materially from these statements.

All right. Enrique, you are roughly 6 months in. It's been a busy first few months. So it's a 2-part question. What has genuinely surprised you positively or negatively since moving from the Board seat to the CEO seat. And then when you compare your day 1 hypothesis to where you sit today, where do you have more conviction where has the problem turned out to be harder or take longer than you initially assumed?

Sure. First of all, I think when I joined the company, I knew that there were some things that needed to be seen, but I also knew that there were key assets and that the company operates in key growth [ markets ]. When I look at this before becoming CEO, I realized that the company's strength and scale that we have, the number of customers, loyal customers that we had were really difficult to replicate. The global presence that we have and the ability to transact in multiple countries at that scale was really a very valuable asset. And as I start to dig into the company, I realized that there were some things that needed to be fixed. First of all, and I have talked about this other times, if the company was operating. We had a fairly complex operating model with 4 dimensions product customers, regions and functions that really got in the way of executing and performing effectively. And then -- and one of the big learnings also as I started, was to realize that even if were the key strengths of PayPal as a company is the fact that it's a 2-sided network, the majority of the investment, the majority of the attention of the company for some time has been on the merchant side, not on the consumer side and changing that has been one of the key priorities that we have driven during the last month. So as I think about what we have done during the last 6 months, I think they are aligned to 5 big changes that they think we need to drive in the company. Change number 1 is a change in the business model. We have been relying on branded checkout as the source of profit for the company, we are rebalancing that. And we see a big opportunity across the full portfolio in financial services and expanding into this space. Second big change is the opportunity that we have to grow both Venmo and Braintree, 2 growing markets where we see opportunities to do better. And third is what I was mentioning before about the need to rebalance our focus to the consumer side, which I'm sure we will be talking more along the discussion.

Great. Maybe before we get further into it, maybe we can address some of the questions around industry consolidation head on. There's been a number of news headlines over the last couple of months. I think most people know the context. Maybe if you could talk about how you are thinking about strategic alternatives for the company. And then as it relates to the company's stand-alone performance, what are you measuring those alternatives against?

Sure. First of all, as we have said before, we -- management team and the Board have 1 objective, which is to maximize shareholder value, looking at all the potential options. What we did and what we have done is to first look at the strategy that we have, have confidence in the strategy that we have and use this as a benchmark to compare any other alternatives. And as alternatives have come and may come in the future, this is going to be the benchmark that we will have, how that alternative compared to the value that we think we're going to be able to create and we will always objectively recommend whatever option we think is better. This has been our approach, and this will continue to be our approach. At this point, our focus is in executing our [indiscernible] we feel we have an opportunity to create significant value to shareholders, and this is what we are doing.

Understood. Okay. Let's just hit on the broader macro environment. A lot of questions around spending levels, both in the U.S. and around the world. What have you seen in August and September quarter-to-date and the [ Spin ] data? And then specifically, there's been a lot of questions around the European tariff environment de minimis. Maybe if you could talk through what you're seeing and the exposures there?

Sure. I think overall, the trends that we have seen are fairly aligned to what we saw in former quarters and the expectations that we had when the quarter started. I think we have continued to see strong demand in the U.S. and probably the only area where what is happening is slightly different from what we were expecting at the beginning of the quarter is the impact that, that is having in Europe. They are impacting mostly customers that are doing cross-border business, especially from China, which is in some countries in Europe, a significant part of our business. Our original expectation was that this was going to have between -- have a point and 1 point of impact on TPV growth. We have seen a bigger impact and probably happening for a longer period of time that we were expecting at the beginning. And this is why when we look at what is our expectation for branded checkout growth this quarter. We think it's going to be in the 1% to 2% range, driven by this impact that we see happening in Europe. Despite of that, given the diversification that we have been driving in the business and that we will continue to drive, we continue to remain confident in the guide that we provide both for [ ETS ] and transaction margin growth both for the quarter and for the year.

Okay. That's great. So it sounds like a big picture, while there's a larger impact out of Europe than what you had anticipated, it sounds like it's not enough to materially change the guide or you trying to check out of that 1% to 2% range. Okay. Very helpful. All right, let's maybe dive into some parts of the business. Germany in particular, is one of your largest and historically most dominant markets. Management has spent several quarters describing a normalization of long-standing market share and leadership positions in that market alongside some macro softness and then [indiscernible] from alternative payment methods. Can you unpack just what you've seen on the ground in Germany and how you're thinking about the playbook for reacceleration in that market over the next 12 to 18 months?

Sure. I think putting aside the impact on tariffs that we just discussed, the trends that we see in Europe are very consistent to what we saw in Q2 and the opportunities that we have and that we are driving continue to be the same. As you said, Germany is one of our strongest market and the focus that we are putting on the consumer side of the network, pre vitalizing that, focusing on high-value customers, it's happening everywhere, but especially in Germany given the relevance that we have. We're also very pleased in Germany with the growth that we see in the BNPL. We announced about a few weeks ago that we had a partnership with Amazon in the country. This and the overall BNPL business are doing very well and going as we're expecting. And then finally, from a consumer perspective, we are going to be launching also in Germany, our loyalty [ product ] that will help us to continue to reinforce and accelerate our growth in that space. So we are doing well and similar to what we did in Q2, and we have a lot of initiatives to improve the performance in the country.

Got it. Makes sense. And then maybe just talking about the broader dynamics in checkout. Growth has been hovering in that low single-digit range. It sounds like it's going to remain there in the third quarter. How is the execution on the checkout product changing going forward? And then from the outside, what are the proof points that we should be looking at to gauge whether the change in execution is leading to tangible results.

I think the biggest change in execution is a shift to the increased focus on what we call high-value customers. These are the customers that create for us the majority of the transaction margin of the company and by understanding who they are, understanding what they need and offering them -- offering that in terms of products and programs is what we see the opportunity to really accelerate the growth on the transaction on the [ BXO ] side. These customers value mostly 3 things: they value safety and trust, and this is clearly something that APL brings to them, they value flexibility, and this is one of the reasons why BNPL is so important for high-value customers. And finally, they offer -- they value also the ability to maximize the value that they do with their transaction. And this is why launching a loyalty program that we will use to provide special offers to them is a key part of our strategy. And this means that our focus in the future is going to shift from trying to get new customers to the platform to really maximize the value that we get from high-value customers or in additional financial services like BNPL and use this as a key metric that we will be looking at going forward and that we should be using to make sure the [ excess ] of the business.

Got it. So let's talk a little bit more about that. One of the most -- I think most notable shifts in tone has been the focus on driving consumer demand and consumer outages PayPal's products. Instead of going after things like merchant placement and merchant value. On the ground, what does rebuilding that consumer muscle look like? And when you think about the investments in consumer value props this year, do you view this as a onetime step up in consumer value proposition? Or is this a start of a multiyear investment cycle around increasing the value proposition for consumers across [ both ] PayPal and Venmo?

I think there are both. I think what this means is as we manage our business going forward, working with merchants to improve [ presentment ] and selection is important, but it's as important, make sure that we understand our consumers and that we bring to them the right value proposition, which means as we define the new portfolio of offerings as we define the new portfolio of programs that we put in place, we always need to have in mind what this consumer is. Also, there are some onetime investments that we are going to have to make. For example, we need to revitalize the marketing platform that we use to communicate with these consumers. And this is part of the tech modernization program that we are putting in place. But I think the key thing is that PayPal is a 2-sided network and to maximize the value of that, we really need to have a very strong activity on the consumer side. You were asking about what does it mean in the ground? It means that in a few selected countries, we are building local consumer teams that understand the local consumer and that can manage the activities for the -- of the company with these local consumers, for example.

Yes. And so you've talked a lot about those consumer investments the course of this year. How does that break down between the checkout and PayPal product versus the Venmo customer base?

I think it's going to be consistent across the board. But given that prepays much bigger business at Venmo and the opportunity that we have on that front are a more significant part of the market or consumer investment [indiscernible] would be to the PayPal customers.

Got it. So sticking with this topic, I wanted to maybe talk through the increased focus on buy now, pay later. This has been an area where consumers have adopted rapidly around the world. PayPal is a large player in space, particularly in Europe where a lot of your buy now, pay later volume originates. How do you think about bringing BNPL to the top of the funnel for consumers and competing more aggressively for that consumer mind share to think of PayPal when they think about BNPL?

We -- traditionally, we were managing BNPL as a separate business, and this is one of the changes that we are driving. We look at BNPL as another option when customers are doing checkout, and we want to make it as integrated as possible in our offering. As you said, consumers like this way of buying, we also -- it's also much better for the company. The size of the ticket is bigger, the frequency of customers buying is bigger. So we really prefer customers buying BNPL than in the traditional way. So we are going to drive customers to buy this way, but always, of course, providing them choice. So they have the ability to choose it or not. If it doesn't meet their needs. We have been expanding also geographically where our BNPL offering is made. And over time, you will see us also completing and expanding the portfolio with different options to continue to grow and expand SP-4 The teal line of business.

Yes. That makes sense. So I guess Venmo has now delivered 7 consecutive quarters of double-digit TPV growth. Revenue crossed $1.7 billion in 2025, growing roughly 20%. You've also seen momentum in products like Pay with Venmo, the Venmo debit card. How are you thinking about the growth algorithm in Venmo? And from a product perspective, are there any obvious areas where you would like to build out further to drive more engagement with the products?

Yes. I think we have a clear direction to grow Venmo, which is to make it more relevant to our consumers from a financial perspective. And the work that we have been doing with payments, the work we have been doing with some of the offerings in credit and debit card is just one step in that direction. We have a tremendous opportunity to maintain the growth that we see in Venmo, but at the same time, offer more value to our customers, increase the average revenue per user, which will really drive the expansion and the growth that this business will have in the future. So I think we're really optimistic about opportunities we have in that business. And a lot of the products that we will be offering for them eventually will be offered also in PayPal. So we will be expanding both businesses in a similar direction.

Yes. From a product perspective, is there -- are there specific products on the Venmo side that you see as low-hanging fruit to expand both ARPU and customer engagement?

Well, if you think about the connect rate that we have now with the debit card that we have launched is still a relative low connect rate is growing really fast. We grew in Q2 more than 70%, but the room for improvement is very significant. We're also very pleased with the progress we have made on Pay with Venmo, expanding that to more merchants. It's another great opportunity that we have. And these 2 in the short term are the ones that will be driving growth for the business.

Got it. Makes sense. All right. Maybe switching gears to the PSP and Braintree part of the business. the results have normalized after seeing a period of rapid growth and then a retracement on volumes that was kind of coincided with improved economics. I think you've been clear the go-forward strategy is to grow PSP roughly at market volume levels and value-added services will be a bigger part of the growth algorithm over time. So could you talk a little bit about where you are in that process of unifying all the products under kind of a single value-added services go to market in that segment?

Yes. I think there are multiple questions [indiscernible] in your question. So first of all, we continue to see and we have continued to see double-digit growth on the core processing side of PSP or Braintree, which is an indication of -- even if we have now addressed the concerns that we had from a profitability perspective, we have still a great opportunity to continue to grow. The next opportunity is in really to increase the connect rate of value-added services, services like payout, services like risk-as-a-service. The connect rate is relatively small, and we have a very competitive set of value-added services. What we're doing to improve that is to create a specialized sales force that we'll be able to communicate to our customers the value of those services and make sure that we monetize them in the right way. And we have started to increase -- to create that sales force and during the next quarter, we will continue to invest and to grow because we see a very clear opportunity to both accelerate growth, but especially to improve the profitability of that business.

And then when you think about the time lines for seeing value-added services contributing a greater share of the incremental revenue or gross profit growth in that business. What's a reasonable expectation?

I think during the end of the year, but especially through '27, we need to start seeing tangible progress in that space, especially as the sales team starts to be active and start, kind of, communicating the value proposition to customers.