PayPal Holdings Inc (PYPL) Q4 2022 Earnings Call Transcript

PayPal Holdings Inc (NASDAQ: PYPL) Q4 2022 earnings call dated Feb. 09, 2023

Corporate Participants:

Gabrielle Rabinovitch — Senior Vice-President and Acting Chief Financial Officer

Dan Schulman — President and Chief Executive Officer

Analysts:

Lisa Ellis — SVB MoffettNathanson — Analyst

Darrin Peller — Wolfe Research — Analyst

James Faucette — Morgan Stanley — Analyst

Tien-Tsin Huang — JPMorgan — Analyst

Jason Kupferberg — Bank of America — Analyst

Timothy Chiodo — Credit Suisse — Analyst

David Togut — Evercore ISI — Analyst

Presentation:

Operator

Good afternoon, my name is Julianne, and I’ll be your conference operator today. At this time, I would like to welcome everyone to PayPal Holdings’ Earnings Conference Call for the fourth quarter 2022. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to introduce your host for today’s call, Ms. Gabrielle Rabinovitch, Senior Vice-President and Acting CFO. Please go ahead.

Gabrielle Rabinovitch — Senior Vice-President and Acting Chief Financial Officer

Thank you, Julianne. Good afternoon, and thank you for joining us. Welcome to PayPal’s earnings conference call for the fourth-quarter and full-year 2022. Joining me today on the call is Dan Schulman, our President and CEO. We’re providing a slide presentation to accompany our commentary. This conference call is also being webcast and both the presentation and call are available on our Investor Relations website. In discussing our company’s performance, we will refer to some non-GAAP measures. You can find the reconciliation of these non-GAAP measures to the most directly-comparable GAAP measures in the presentation accompanying this conference call.

We will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include our guidance for the first-quarter and full-year 2023, our planning assumptions for 2023, and our comments related to anticipated foreign-exchange rates, cost savings, operating margin, and share repurchase activity.

Our actual results may differ materially from these statements. You can find more information about risks, uncertainties, and other factors that could affect our results in our most recent annual report on Form 10-K and quarterly report on Form 10-Q filed with the SEC and available on our Investor Relations website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today’s date, February 9, 2023. We expressly disclaim any obligation to update this information.

With that, let me turn the call over to Dan.

Dan Schulman — President and Chief Executive Officer

Thanks Gabs. Hi everyone, thanks for joining us on today’s call. Well, we obviously have a lot to cover in the next hour and I want to be sure we have plenty of time for your questions, so let me jump right into my remarks. In a difficult macroeconomic environment with the overall growth of e-commerce continuing to slow, we still managed to grow our 2022 revenues by 10% FXN to $27.5 billion. We grew our TPV by 13% FXN with our branded checkout volumes growing in line with global e-commerce growth and we processed over $1.35 trillion of volume on our platform.

Our non-transaction related opex grew by 2.7% for the year, down from 20% growth last year as we operationalize the reduction of over $900 million in costs in both our transaction expense and non-transactions opex. And throughout the year, we drove 3,900 basis points of improvement in our non-GAAP EPS growth rate from negative 28% in Q1 to positive 11% in Q4. We returned $4.2 billion of capital to shareholders in the form of share repurchases, representing more than 80% of our free-cash flow, which totaled $5.1 billion in 2022.

In the quarter, we set several new milestones and we returned to operating margin expansion and positive earnings growth. For the first time in our history, we exceeded $7 billion of revenue in the quarter, meeting our guidance of 9% FXN growth with the revenues of $7.4 billion. In addition for the first time ever, we exceeded 6 billion transactions in a quarter, resulting in 51.4 transactions per active account, growing 13% Year-over-Year. We delivered $1.24 in non-GAAP EPS, $0.05 above the midpoint of our guidance as I mentioned growing at 11%.

The quarter was clearly a positive inflection point and is a direct result of our intense focus on cost discipline and the pursuit of profitable growth. I’m particularly pleased with the team’s progress to rightsize our cost structure. For the quarter, our non-transaction-related opex declined Year-over-Year by 6% and we are exiting the year with a run-rate ahead of our planned $1.3 billion of savings in 2023. We grew our non-GAAP operating margin to 22.9%, up 115 basis points from a year ago and up sequentially through the second quarter in a row.

As we look towards 2023, I want to lay out our thinking about the year ahead. First, we have identified an incremental $600 million of cost savings on top of the $1.3 billion of cost savings previously identified. This includes the very difficult decision to reduce our headcount by 7% as we continue to improve our processes and sharpen our focus. We also continue to reduce our external vendor spend and real-estate footprint. We now expect that non-transaction-related opex for the full year will decline in the high-single digits Year-over-Year, driving approximately 125 basis points of margin expansion and 18% non-GAAP EPS growth.

The second point I want to make is that we have designed our cost structure and EPS growth targets based on what we believe to be a very conservative planning assumption of mid-single-digit FXN revenue growth rate in order to give high confidence in our ability to deliver our EPS. And the third and final point is that our actual revenue expectations are well higher than that planning assumption. As you can see from our Q1 guide of 9% FXN growth with Q1 non-GAAP EPS anticipated to grow by 23% to 25% to $1.80 to $1.10. I want to emphasize another point and that is we are confident that our 2023 cost structure enables us to continue to fully invest in our high-conviction growth initiatives.

We are putting significant resources behind the modernization of our checkout experience in order to defend and grow our market share in our branded checkout business. This includes a drive towards password-less, one-click, native in-app experiences, as well as supply the next generation of advanced checkout using our data and AI capabilities. Although this will be a multi-year initiative and will take time given the scale of our base and our legacy integrations, I am extremely pleased with the progress we made last year.

We will continue to deliver scale growth for Braintree. And last year, we made significant progress in modernizing our architecture and capabilities. These improvements resulted in a substantial number of new sales and incremental volume from existing accounts. In addition, we have an impressive pipeline of opportunity for 2023. In the first half of this year, we intend to fully ramp our unbranded offering to small and mid sized businesses either directly or through channel partners.

The launch of PPCP or PayPal complete payments will meaningfully expand our unbranded total addressable market by as much as $750 billion and enables us to drive incremental share with higher margins than our Braintree enterprise service. On the consumer side, we will continue to enhance our digital wallet value proposition. We are focused on the end-to-end customer experience from on-boarding through the entirety of the consumer life cycle, utilizing more advanced forms of AI to drive optimal consumer choices.

In the past two years, we have introduced a significant number of products and services. For instance, our Buy Now Pay Later services is driving significant lists in checkout and incremental TPV, and it’s now one of the most popular Buy Now Pay Later services in the world with almost $200 million loans to over 30 million consumers since launching in 2020 and with approximately 300,000 merchants, putting our Buy Now Pay Later upstream on their product pages.

We have introduced savings bill pay, new forms of giving, more ways to send international remittances, new debit and credit cards, rewards and customized deals and offers all within a single app. And we are now integrating these disparate services to what we hope will be a seamless user experience that is customized across both Venmo and PayPal with the ultimate goal of driving data usage. We need to reestablish P2P as a core anchor for PayPal and Venmo. It is a key driver of usage and often establishes the amount of balance in individual consumer holds in their wallet.

The more people store in their balance, the more they use checkout and the better our overall economics. We’re trying to meaningfully enhance the overall P2P experience including revamping the onboarding experience, reducing declines, and introducing more value-added capabilities. I’m proud of all the team has done to responsibly innovate. We’ve made significant strides in upgrading our legacy infrastructure and retiring our technical depth. Eight years ago, we were primarily in monolithic C++ stack. By the end of Q1, we will have completed a full payment stack replatforming, leveraging a modern architecture and the latest software engineering methods.

We had record platform availability in 2022 and we put out approximately 80,000 software releases. Our increased productivity and focused efforts are enabling us to make significant progress every quarter in upgrading our merchant base to our most advanced checkout flows. In 2021, approximately 20% of our top 100 merchants were on our latest checkout experiences. At the end of 2022, one-third of our top 100 were in our latest checkout integration. And in 2023, we are targeting to be approximately 50%. And despite an increasingly competitive environment, we are confident that in total, we continue to hold share across our core markets.

As we look ahead to 2023, we built our plan to assure proper staffing of our key initiatives, but we also know that we must have a mindset of continuous productivity not just last year, not just this year, but in the years ahead. So difficult to accurately assess how the year ahead will play out in terms of e-commerce growth. If you ask 20 experts, you get 20 different opinions. Our baseline assumption is that discretionary spend will remain under pressure and global e-commerce growth will be slightly positive Year-over-Year.

That said, we are seeing signs that inflation is beginning to cool and it’s logical to expect that discretionary spend versus non-discretionary spend will begin to increase. To be clear, we have not built any recent positive economic news into our forecasts. But as I mentioned, our Q1 is off to a much stronger start than we anticipated with branded checkout volumes accelerating nicely from Q4. Longer term, the secular tailwinds that have benefited our business have not changed and we are confident that when e-commerce growth starts to turn and grow it more historical double-digit rates, we will be extremely well positioned to capitalize on that shift and drive even higher revenue growth with increased margins.

Finally, I’d like to address my plans around CEO succession. Some of you have noted I turned 65 last month, albeit I will say a very young 65. The Board and I discussed CEO succession multiple times a year. And I have informed the Board that I plan to retire from serving as the President and CEO of PayPal at the end of this year. I thought there were two important considerations in terms of timing. First, I wanted to be sure that PayPal had positive momentum and was in position to deliver a solid year of performance, so I can’t be sure I wasn’t leaving the company in a difficult position.

And second, it is important to me that the Board have enough time to conduct a thorough search and have a reasonable transition period. In a global business as complex as PayPal, there are important relationships with government officials and regulators across the world, with the CEOs of our partners and with the CEOs of our customers that will need to be thoughtfully transitioned. I feel that a year gives the Board enough runway to find the next leader of PayPal in time for an orderly transition.

Of course, I will be flexible in my time-frame in order to assure we seamlessly on board the idea of next leader of PayPal and I look forward to continuing to serve on the PayPal Board. I’m eager to see the next CEO build on all we have accomplished in the last eight and a half years and seize the immense potential ahead of us. In the meantime, I will remain fully focused on maintaining our momentum and executing on our plan.

Since our IPO, PayPal stock price has outpaced the S&P 500 and as you can see in our investor deck, our revenues, TPV, earnings, and free-cash flow have all tripled in size during that same time-period. However, I feel confident that now is the time where our business has hit multiple positive inflection points. By the end of this year, we will have the appropriate cost structure to ensure that we deliver profitable growth with consistent and healthy non-GAAP EPS growth. And more importantly, we are confident we have the right roadmap in place to drive continued improvements in our customer experiences so that we remain a global leader in digital payments.

In this current environment with so many of our competitors struggling to make money, we see a path to emerge from this economic downturn in a position of increased strength. We are quite encouraged as we look out at 2023 and beyond. I want to thank all of our employees for the outstanding work and passion they display everyday. We still have a lot to accomplish, but we are finally at the point where 2023 can be a transformational year for our customers and our shareholders.

Thank you. And with that, I’ll turn the call over to Gabs.

Gabrielle Rabinovitch — Senior Vice-President and Acting Chief Financial Officer

Thanks, Dan. I’d like to start off by thanking our customers, partners, and global team for helping us to deliver a solid quarter. The results we’re reporting today demonstrate the strength, resilience, and diversification of our business. We accelerated earnings growth on both a Year-over-Year and sequential basis despite ongoing pressure on e-commerce throughout our core markets. We continue to navigate this dynamic operating environment with strong discipline and a renewed focus on our key priorities.

While the macroeconomic backdrop remains challenging, we’re energized by the significant opportunity we have to advance our leadership in payments and better serve our customers. We believe this is an environment where the strong will get stronger and where our scale, profitability, and stability make us a partner of choice and a formidable competitor in the payments ecosystem. Our results reflect our efforts to manage our business with greater discipline and deliver operating margin expansion.

Our ongoing savings efforts are resulting in sustainable efficiencies for our business. In addition, we are investing in our high-conviction growth initiatives to ensure that we emerge stronger from this period of economic uncertainty. We’re proud of the quarter we delivered. Relative to the fourth-quarter targets we shared with you in November, our non-GAAP EPS outperformed and our revenue was in line. Importantly, the sequential improvement in our earnings growth continued.

The fourth quarter was an inflection point as our non-GAAP operating margin expanded for the first time since the first quarter of 2021, marking a return to profitable growth. We have now established a solid foundation to build on these results. And in 2023, we plan to deliver meaningful non-GAAP operating margin expansion and a significantly stronger non-GAAP earnings profile. Before discussing our 2023 outlook, I’d like to highlight our fourth quarter performance.

As Dan mentioned, revenue increased 9% on a currency-neutral basis and 7% at spot to $7.38 billion. This represents a three-year revenue CAGR of 14% and 19% excluding eBay. Transaction revenue grew 5% to $6.7 billion, driven primarily by Braintree and Venmo. Other value-added services revenue grew 26% to $681 million. Relative to last year, this performance resulted from higher interest income on customer-stored balances and positive contributions from both our merchant and consumer credit products. In the fourth quarter, US revenue grew 10% and international revenue grew 2% at spot. On a currency-neutral basis, international revenue grew 6%.

We had solid take rate performance. Transaction take rate was 1.88%, flat to last year and total take rate improved three basis points to 2.07%. eBay marketplaces revenue declined 31% and the take rate on these volumes decreased to 1.95% from 2.29% in Q4 2021. This was offset by a four basis point increase on the rest of our volume. Transaction expense came in at 93 basis points as a rate of TPV relative to 87 basis points as a rate last year. The increase in transaction expense as a rate was primarily driven by higher growth and unbranded processing volumes relative to other contributors to our payment volume mix.

Transaction loss as a rate of TPV improved to six basis points versus nine basis points last year. Our loss rate in the quarter benefited from the release of a portion of reserves related to recoveries from a merchant insolvency proceeding. This reserve was originally taken in the second quarter of 2022 and was a drag on that quarter’s transaction loss performance. In addition, [Technical Issues] performance was improved relative to the fourth quarter last year. Credit losses were $174 million or five basis points as a rate of TPV. We ended Q4 with $7.4 billion in net receivables reflecting 24% sequential growth.

The growth in Buy Now Pay Later receivables was the largest driver of loan origination. In 2023, we plan to externalize a meaningful portion of our Pay Later receivables portfolio, reducing our balance sheet exposure and securing a sustainable long-term funding partner for this part of our business. The mix of shorter-duration originations from our Pay Later products and solid performance of our overall portfolio resulted in a reserve coverage ratio of 7.4%, flat sequentially and 180 basis points lower than the fourth quarter last year.

In the aggregate, volume-based expenses increased 12%. This increase was more than offset by a 6% decline in our non-transaction-related expenses. Cost-savings initiatives and efficiency gains contributed to this performance across all major expense categories. As a result of this discipline, non-GAAP operating income grew 12% to $1.69 billion and non-GAAP operating margin reached 22.9%, expanding 115 basis points from the fourth quarter of 2021. In addition, for the fourth quarter, non-GAAP EPS was $1.24, growing 11% from Q4 ’21 and marketing the first quarter in 2022 that earnings per share grew on a Year-over-Year basis.

We ended the quarter with cash, cash equivalents, and investments of $15.9 billion. During the quarter, we generated $1.4 billion in free-cash flow, which resulted in $5.1 billion of free-cash flow generation in 2022. In the fourth quarter, we completed an additional $1 billion in share repurchase, which brings our capital return in 2022 to $4.2 billion, representing 82% of the free-cash flow we generated. As noted last summer, we’ve taken a more aggressive approach to our capital return program over the past several quarters. We continue to believe that share repurchase remains an excellent use of capital for our shareholders.

I would now like to discuss our outlook for 2023. For the first quarter, as Dan mentioned, we expect revenue to grow approximately 9% on a foreign currency-neutral basis and approximately 7.5% at spot to %6.97 billion. We also expect non-GAAP EPS to be in the range of $1.08 to $1.10 representing growth of approximately 24%. The first quarter is off to a great start and sets us up well for the year ahead. We are encouraged by what we’re seeing but remain vigilant as there continues to be potential for variability as we move through 2023.

Since the beginning of the pandemic, forecasting four quarters ahead has been especially challenging. And while the direct impact from COVID is now largely behind us, the macroeconomic and geopolitical environment remains uncertain. The rate of e-commerce growth in our core markets has decelerated. Inflationary pressures have affected discretionary consumer spending and post-COVID spending patterns are still evolving. As a result, we’re not providing guidance for full-year revenue growth at this time. We will guide the quarter ahead and believe this is a responsible approach.

As Dan indicated for the full year, we now expect non-GAAP EPS to grow 18%. This is an increase from the outlook of 15% growth we discussed when we reported third-quarter results. Relative to our prior expectations for the year, our forecasted tax rate increased and we now expect the externalization of part of our Pay Later receivables portfolio to result in several cents of dilution. Offsetting these headwinds are benefits from additional cost savings, higher interest income, and from a shift from cash compensation to stock for a portion of our annual incentive plan increasing share-based compensation.

In putting together our financial architecture for the year and guiding 18% non-GAAP EPS growth, we have been prudent about our planning assumptions for our revenue performance and in establishing an efficient cost structure that enables us to deliver on its commitment. We believe we can deliver 18% earnings growth even with revenue growth in the mid-single digits on a currency-neutral basis. That said, our objective is to grow revenue ahead of this baseline. Our revenue growth is highly correlated to discretionary e-commerce spending in our core markets.

We are optimistic that when e-commerce growth reaccelerates, we will fare better than most. In addition, our framework contemplated much of a high-single-digit decline in non-transaction related expenses on a Year-over-Year basis. Over the past year, we significantly increased the operational rigor with which we run our business. We’ve sharpened our focus on strategic priorities, strengthened our planning process, and increased our discipline with respect to capital allocation.

We’ve also begun to realize benefits from cost-savings initiatives. We are continuing our work removing complexity within our organization. We believe we are on track with streamlining and resetting our cost base and essentially putting ourselves back on a pre-pandemic trajectory with respect to our non-transaction-related expense profile relative to our growth. Accordingly, we believe we’re well positioned to scale more profitably and sustainably going forward. I’d also like to share more on our expectations for foreign exchange.

Our revenue guidance for the first quarter contemplates an approximate 150 basis points headwind from FX. [Technical Issues] foreign exchange rates, we expect an approximate one point headwind to full-year revenue growth. In addition, as we have discussed, we’re prioritizing engagement. We have approximately 190 million monthly active unique users on our platform today. Increasing the activity and engagement level of these users, converting new ones, and driving more daily use is one of our greatest opportunities. While we will continue to track and report on our active accounts each quarter, we will no longer guide net-new active accounts.

Given our strategic focus, we do not expect total active accounts to grow in 2023. That said, we are confident that our monthly active unique user base will be stable to growing. Finally, in 2023, we expect to generate approximately $5 billion in free-cash flow. We plan to continue our aggressive posture towards capital return and allocate approximately 75% of our free-cash flow to share repurchase in 2023. In closing, we’re pleased with the progress we’re making across many fronts and with our momentum. Our team is working tirelessly to serve our customers, advance our strategic priorities, and improve our cost structure.

The cash-flow generating power of our business is a competitive differentiator and gives us a high degree of flexibility as we allocate capital with discipline. Whatever macroeconomic conditions we face, we will continue to deepen our focus, invest in innovation and our people for the long term and strengthen our competitive advantages. We look forward to sustainably delivering long-term profitable growth and creating value for our shareholders.

Before I pass it back to the operator to begin the Q&A portion of the call, I’d like to give an update on our plans for the year. Later this year, we will host the meeting for the investment community to provide an update on our strategic roadmap and introduce you to more of our leadership team. We’re targeting the latter part of Q2 and we’ll share more as we get closer.

With that, I will turn the call back to the operator. Julianne, please go ahead.

Questions and Answers:

Operator

Thank you. [Operator Instructions] In the interest of time, we ask the analyst please limit themselves to one question and then return to the queue for any follow-up questions. Thank you. We’ll pause for just a comment to compile the Q&A roster. Our first question comes from Lisa Ellis from SVB MoffettNathanson. Please go ahead, your line is open.

Lisa Ellis — SVB MoffettNathanson — Analyst

Thank you. Dan, wow, big news in that already and you’re not leading for another year, it has been such a journey over the last eight years. Can you talk a little bit more about your thought process, your decision around choosing to retire now versus, say a, year ago or a year from now? And then also perhaps comment on, in your view, what sort of profile would make the ideal next CEO of PayPal. Thank you.

Dan Schulman — President and Chief Executive Officer

Yeah. Thanks Lisa for that. Yeah, I am going to miss you too. But as you said, we’ve got a year ahead of us, year, so look, that’s never a good time to retire because it’s always a bittersweet moment. I love working here at PayPal, I love working with all the incredibly talented people here and I’m proud of all we’ve accomplished. But as I’ve gotten older, I also realize I have a lot of passions outside the workplace as well. Those range from politics to nonprofits to academia. I want to do a lot of travel and frankly, I want to spend a lot more time with the people that I love.

But I have two criteria for when that right timing was. The first one where as I wanted to be absolutely sure that takeout was on solid footing with a bright future. And as we look at kind of the quarter we delivered in Q4 as we look at what’s happening in Q1 right now is coming in much stronger than we anticipated across a wide variety of fronts. We feel that 2023 is shaping up to be a strong year and we think we have a real nice glide path as we go into ’24 as well.

And so that kind of like leaving the company in a good place seemed be a good time for that. And the other thing is that I wanted to be sure that the Board had enough time to do a thorough search and an orderly transition after we find the right CEO. As I mentioned, it’s a complex business. You know this, we have massive scale on both the consumer side, on the B2B side. We’re a financial services company, but we’re also a tech company, we’re heavily regulated across the world.

There are a number of experienced sets and leadership traits that the Board will be looking for and they will work with a search from to look across the entire landscape to be sure that we find the best possible person to seize what I think is a very bright future for PayPal, and I really look forward to working with that person and doing an orderly transition in. Of course, I’m going to be flexible in my timeframe. If that happens sooner, great. If it takes longer, I have told the board that I’m willing to stay on slightly longer as well just to be sure we get the right person.

And until then, you can be sure that every single day, I am going to be fully focused on execution. Ask my team that and they will tell you the same thing and making sure that we continue the momentum that we have and so hopefully, that helps a little bit, Lisa.

Lisa Ellis — SVB MoffettNathanson — Analyst

Thank you.

Dan Schulman — President and Chief Executive Officer

Yes.

Operator

Our next question comes from Darrin Peller from Wolfe Research. Please go ahead, your line is open.

Darrin Peller — Wolfe Research — Analyst

Thanks guys. Dan, I also want to reiterate what Lisa said. Sorry to see you go, but I would only concur that you are very young, mid 60s, the person we are all trying to be like. Let me just ask more on the expectations if you don’t mind [Multiple Speakers] you or Gabrielle, you guys touched on, I guess embedding mid single-digits in the guide or maybe better than that with your expectation to achieve better. How should we think about the cadences considering how much higher the growth rate should be starting off in Q1 per your guidance?

And then if you can give us any color on expectations around transaction revenue or OVAS, Braintree or core, branded, anything else that could be provided would be great. Thanks guys.

Dan Schulman — President and Chief Executive Officer

Yeah. Darrin, I wanted to separate out two things that I was afraid might be conflated which aren’t linked. Okay? The first one is when we were looking at our cost structure to deliver an 18% EPS growth and to make sure that we fully staffed our high-conviction growth areas, we wanted to look at what we thought would be a worst-case revenue assumption, right, because we don’t want to be chasing our cost structure and for it, we were like okay, what’s the worst case could happen, we could do mid single-digits FX and growth that would mean that you’ve got Europe going into recession, US going in recession, inflation stays high, discretionary spend remains muted and that’s what we built our cost structure around to give us and to give you high confidence that the 18% that we’re guiding to is something that we can deliver in pretty much any economic scenario that we could imagine.

So that’s kind of assumption set number one was around our cost structure and the revenue around it. Number two though is our revenue expectations and we clearly are expecting something very different in the worst-case scenario that we have in place for our cost structure. We’re assuming as we think about the year ahead that we hold or slightly grow our share globally as Gabs said in her remarks, but there’s a lot of moving parts that could happen here and we want to be responsible in our guidance for revenues and we saw last year that revenue can move from quarter to quarter, but we were pretty darn accurate when we guide in the quarter ahead.

And so, we put out a 9% revenue guide in Q1 and frankly Darrin, Q1 is off to a very strong start for us. We’re seeing widespread acceleration both in January and February. We’re seeing it in branded checkout which has stepped up quite nicely from Q4. We’re seeing it in our Braintree services as well. Buy Now Pay Later continues to accelerate for us, so much stronger than we expected. We wouldn’t say 9% if we didn’t feel confident in that number as well as 24% about the midpoint on our EPS guide.

There’s still a lot of the year ahead of us. Right? We’re five, six weeks into the first quarter, but it is clearly off to a very strong start and we will have more as we report our Q1 earnings as we look into Q2 that may inform how we’re thinking about the full year, but we just didn’t want to get ahead of ourselves and also we want to be really responsible in the guides that we give. Anything you would add to that, Gabs?

Gabrielle Rabinovitch — Senior Vice-President and Acting Chief Financial Officer

Yeah, [Indecipherable] more detail on kind of the trajectory of the year, I’d say just we are focused on delivering a great year and we think we’ve set ourselves up to do that. At the same time to Dan’s point, we’re definitely not gonna get ahead of ourselves so early on. I would point out some dynamics, so that we’re growing over in 2023 relative to 2022, which will make the first half of the year probably stronger from a revenue growth standpoint than the back half and that really relates to an expectation of Braintree deceleration.

Braintree has had exceptional growth and we have a great ramp up merchant volumes coming on this year with new merchants as well as additional volumes we expect to get from existing merchants. At the same time, just given the exceptional growth we had last year, we do expect a little bit of decel into the back half. I’d also say given the interest-rate environment and how we’re currently positioned in our book, we’d expect the incremental benefit from the higher interest-rate environment to benefit us more in the first half than the back half as we lap some of those benefits from last year and so that would create a little bit of decel as well.

And then finally, there were some pricing changes that we made in 2022 that were predominantly front-half loaded and so we start to lap those as well. So just in terms of the shape of the year, I would expect a little bit of decel as we move into the back half.

Darrin Peller — Wolfe Research — Analyst

All right. That’s very helpful. Thanks, Dan. Thanks, Gabrielle.

Dan Schulman — President and Chief Executive Officer

Yeah. You bet, Darrin. Thank you.

Operator

Our next question comes from James Faucette from Morgan Stanley. Please go ahead, your line is open.

James Faucette — Morgan Stanley — Analyst

Great, thank you very much. Dan, I’ll add my thanks and looking forward to a last final year, man, so should be fun.

Dan Schulman — President and Chief Executive Officer

Yeah, me too. Yeah.

James Faucette — Morgan Stanley — Analyst

I wanted to ask quickly on the branded checkout point. It sounds like you feel like you’re kind of growing consistent with the market if that’s accurate and what you’re seeing kind of early in the year. And perhaps more importantly, what are you thinking about in terms of when we can start to see some of the improvements, impact, maybe share, but more importantly, engagement, etc. with the customer based? Thanks.

Dan Schulman — President and Chief Executive Officer

Yeah. All right, that’s incredibly important question. You saw probably in our investor deck, James, that our branded checkout volumes grew by 5% for the year that’s lapping 23% in 2021 and 38% in 2020, that really is following the shape of the e-commerce. Part of the reason why there is questions around this and some mixed commentary is that there’s no perfect data source for market share. Share obviously for us, it varies by country, by channel, whether mobile, mobile web, desktop, and by merchant size, whether you look at large enterprise or small or mid size and we look at everything that we possibly can and look at the e-commerce growth around the world and we look at 2022 e-commerce growth is probably mid single-digits, maybe lower than that across the world.

By the way, that 5% was roughly the same in the US as well. And so overall, we feel like at a minimum health share to global trends. And I think there’s some interesting commentary out there, but one of the things that it’s important to realize is digital wallets in general including PayPal have been growing share overall. We grew share over 100 basis points during the pandemic. We’ve held it since there, but we continue to take share from manual card entry.

Manual card entry, say, like three years ago was 50% of the market, it’s still about 30% of the market today and there’s a lot of share to be taken from that by digital wallets. In addition, a lot of the Buy Now Pay Later wallets or their growth is starting to slow quite meaningfully as they move from growth as their number one objective to making money as their number one objective. And if you look at our Buy Now Pay Later results, we’re clearly gaining share in that even good a 102% Buy Now Pay Later, $7 billion of TPV.

So we’re taking share from there. And if you look across the globe, which is how we looked at this, you can start with the US and in the US for the year, I think it’s clear that we held share growing at about 5%. And if I look at the fourth quarter, which we’re still digesting, it looks like we gained share in the first part of November coming into the holiday period. It looks like we lost similar like two to four basis points of share during the Cyber-Five and then we held in December.

And as I’ve mentioned, we have accelerated meaningfully in terms of our branded share of checkout coming out of December into January and February. As we look at this, if you exclude Amazon in the US in the fourth quarter, we held share, again all these things are plus or minus one or two basis points. If you include Amazon, which had an extra Prime Day in the holidays, we might have lost one or two basis points. But that is the best view that we have for the US right now.

What’s interesting is when you look at mobile checkout, it’s clear that somebody like Apple has some inherent advantages in authentication, exclusive use of the NFC chip, but if you look at where we have implemented our most advanced checkout flows and as I mentioned in the script, now about a third of our top 100 of our most advanced checkout flows, there even in mobile, we are gaining share. So the things that we are working on and deploying are making a big difference in the market that’s why I’m so proud of what the team has done in improving and really going after share of overall checkout with our latest integrations and maybe we can talk more about that with another question.

Across the rest of the world, there are some markets like the UK, where we’re holding share in Q3. We lost a little bit of share in Q4. Australia, we’ve been losing share due to Buy Now Pay Later players in that market and we’re now starting to pull back on that. And across the most of the major countries in Europe, we are either holding or gaining quite a bit of share. So, as I look across the world, there’re some places where we’re gaining a lot of share. Some places like the US where we’re probably holding and other countries where we’re losing a little bit, but overall, steady in terms of our market share and I really think the product teams and the sales teams have done an incredible job.

I was looking at what we can do to improve our checkout experiences. We obviously have a lot we can still do, but year after year after year, we’re either holding or gaining share.

James Faucette — Morgan Stanley — Analyst

That’s great, Dan. Thank you.

Dan Schulman — President and Chief Executive Officer

Yeah, you bet.

Operator

Our next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead, your line is open.

Tien-Tsin Huang — JPMorgan — Analyst

Hey thanks. I’m just curious if your investment in the R&D budget at PayPal has changed given some of the incremental cost savings in the bigger margin expansion. I’m asking because we’re really focused on the product roadmap and the advanced checkout and it sounds like you’re extending on branded to the SME space, which makes some sense. So just love your latest thinking on balancing the cost savings with investments in product development.

Dan Schulman — President and Chief Executive Officer

Yeah, the first thing we do is ensure that we have all the investments we need to drive our roadmap. Again, we’ve honed our focus, sharpened our focus to make sure that we are investing and executing against our high-conviction growth areas and we’re doing that. We are the team that’s making a ton of progress. I mean, whether you look at what we’ve done in Braintree to harden the infrastructure to create additional capabilities over the holiday season. During the Cyber-Five, we were Five9s and above in terms of availability and we see that in terms of kind of the new sales, people moving more volume over to us.

Braintree’s auth rates are something like 390 basis points better than the competitive set and so a ton of investment there and making a lot of progress. We’ve put a lot of investment against PPCP which is our unbranded small and mid size and channel partner play. And by the way, it’s not just unbranded, it has our most advanced checkout flows in it and we’re going to probably take about 20% of our TPV through PPCP with integrations to Shopify, Adobe, TikTok, and move that to our most advanced checkout flows and so that we’ve invested in and obviously the rest of checkout. Right?

Things like our SDK and APIs, two years ago, we were not really playing in that developer market and today if you go to Postman, which is one of the largest sites that developers go to to look at SDKs and APIs, we’re now one of the top 10 requested SDKs and APIs based on both popularity and quality of that. We actually are on number seven, number eight [Indecipherable] and so we have really gone from almost nowhere to top 10 in terms of our SDK and APIs and so and just all the basic hygiene, the Next-Gen stuff we’re working on that is number one for us, like we are going to invest as much as we need to into that. We’re going to invest in our digital wallets, our unbranded, and our checkout and that’s where we are focused and we have plenty of investments there. At the same time, really if you look at our non-transaction-related opex and you look over the course of three years ago, we were like 17% growth and 20% growth then 2.7 and now high single-digit negative growth, I guess, is the best way to put it.

If you add all that together, you come up to about 7% and our traditional opex growth was somewhere I called 6% to 8% or so. So, we’ve just come back to where we’ve been. Honestly, we still have a lot more to go. As I mentioned, we have identified and are executing already against an incremental $600 million and as we get more and more efficient as a business, you’re going to see more and more of a productivity mindset, so that we feel as we go into 2024, that we’re going to go back to the same place we were where we consistently grow our operating margin as we grow our top-line going forward.

And we’re all aligned against that. We feel great about the amount of resource we’re investing, but also making sure that we have the right cost structure going forward. Obviously, you’re always balancing that, but when we have a balancing decision, we [Indecipherable] towards investing.

Tien-Tsin Huang — JPMorgan — Analyst

Got it. Thank you, Dan and my compliments to you on the succession news as well. Thanks.

Dan Schulman — President and Chief Executive Officer

Thank you.

Operator

Our next question comes from Jason Kupferberg from Bank of America. Please go ahead, your line is open.

Jason Kupferberg — Bank of America — Analyst

Thank you, Dan, congratulations. I wanted to follow up on engagement. I know it’s kind of been a recurring theme on the call. The growth in the payment transactions per active stayed elevated this quarter, 13%, hoping you can delve into some of the specific drivers, the primary drivers of that and whether you feel it’s sustainable in 2023. Thanks.

Dan Schulman — President and Chief Executive Officer

Yeah. So I think, this is one of the things that we talked about which is kind of a new piece of information for us, is that nearly half of our base is a monthly active user and about 190 million or so. Those monthly active users without Braintree [Indecipherable] without Braintree and the number, use us six to seven times a month. So they are transacting 72 to 90 times a year with us that is up 40% from 2019. It’s up 5% Year-over-Year, and that those characteristics of those MA use is they have an extremely low churn rate.

They are extremely engaged, highly satisfied with high and growing market. Our biggest opportunity is to move our active accounts into our MA use. We generate an enormous amount of organic active accounts, enormous, every single year they come onto our platform and they come onto our platform because we’re so ubiquitous.

We have coverage across 35 million merchant accounts, 80% of the top 1,500 accounts in the US and Europe, and so they come, they make a transaction or they get a P2P request and they do kind of a one and done. And the way that I think about, really probably the best analogy between MA use, monthly active users and the rest of our accounts is how the wireless industry thinks about postpaid and prepaid. RMA use our postpaid accounts.

Again, they’re very satisfied, they have high ARPU, very, very low churn and they’re engaged in our mobile app. They’re ready to try new services as we put them on. When we put on a new service, when they try one new services, the ARPU goes up by 25% and so we are very focused on assuring that we grow our MAUs and that we take those tremendous organic number of people that are coming up. By the way, with no cost per gross [Indecipherable] CPGA, like those organic things are coming in just constantly at the top of our funnel.

It’s a bit of a two-edged sword. One, it kind of it adds to churn obviously but churn of the base, it’s not transacting at all, but our opportunity is with as we get a better value proposition and more compelling proposition across our consumer side as we upgrade our merchants into the best possible checkout experiences that we take those active accounts and move them into MAUs. This whole thing about what’s happening with your churn, what’s happening that’s a false narrative actually.

What’s really happening is our MAUs are incredibly consistent, staying with us, highly satisfied, acting quite a bit and growing. And that’s really where our engagement is coming from. That’s probably — for instance, we have 35 million consumers that use us for subscription management. Every single month, we manage their subscriptions automatically for them, but [Indecipherable] or to other subscription management services and so those are incredibly sticky high-value customers for us and we have a ton of focus on moving people to that MAU base, which is why it’s such a focus for us as opposed to net active accounts.

Jason Kupferberg — Bank of America — Analyst

Understood. Thank you.

Dan Schulman — President and Chief Executive Officer

Yes, you’re welcome.

Operator

Our next question comes from Timothy Chiodo from Credit Suisse. Please go ahead, your line is open.

Timothy Chiodo — Credit Suisse — Analyst

Thanks a lot. I want to drill down a little bit on the core PayPal modern checkout migration progress. The numbers you gave are great to 20, going to one-third, going to 50% for goal this year with the top 100. Two follow-ups on that, the first is, could you just talk a little bit about the conversion uplift that you see when the new modern checkout experiences integrated there and that would help us to kind of quantify what one-third going to 50 could mean?

And the second one is, can you talk a little bit about and recap the actions that you’re taking to help incentivize that? Clearly, it’s a win-win for both you and the client, but what are some of the either financial or people resources that you can allocate to help speed things up?

Dan Schulman — President and Chief Executive Officer

Great set of questions. So when we put in the latest checkout experiences, it’s anywhere from of low of as 3%, lifting conversion up to a 10% lifting conversion. So it’s actually pretty meaningful in terms of what we see. We also see in our latest checkout integrations that we’re growing our share there across mobile, across mobile web and desktop. And with the top 100, it’s account-by-account play. They have quite sophisticated payments teams. They have a lot of legacy integration. And clearly, the increases in conversion matter a lot and also the ability to seamlessly implement our Buy Now Pay Later which has the highest auth rates in the industry, lowest loss rates and a great value proposition is another reason for those top 100-plus to move forward on other integrations and we’re making good solid progress as I mentioned every single quarter there.

Mobile SDK, same thing, conversion rates up to 10%. We are now in developer portals. Our mobile SDK is a merchant requirement going forward, so no new merchant can come on without being in our most advanced checkout flows and our mobile SDK Buy Now Pay Later will also be included in that in the second half which is also something that our merchants are really asking for in terms of seamless integration of that and then PPCP, we have Braintree and that’s when somebody signs up for Braintree, they immediately go onto our latest checkout experiences, I already talked about auth rates going up 390 basis points on average when that happens.

But PPCP, it’s a big opportunity for us. We’re going into a $750 billion addressable market that we’ve never been able to go in before. We’re going in both with our sales force direct into mid-size customers and for that longer tail through channel partners. As I mentioned, we’re already working with Shopify on PPCP. In France, we are beginning integrations with merchants like Adobe and TikTok and we feel that those channel partners when we upgrade them to PPCP.

It almost instantaneously will upgrade that long tail and that’s got 20% of our TPV out there. So we’ve got quite a bit of plans to address each part of the market with I think pretty significant detail around them and pretty significant movement as well.

Timothy Chiodo — Credit Suisse — Analyst

Excellent, Dan. Thank you for giving the numbers on the conversion. Appreciate that.

Dan Schulman — President and Chief Executive Officer

Yeah, you bet, of course. Okay, I think we have time for one more question. Operator?

Operator

Our next question comes from David Togut from Evercore ISI. Please go ahead, your line is open.

David Togut — Evercore ISI — Analyst

Thank you. Looking at your plans to reduce transaction margin pressure from Braintree over time by expanding into more profitable segments including down market to SMBs and PPCP, which you’ve talked about unbranded full stack processing with channel partners. Is there anything in your 2023 guidance that contemplates reduced transaction margin pressure from Braintree? And if not when would you expect some of these initiatives to alleviate that margin pressure?

Dan Schulman — President and Chief Executive Officer

I’ll start off and maybe Gabs can follow up on that. Thank you for the question. So, there are a number of high-margin businesses that we add on to Braintree. Braintree itself is a lower-margin business. By the way, we’re serving the highest end of the customers that always have a lower margin structure for us, but a lot of the high-end, higher-margin businesses that we had into PayPal or things like risk as a service will be introducing FX as a service payouts, is a higher margin. We’re expanding Braintree into both Europe and South America which are higher margin for us, so we expect to see unbranded as a whole that margin structure move up and then as we go into the small-to-mid size merchant with unbranded, that obviously is a much higher margin.

PPCP is more of got sort of mass customization platform. Braintree really is a customized platform because each one of those merchants have unique needs that we need to customize for. Gabs, anything else you’d add?

Gabrielle Rabinovitch — Senior Vice-President and Acting Chief Financial Officer

Yeah. To Dan’s point, the geo mix, the merchant mix, and the value-added services layer all are margin enhancing to Braintree overall. I’d also say, we’ve talked about investing in the platform and a lot of investments that we’re making are really to allow us to scale that business more efficiently over time. So each incremental piece of volume will actually cost us less to process.

We’re also doing a lot on our own side in terms of how we think about processing as efficiently as possible and doing everything we can to make sure that over time, we’re going to scale that as volumes as efficiently as we can and so I would think about it as a multi-year dynamic in terms of how we think about the progression of Braintree and again, sort of as we move more out of the US down into a slightly smaller merchant set overall. In addition, as we layer on the value-added services then the margin profile really does come through.

David Togut — Evercore ISI — Analyst

Thanks for that. Congratulations, Dan.

Dan Schulman — President and Chief Executive Officer

Thank you so much. Okay, well I think we’re little over the top of the hour. I just want to thank everybody for your great questions. Thank you for all the emails that you’re sending me already. Again, we’re gonna work quite closely, we’re focused on executing against our plan and look forward to speaking to all of you again soon. Thanks again for your time. Take care, bye-bye.

Operator

[Operator Closing Remarks]