PayPal Holdings, Inc. Q2 2023 Earnings Conference Call Insights

Key highlights from PayPal Holdings, Inc. (PYPL) Q2 2023 Earnings Concall

Management Update:

• [00:10:08] PYPL said the company anticipates its revenue growth in 2H24 to be approximately equal to or slightly better than the growth observed in 1H23, considering the recent trends.

• [00:10:56] PYPL is seeing impressive traction in its PSP business, with growth rates nearly 30% on a currency neutral basis.

Q&A Highlights:

• [00:27:00] Tien-Tsin Huang of J.P. Morgan asked if PYPL is seeing a shift from services to goods in e-commerce, and is this changing how PYPL is thinking about 2H23. Daniel Schulman CEO replied that PYPL is seeing an inflection point in its business, with e-commerce growth accelerating, cross-border payments improving, and PPCP gaining momentum. The company is also seeing strong growth in branded checkout and is investing in new initiatives to drive further growth.

• [00:31:32] Darrin Peller at Wolfe Research enquired about the factors that affected transaction profit dollars in 2Q and what the trends are for 2H23. Gabrielle Rabinovitch Acting CFO said that PYPL’s’s transaction margin dollars increased by 1% in 2Q, consistent with 1Q. The company is optimistic about its underlying performance and anticipates improved transaction profit growth in the latter half of the year, driven by factors such as branded checkout acceleration, e-commerce growth, better cross-border trends, and value-added services.

• [00:34:13] James Fossett with Morgan Stanley asked about the incremental services that PYPL is planning to add to unbranded and how these initiatives will improve transaction margin in the latter part of this year. Daniel Schulman CEO answered that PYPL’s PSP business is growing rapidly, and the company is seeing strong demand for its higher margin services. PYPL is also expanding its reach into new markets and developing new products, which will help to drive growth in the future.

• [00:39:21] Ramsey El-Assal of Barclays enquired that in addition to credit, were there any other factors that impacted operating margin performance in 2Q and the steps taken to manage the credit business. Gabrielle Rabinovitch Acting CFO said PYPL’s operating margin was slightly below guidance due to increased pressure from PayPal business loans. The company is taking steps to improve performance in this portfolio and expects the pressure to abate in 2023.

• [00:41:51] Jason Kupferberg with Bank of America enquired for more details on the drivers of the acceleration in branded TPV growth and the visibility on the ongoing improvement. Daniel Schulman CEO replied that PYPL’s branded checkout is accelerating due to a combination of factors, including the overall growth of e-commerce, PYPL’s investment in checkout innovation, and the migration of merchants to PYPL’s latest checkout integrations. The company is also seeing positive results from its pre-approved BNPL and rewards initiatives.

• [00:48:44] David Togut with Evercore ISI asked for an update on PYPL’s cost takeout plan for 2023, including the progress made and preliminary thoughts on opex reductions in 2024. Daniel Schulman CEO replied that PYPL is on track to achieve its goal of reducing other operating expenses by 10% in 2023. This is being driven by a combination of factors, including platform migration and consolidation, AI-powered productivity improvements, and a disciplined approach to cost management.

• [00:53:51] Bryan Keane from Deutsche Bank asked for an update on the initiatives that PYPL is taking to improve the consumer value proposition of its digital wallet. Daniel Schulman CEO said PYPL is investing heavily in its digital wallet to make it more engaging and useful for consumers. The company is adding new features like early fraud alerts, package tracking, and rewards cashback. PYPL is also expanding its Buy Now, Pay Later offerings and using AI to improve the checkout experience.