PayPal Holdings Inc (PYPL) — Q3 2018 Earnings Call Transcript

Thank you, Sheri. Good afternoon and thank you for joining us. Welcome to PayPal Holdings' earnings call for the third quarter 2018. Joining me today on the call are Dan Schulman, our President and CEO; John Rainey, our Chief Financial Officer and EVP, Global Customer Operations; and Bill Ready, our EVP, Chief Operating Officer. We are providing a slide presentation to accompany our commentary. This conference call is also being webcast and both the presentation and call are available through the Investor Relations section of our website. We will discuss some non-GAAP measures in talking about our company's performance. You can find the reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. In addition, management 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 fourth quarter and full year 2018, our initial outlook for 2019, our medium-term guidance, and the impact and timing of our acquisitions. 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 Reports on Form 10-Q filed with the SEC and available on the Investor Relations section of our website. You should not rely on any forward-looking statements. All information in this presentation is as of today's date, October 18, 2018. We expressly disclaim any obligation to update the information. With that, let me turn the call over to Dan.

Thank you, Gabrielle, and thanks everyone for joining us. PayPal had another excellent quarter with $3.68 billion of revenue growing at 14% on both the spot and currency neutral basis. Normalizing through the sale of our U.S. consumer credit receivables to Synchrony revenues grew at 21%. Our non-GAAP operating margin of 21.4% grew 142 basis points from last year, and we delivered $0.58 of non-GAAP EPS, up 26% year-over-year. In short, we continue to drive strong financial performance. As pleased as I am with our financials, the highlight of the quarter was our growth in net new actives and engagement. We drove a record 9.1 million net new active accounts surpassing 254 million customer accounts by the end of the quarter. We added 34 million net new actives to our platform in the past 12 months, averaging almost 3 million net new customers per month. During the quarter we drove 2.5 billion transactions growing 27%. Our engagement per active user increased 9.5% to 36.5x per year. A major driver of engagement is the use of mobile devices across our platform. Predominantly driven by our market-leading checkout conversion rates with One Touch. One Touch continues to expand with 112 million consumers and 10.4 million merchants using One Touch. In Q3, we saw mobile growth of 45% with approximately $57 billion of mobile volume processed in the quarter. Mobile checkout now represents 40% of our total payment volume. Customer choice also continues to yield a meaningful lift in our engagement metrics. Today, nearly all of our customers have choice available to them, and more than 55 million PayPal customers have actively used choice in some 200 markets. Another very important outcome of choice was that it enabled PayPal to develop deep partnerships throughout our ecosystem. In just over two years we've signed over 35 partnerships with some of the world's largest and most influential brands in finance, technology, and commerce. Today, I'm very pleased to announce that we've signed a multi-faceted partnership agreement with American Express. As one of the leading brands in the world, it always made sense that PayPal and American Express would become strategic partners. Steve Squeri and his team have been great to work with, and I'm very pleased with the comprehensive nature of our partnership going forward. Over the next several quarters, PayPal will have enhanced access to American Express as a payment option in our wallet. The agreement will allow PayPal to access American Express tokens and enables a deep integration of our Venmo and PayPal P2P capabilities within the Amex platform. Additionally, PayPal and American Express consumers will be able to use their American Express reward points to pay for their purchases at millions of PayPal merchants around the world. Over the next year we will rollout these capabilities to our mutual customers and we are pleased to begin what will be an important relationship for both companies. With this agreement, we now have strategic relationships in place with all of the major card networks. Not only have these partnerships redefined our competitive landscape, they have also created new and unique commerce experiences for our mutual customers around the world. Most of you on the call know that we also recently announced a significant and growing partnership with Walmart. Working together, Walmart and PayPal have developed innovative new product experiences to create a more affordable and convenient way for the unbanked segment of customers to more efficiently manage and move their money; and as a result, empowering more people to gain access to the digital economy. As part of this deep collaboration, PayPal money services will be available at all Walmart locations in the U.S. beginning in November. Using the PayPal mobile app, customers can easily load cash into their PayPal balance, and for the first time customers can withdraw money from their PayPal balance at Walmart retail stores and Walmart money centers across the country. Additionally, customers can use the PayPal cash master card to shop in-store, on mobile, and online at Walmart, as well as withdraw cash at the register or from Walmart's ATM locations nationwide. And this is just the beginning; we are currently working hand-in-hand with the Walmart team to introduce even more capabilities in the future. Walmart and PayPal share the belief that managing and moving money should be affordable, accessible, efficient, and secure for all segments of our population. And while digital and mobile commerce continues to grow at remarkable rates, there are tens of millions of people that still do not have access to the benefits of the digital economy. This partnership, which leverages and combines the unique strengths of both our companies, is aimed at addressing that issue. We also continue to grow our partnerships around the globe. For instance, we are pleased to announce that we have finalized a strategic partnership with Itaú Unibanco, one of the largest banks in Brazil. With this agreement, we add another major issuing partner in Latin America to help drive digital spend and improve convenience for our joint customers. We continue to work closely with our large merchant partners. We recently struck a comprehensive strategic agreement with Chevron to improve the payment experience at its gas stations in the U.S. Together we plan to launch a new mobile payment app in early 2019 that will reduce the amount of time that a customer spends at the pump. This is yet another example of how we are using PayPal's extensive platform capabilities to help our partners create differentiated customer experiences. Chevron joins the list of our existing partnerships in this industry including Shell, B.P., and Exxon Mobil. In addition to all the progress we've made in forging new partnerships, this was an extremely busy period for our product development teams as we brought several new products to market and we saw significant advances across a wide array of Venmo monetization efforts. I'm especially pleased with the strong overall momentum surrounding Venmo. For the third quarter in a row, Venmo posted yet again another record for net new actives. This is driving accelerating network effects as volume grew 78% to $16.7 billion with an annualized run rate now approaching $70 billion. And while it is still early, our monetization efforts appear to be reaching a tipping point. 24% of Venmo users have now participated in a monetizable action; this is up from 17% one quarter ago and 13% in May of this year. Pay with Venmo monthly active users increased approximately 185% month-over-month in September versus August. And across the Uber and Uber Eats apps, we saw more than 300% month-over-month volume growth in September versus August. Our Venmo card is also off to a strong start with approximately 320% month-over-month growth in monthly active users from August to September. Notably, the two top purchase categories since launch for our card are supermarkets and restaurants. These daily use cases demonstrate that we are rapidly gaining omnichannel ubiquity and becoming a part of our Venmo customers' everyday spend. Finally, last month alone we processed over $1 billion in instant transfer volume on the Venmo platform alone. In summary, I couldn't be more pleased with the customer adoption across our Venmo initiatives. This quarter we addressed one of the biggest issues facing small businesses; the amount of time it takes for them to access cash from their sales. The launch of Funds Now gives PayPal merchants, who are in good standing, access to their sales within minutes at no extra cost by eliminating holds, delays, and reserves; we are providing our merchants immediate access to the funds they need to invest back into their business, pay their bills, and service their customers. We aspire to set a new standard in payments that immediate access to funds should be the norm rather than the exception for small businesses in good standing. We are pleased to say that over 1 million merchants across the globe are already taking advantage of Funds Now. Another way we are helping merchants to expand their sales opportunities is through the rollout of PayPal checkout with smart payment buttons. The new PayPal checkout improves the purchase experience by dynamically presenting the most relevant payment methods to each shopper, including PayPal, PayPal credit, Venmo in a wide range of alternative payment methods around the world. This means businesses don't need to clutter their checkout pages, and shoppers see the options they would be most likely to use, which is proven to increase conversion for our merchant customers; and we're currently deploying this innovative checkout experience globally. A little more than a year ago we acquired Swift Financial to bolster the financing options for small and mid-sized businesses. Our PayPal business financing solutions, which include PayPal working capital and PayPal business loans, provided our customers more than $1 billion in funding last quarter. This more than doubles the $480 million in funding in the same period last year. We believe we are now one of the Top 5 providers of working capital to small businesses in the U.S. We will continue to leverage acquisitions to strengthen our two-sided platform and maintain our position as the leading global open platform for digital payments. Last month we closed our acquisition of iZettle, strengthening our global platform capabilities and in-store presence. We believe this acquisition provides significant value for our small business merchants as we expand our point-of-sale capabilities globally. We expect to close the acquisition of Hyperwallet this quarter and we're excited to extend its enhanced global payout capabilities to our marketplace customers. Before I turn the call over to John for more details on our financial results, I want to say how proud I am of the PayPal team and their efforts to provide ever-increasing value for our customers. As proof of that, Interbrand recently announced that PayPal had increased its brand value by 22% in the last year, making us one of the Top 6 fastest-growing brands in the world. These kinds of results are what create sustainable and long-term value for our shareholders. And with that, I'll turn the call over to John.

Thanks, Dan. PayPal had another solid quarter in Q3, both financially and operationally. Our targeted growth strategies and investments to strengthen both the merchant and consumer sides of our platform continue to drive strong financial results. Our consistent growth in active accounts, payment volume, engagement, and revenue demonstrates the power and resiliency of our business. In addition, our growth in operating income while at the same time delivering operating margin expansion highlights the scalability of our model. In the third quarter, we not only expanded our operating margin but also reinvested to grow users, volume, and revenue. Before I go into our financial results, I'd like to provide a few highlights from the quarter. As a reminder, the sale of our U.S. consumer credit receivables to Synchrony closed in early July. Where relevant, I will provide normalized results for comparability. In addition, our acquisition of iZettle closed in late September. Our Q3 operating metrics and financial results include no impact from this transaction. Revenue grew approximately 21% in Q3 adjusting for the sale of our U.S. consumer credit portfolio. Operating income grew 22% with 142 basis points of operating margin expansion. Non-GAAP earnings per share grew 26%. And on a normalized basis, we generated $0.21 of free cash flow for every dollar of revenue. Turning to our financial performance for the quarter; total payment volume was $143 billion, an increase of 24% at spot, and 25% on a currency neutral basis. In comparison to the third quarter of 2017, on a spot basis we experienced more than five points of pressure from the lapping of TIO Networks and as a result of a stronger dollar. U.S. payment volume growth was 27% and international payment volume growth was 22% on a currency neutral basis. Merchant services volume was $127 billion, growing 28% on a currency neutral basis, and volume associated with eBay grew 3%. For the quarter, eBay-related volume represented 11% of volume on our platform, down from 20% three years ago. This is a continuation of a multi-year trend and this quarter our merchant services volume grew more than 8 times faster than our eBay marketplaces volume. P2P volume which is part of merchant services grew 50% to $36 billion and represented approximately 25% of total payment volume versus 21% last year. We ended the quarter with 254 million active customer accounts adding 9.1 million net new customer accounts. Q3 represents the fourth consecutive quarter with 15% growth in total active accounts demonstrating the success of our customer-centric model and the continued demand for our industry-leading payment solutions. Account growth in the third quarter was driven by core PayPal followed by Venmo. In the third quarter we continue to see strong momentum in engagement on our platform. Payment transactions per active account increased 9.5% to 36.5% versus 33.3% in the third quarter last year. And transactions grew 27% to 2.5 billion. Over the last 12 months we have processed more than 9.2 billion transactions. Revenue in the third quarter increased 14% on both the spot and currency neutral basis to $3.7 billion. However this growth was affected by the sale of our U.S. consumer credit receivables to Synchrony which had about a 7-point impact. Adjusting for the sale, revenue growth would have been approximately 21% inline with the third quarter last year. On a spot basis, transaction revenue grew 17% in the quarter and revenue from other value-added services declined 11%. I'd like to give additional color on the trends in transaction revenue growth. In comparison to Q3 '17 the stronger U.S. dollar, softness in our eBay business, and the lapping of TIO Networks affected our year-over-year revenue comparisons. While the stronger dollar and ongoing pressure on our eBay marketplaces business had an impact on our quarterly results, our diversified portfolio, both from a geographic and a product perspective, allowed us to continue to deliver solid revenue growth. The 11% year-over-year decline in revenue from other value-added services was a result of the sale of the U.S. consumer credit receivables portfolio to Synchrony. This overall decline was partially offset by solid growth in both our merchant working capital and international consumer credit businesses. For the third quarter, our transaction take rate was 2.34%, a decline of 14 basis points from last year. Approximately two-thirds of the change in transaction take rate was related to growth in P2P; the remainder was related to slower growth in eBay and lower cross-border volume. In Q3, total take rate was 2.58% versus 2.81% in Q3 '17. The sale of the U.S. consumer credit portfolio resulted in a 16 basis point reduction in total take rate; this was the largest single driver of the overall decline and reduces comparability to prior periods. We expect this impact to continue for the next three quarters. Volume-based expenses increased 13% in Q3 to $1.7 billion. Transaction expense was $1.4 billion and represented 96 basis points as a rate of TPV which was flat to last year and a 2 basis point improvement sequentially. Transaction loss was $259 million or 18 basis points as a rate of TPV versus 19 basis points in Q3 '17 and Q2 '18. Improvements from both core and Venmo helped to drive these results. Loan loss was $36 million or 3 basis points as a rate of TPV, down 75% year-over-year, again due to the sale of the U.S. consumer credit portfolio. Transaction margin dollars grew 14% to $2 billion with a transaction margin rate of 55%. Non-transaction related expenses grew 9% in the third quarter to $1.2 billion. As a percentage of total revenue, these expenses leveraged 130 basis points versus the third quarter last year. Normalizing for acquisitions and costs directly related to the sale for Synchrony, non-transaction-related expenses grew approximately 6% year-over-year. Again, this demonstrates our sustainability to scale our platform at a low marginal cost. This performance drove 22% growth in operating income and 142 basis points of operating margin expansion. We continue to balance delivering operating margin expansion with reinvesting back into the business to further strengthen our platform and competitive positioning. Solid topline growth in conjunction with OpEx discipline resulted in 26% growth in non-GAAP EPS to $0.58. We ended the quarter with cash, cash equivalents, and investments of $10.5 billion in short-term borrowings of $2 billion. On a reported basis, our free cash flow was $4.4 billion; adjusting for the Synchrony proceeds, our free cash flow in the third quarter was $772 million; this equates to $0.21 of free cash flow for every dollar of revenue. Our business delivered strong growth, robust profitability, and consistent free cash flow; this enables us to make significant organic and inorganic investments for our future growth while at the same time returning cash to our shareholders. In May, we announced our plans to return approximately 40% to 50% of free cash flow to shareholders over the next five years. In Q3 we returned $600 million, and year-to-date we have returned nearly $3 billion. I would now like to discuss our updated guidance for the fourth quarter of 2018 and the full year, as well as our initial thoughts for 2019. For the fourth quarter, we expect revenue in the range of $4.195 billion to $4.275 billion or 13% to 15% growth on a currency neutral basis. Normalizing for the U.S. credit receivable sale, the implied revenue growth rate would be 20% to 22% for the fourth quarter. This guidance incorporates approximately $30 million of impact from changes in foreign currency and a later close in Q4 than we previously expected for the Hyperwallet acquisition, as well as anticipated softness in our eBay marketplaces business. We are raising our non-GAAP earnings per share to be in the range of $0.65 to $0.67. Our EPS expectations include a higher than normal below the line benefit. We are electing to opportunistically reinvest some of this benefit back into the business, which will offset some of the natural leverage we realized from efficiencies of scale. We believe this is the right decision to drive long-term value for PayPal. For full year revenue guidance, we are raising the low-end and maintaining the high-end of our previous range which absorbs the $30 million headwind from U.S. dollar strength and the Hyperwallet timing. We now expect 2018 revenue to be in the range of $15.42 billion to $15.5 billion or 17% to 18% growth on a currency neutral basis. Normalizing for the sale to Synchrony, the implied revenue growth rate would be approximately 21% for the full year. We are raising our non-GAAP earnings per share guidance to $2.38 to $2.40. In addition, given the strong free cash flow we have generated all year, as well as the Synchrony proceeds; we now expect free cash flow for the full year to exceed $4.5 billion. We are still in our planning process for 2019 but I'd like to provide you with an initial framework for how we're thinking about our business next year. We expect revenue to grow approximately 17% on a currency neutral basis. This growth rate reflects the reduction in other value-added services revenue in the first half of 2019 as a result of the sale of the U.S. consumer credit portfolio. Normalizing for this, our expectation is that revenue would be growing in the range of 20% to 21%. In addition, we expect non-GAAP EPS to grow approximately 20%. This outlook incorporates our integration plans for the four acquisitions we have announced this year. Normalizing for this, we would expect our EPS to grow approximately 23%. Next year, we expect our 2018 acquisitions to contribute approximately 1.5 points of growth to revenue and $0.08 to $0.10 of dilution to earnings per share. And in 2020, we expect these acquisitions to be accretive to our earnings. As we reflect on the first three quarters of 2018, we're very encouraged by our performance and the opportunities ahead. Already this year we have announced approximately $2.7 billion in acquisitions, returned approximately $3 billion in cash to shareholders, delivered operating margin expansion, and significantly improved the overall growth profile of our business. We are innovating at this scale and introducing great payment experiences for our consumers and merchants. The sustained momentum we see in the business gives us confidence to invest in high potential areas such as Venmo, global expansion, in-store strategies, and PayPal business loans. We're extremely pleased with our progress. I want to close by thanking all of PayPal's customers and our colleagues worldwide for making this another strong quarter. With that, let me turn it back over to the operator for questions. Thank you.

I wanted to ask about eBay; I know they announced the managed payments initiatives and it doesn't look like PayPal is featured as a payment option. So trying to figure out what's the impact to PayPal's model? I mean, I guess what we're trying to get at is figure out how much the weakness in eBay is due to the run rate of core eBay volumes? Were those volumes coming off of PayPal in payments to other providers?

Thanks, Brian. It's Dan. I'll address that and then pass it to John and Bill for any additional insights. Firstly, eBay's performance on our platform was not influenced by intermediated payments. They publicly disclosed that they had 20 million in Total Payment Volume moving to intermediated payments, but we don't even see that as a significant factor in our results. Intermediated payments have just begun for them and have had no effect on their performance on our platform. Now, looking ahead, I believe PayPal and eBay will remain close strategic partners for the foreseeable future. The reason I state this is not only because we signed a 5-year agreement for PayPal branded services on their intermediated payments or because we previously signed a comprehensive 7-year deal to offer eBay shoppers PayPal credit options. These are just partnerships we formed with eBay. The crucial point is that our shared sellers and merchants demand that consumers have access to PayPal, as their sales depend on it. Recently, we released a market research study conducted by IPSOS that highlighted our long-held belief. The study found that consumers are, on average, 54% more likely to make a purchase when a merchant accepts PayPal, which is a conservative estimate. This likelihood increases for cross-border transactions, mobile interactions, or unfamiliar brands, which is particularly relevant for the diverse range of eBay merchants. Additionally, 59% of PayPal users have abandoned a purchase when PayPal was not offered as a checkout option. With 254 million customers on our platform, nearly 60% of them might abandon a sale without PayPal checkout. We've frequently discussed this issue, and seller feedback on the eBay forum reveals that those who transitioned to intermediated payments have reported a 40% to 60% drop in sales and are eager to return to PayPal. Both eBay and PayPal aim to serve our mutual customers effectively; integrating PayPal into eBay’s intermediated payments is a significant step, and we are committed to launching this next year. We are optimistic about the growing value we provide and the partnership we will continue to have with eBay. Bill, do you have anything to add?

I would just add to that that eBay has responded to those comments saying that sellers have issues with the drop in sales; they can revert back to PayPal in the near term, and in the long term, they are working hard to make PayPal available as a payment option, and we're working hand-in-hand with eBay to try and make sure that's available to those customers given the strong demand from customers, as Dan was describing.

I wanted to follow up on Venmo; could you provide some updates? Can you help us understand the contribution? You mentioned $1 billion in instant transfer volume in September; should we view that as a $1 billion monthly run rate? Also, are there any other monetization activities that are beginning to scale? I want to ensure I'm accurately considering the contribution.

Sure. The $1 billion in instant transfer volume was for the month of September, and that's been growing nicely; we don't see anything to disturb that trend. Instant transfer is one of the monetization initiatives that we see scaling well. As Dan mentioned in his remarks, pay with Venmo is growing very nicely. Uber, Uber Eats, Grubhub, Eat24, and Seamless have all integrated pay with Venmo, that's been growing quite remarkably. I mentioned 185% month-over-month growth on pay with Venmo, and the card is seeing a 320% month-over-month growth. Those are early, but those are the kinds of rapid growth results that we're seeing with other initiatives on Venmo, and so across all three of our major monetization initiatives; instant transfer, pay with Venmo, and other apps like Uber and Grubhub, and the card, we see all of those starting to really scale in a meaningful way.

And you also saw the number of Venmo customers who have now been in a monetizable action go to 24%, up from 17% just one quarter ago. So as I mentioned in my remarks, it's still early; obviously, but it looks like we've achieved some kind of tipping point right now, and I think both Bill and I are extremely pleased with the results of Venmo. One other thing that I would just point out is, as I mentioned, it seems repetitive but we don't take it for granted; for three quarters in a row right now we've each quarter seen record net new active signing up to Venmo. So not only are you seeing Venmo expand quite rapidly but the percent of people using the monetizable event is going up quite rapidly as well. So you combine all of those things together, you can see why we're quite pleased with the momentum as of now.

Just wanted to ask John, as we look at the initial guide for '19, how are you thinking about pricing broadly across the company from '18 and '19? I know you're anniversarying some pricing on the cross-border side, and then maybe related to that, you know, the shift in Venmo going from operating in the red to going into the black; how should we think about or ballparking that kind of contribution in the guide? Thank you.

Starting with pricing, it's important to note that it's not a one-time situation for us; we view it from a long-term perspective. There are opportunities each year to reassess pricing, which can involve either capitalizing on our significant market value and increasing prices or, given our vast addressable market, being more aggressive to capture market share. We have plans in place to optimize pricing in various areas heading into 2019. For instance, we recently announced a price increase for instant transfers to align better with market rates. Regarding Venmo, we're excited about the growth we've seen and the record number of new customers over the past three quarters. However, this is a long-term strategy. We will take a measured approach to ensure we enhance the experience, with profitability to follow. We have a solid track record from our PayPal transition, which moved from P2P to allowing merchants to monetize the platform. This transition will occur over the next few years, not just a couple of quarters, and we anticipate improvements in Venmo's economics starting next year and continuing onward.

Thank you for the 2019 framework; it's encouraging. Regarding that, can you provide insights on the steady EPS growth for 2019, especially considering the acquisitions and the eBay degradation you mentioned, as well as impacts on cross-border? I'm curious about your overall outlook and what factors may be improving. What are the key offsets that give you confidence in achieving steady EPS growth this year?

I'll begin, and Dan and Bill can also contribute. In 2019, we have many exciting developments as we enter this new phase after our prior relationship with eBay. We are enthusiastic about the partnership opportunities available, the integration of our current acquisitions, and the potential for future acquisitions, all of which could enhance our platform significantly. Regarding our financial outlook for next year, we anticipate continuing to achieve operating leverage in our business. Although I didn't mention this earlier, we often discuss the marginal economics of our company. In the recent quarter, each additional dollar of revenue led to only a $0.10 increase in our non-volume related costs, demonstrating a scalable model for our platform. As for cross-border transactions, the percentage of total volume for PayPal has seen a slight decline from the previous quarter, partly due to the growth of other services like Venmo and Braintree. It's important to recognize that just a few years ago, our profitability relied heavily on specific areas, but we are now evolving into a platform with a more diverse portfolio both regionally and in terms of products. We're monetizing various aspects of our business like never before. Even though cross-border transactions remain a profitable segment, they represent a smaller fraction of our overall portfolio, similar to eBay. We are still expanding our operating margin and achieving earnings growth in the mid-20% range, which is very encouraging as we head into 2019.

Just one or two things on top of that. You saw this quarter us adding for the first time ever over 9 million net new active accounts. And interestingly at the same time, engagement growing by 9.5%; for those of you who look carefully at our engagement numbers, which I know many of you do, that's the highest percentage gain we've had in probably two years or so. And three years ago, we guided like 3 million to 5 million net new actives per quarter; we took that up last year to 6 million to 8 million; we're clearly at the very high-end of that; and we see that continuing as we look forward as well. And when you have your net new actives growing by 30 million to 35 million a year and your engagement growing by 8% to 10%; that bodes well as we look forward. And I would say some of the new products and services that Bill and the team are introducing or have introduced into the market, some of the new partnerships that are just coming underway right now; we feel pretty good about our position in the digital payments ecosystem right now.

I wanted to revisit the discussion on Venmo, particularly Dan, your comments about feeling like you're at a tipping point. Can you provide some insights on how we should view efforts to increase Venmo's acceptance and where we might see evidence of that? Additionally, with the new instant transfer fee structure, what should we anticipate regarding its contribution to advancing Venmo's monetization? Thank you.

I'd just say first of all, again, it's early but substantial progress and the numbers we gave are month-over-month numbers, not year-over-year but month-over-month growth numbers. So you can see the acceleration that's happening. We have a very strong pipeline of large merchants, the merchants you might expect who are lining up to integrate pay with Venmo buttons. We also obviously are rolling out these smart payment button capabilities into a PayPal checkout where if it is a Venmo customer we will dynamically present they pay with Venmo button and so you'll start to see that also accelerating quite a bit. And then if you look across the monetizable services that we're offering, all of those services are benefits to the Venmo consumer and I think that's a really important point. A Venmo consumer doesn't think about engaging in a monetizable act, they think about how can I use my Venmo card to spend offline, have that come right back into my Venmo feed, share or split those purchases, and it's a value-add for them being able to take your Venmo balance and be able to spend on online merchants or on Uber; that's a value-add for them just as it is to be able to instantly gain access to their balances is a value-add to them as well. And so the more services we've put out there, and we've been careful to be sure that the services we've put out are real value-added services but the more we put out the more Venmo customers use and start to engage with that. I mentioned that you're seeing the Venmo customers engage in groceries and restaurants; these are everyday types of activities and we're really just becoming an embedded part of our Venmo customer's digital financial services life. There are other things that we're looking at going forward but we're really pleased with the efforts we have so far, and very pleased with the momentum. Bill, anything you would add on that?

I would just add to that that in addition to Dan's points there around how simple we're making it for merchants to add a dedicated pay with Venmo button; the integrations we've done, like with Uber for example, we're seeing tremendous growth that we're quite pleased with but they're quite pleased with it as well. They're seeing this really driving engagement on the platform and the usage of Venmo is outpacing their own expectations which are certainly quite high given how rapidly they grow. And so as we continue to make merchants happy with the engagement we're driving to them; as Dan said, we're seeing a lot of merchants really line up for that but we're providing multiple ways for users to get great new experiences and to make money by providing them great new experiences whether those pay with Venmo, the card, or things like instant cash out; all of those together are really bringing great value to the user and great growth for monetization for us.

Dan, this one is for you on the topic of partnerships, which is one of the topics of the day. You have a history of converting would-be enemies into friends or at least frenemies; and I'm wondering if you can comment on two groups out there that are sort of in that category, the large global merchant acquirers, and then also the Chinese digital wallets. As you think about partnerships, is there a path to converting those players? Do you see a partnership path with PayPal?

Lisa, I view you as a partner who has also become a friend. As we move toward customer choice and embrace an open platform, our capacity to partner has improved significantly compared to two years ago. I mentioned previously that we've established 37 major partnerships in that time, and we're now collaborating with leading Chinese players, including their international merchants. PayPal is currently accepted by over 50,000 of these merchants, allowing consumers outside China to make purchases from them. Additionally, we support around 300,000 Chinese merchants displaying the PayPal mark, enabling foreign consumers to buy from them. We're also exploring ways to allow Chinese consumers to make seamless payments at PayPal merchants outside China. We believe we can enhance cross-border transactions for all these players in China and elsewhere. Regarding merchant acquirers, we have a longstanding partnership history and a close collaboration with First Data. In the past, we were seen as competitors, but that is no longer the case, as we work closely together. Bill, would you like to add anything?

Wells Fargo, Chase; I mean there is a number of major merchant acquirers that we work with, we bring in tremendous amounts of volume. And it's another example of how we're able to partner with others in the ecosystem as we've made our platform more open and have really gotten focused on how we can provide value to customers in partnership with others, and acquirers are certainly one of those constituents that we were closer with.

Let me start by mentioning that we have added 9.1 million active accounts this quarter, which annualizes to 36 million. I would like to know if there was anything unique about this quarter regarding seasonality, or if we have now clearly surpassed the 30 million run rate from a year ago. Additionally, I would like to inquire about the OVAS line, which was significantly higher than what was anticipated. Could you provide more details on whether this is due to Synchrony revenue share or the impressive performance we are seeing with Venmo?

So first on the net new actives, nothing unusual in the quarter. As John mentioned in his remarks, nothing from the iZettle acquisition that came in there, that was 9.1 million accounts that came in naturally. We also have over 20 million merchants now on the platform too and that's growing quite nicely. So, we projected being about 30 million, we thought this year it will clearly be over that, and we see no reason for these types of numbers to be our new run rate going forward.

I would like to add that we have observed increased consumer adoption for the past couple of years, which began with our reductions. Is this trend sustainable? Over the last two years, we have successfully driven significant improvements in new active users, and there hasn’t been a single factor responsible for attracting these new users to our platform. Instead, it is a combination of a great checkout experience, features like PayPal One Touch, P2P, and Choice that collectively bring more users on board. We are enhancing their engagement through effective digital channels with card issuers and others, resulting in a cumulative effect. As Dan mentioned, we do not see anything hindering this progress; we believe this is the new normal for us in terms of driving increased engagement and new users on the platform.

Darrin mentioned several factors influencing our value-added services in order of significance. First, we are experiencing strong growth in our merchant working capital business, and we are pleased with the performance following the acquisition of Swift. Second, although we sold our U.S. consumer credit portfolio, our international consumer credit portfolio is performing well in the markets where we have launched it. Lastly, we still benefit from our profit-sharing arrangement with Synchrony, which provides us with economic advantages based on the performance of the U.S. consumer credit portfolio, and I believe Synchrony is also satisfied with its performance.

Thanks. Operator, we have time for one more question.

Dan, as it has been pointed out earlier, you guys have had a lot of success over the last couple of years in signing partnerships and bringing a lot of partners onto the platform. I guess it's probably too much to ask to try and quantify the impact of those partnerships or how much of an impact we've seen on TPV or revenue as it relates to those? But curious if just qualitatively you can try and give us a sense of the impact that you've seen there? And then, as it relates to the Walmart and Amex deals that have been signed, how you would sort of scale those deals relative to what we've seen from partnerships thus far? What kind of potential do you think those two deals have?

We've established numerous partnerships over the past few years, and it typically takes several quarters for these to begin yielding results, with some even taking over a year. We're still in the early stages of realizing the impact from these partnerships. Qualitatively, we're starting to notice positive momentum, but it's still quite early. For instance, we now have about four major issuers who will be adding their rewards points to the PayPal platform. This will allow users of our joint customers to convert their reward points into fiat currency and make purchases across approximately 20 million merchants worldwide, providing a new level of utility. The American Express announcement is significant as they are a leader in rewards points, allowing their customers to use these points at PayPal merchants, which is currently a unique offering since Amex is integrated with only a few merchants. Looking ahead, Walmart presents substantial potential as the largest retailer and marketplace, and we have a strong and growing relationship with them. With each quarter, we announce new partnerships, some of which are quite significant, and I expect that we will see more of these in the near future. Our strategy focuses on being a valuable partner and a leading digital distribution channel for many of our partners. We are experiencing success, but it's still the early stages of what these partnerships can develop into for us. Thank you for your time, and I look forward to future conversations.