PayPal Holdings Inc (PYPL) — Q1 2019 Earnings Call Transcript

Thank you, Andrew. Good afternoon, and thank you for joining us. Welcome to PayPal Holdings’ earnings conference call for the first quarter 2019. Joining me today on the call are Dan Schulman, our President and CEO; Bill Ready, our EVP, Chief Operating Officer; and John Rainey, our Chief Financial Officer and EVP, Global Customer Operations. 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 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 a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. In addition, please note that beginning with the first quarter of 2019, we reclassified certain operating expenses within our consolidated statements of income. These changes have no impact on the Company’s previously reported consolidated net income for prior periods. On April 9, 2019, we furnished an 8-K to the SEC that details these reclassifications. 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 second quarter and full-year 2019, 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, April 24, 2019. 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 on today's call. I'm pleased to report that PayPal had a strong start to the year. In the first quarter, we generated $4.13 billion in revenue, in line with our expectations. This represents year-over-year growth of 12% on an FX neutral basis or approximately 19% revenue growth, normalized for the sale of our U.S. consumer credit receivables. For the first quarter, we delivered $0.78 of non-GAAP EPS, $0.08 of which came as a result of our recent MercadoLibre investment. Excluding that gain, we delivered $0.70 in Q1, up 23% year-over-year, outperforming our expectation. Once again, a highlight of the quarter was our growth in both net new active and engagement. We added 9.3 million net new actives in the quarter, up 15% year-over-year. We now have 277 million active accounts on our platform, with approximately 255 million consumers shopping at 22 million merchants. We are on pace to exceed 300 million active accounts by year end. We added 40 million net new actives in the past 12 months, an all-time record. That is over 2 times our trajectory from just two years ago. And even as we add record net new actives, our customer engagement continues to grow. Engagement grew by 9% to 38 transactions per active account. This increasing use of our platform helped to drive $161 billion of TPV in the quarter, up 25% on an FX-neutral basis, consistent with the past two quarters. Total payment volume excluding eBay grew 29% on an FX-neutral basis, outpacing the overall payments market as we continue to gain share. eBay had negative TPV growth of 4% this quarter, and now represents just 9.7% of our overall TPV. Our Merchant Services TPV growth rate has accelerated over the past two quarters, offsetting a 700 basis-point decline in eBay’s TPV growth rate during that same period. Mobile continues to fuel our growth with over $66 billion of mobile TPV in Q1. And One Touch with 136 million consumers and 12.1 million merchants remains the clear market leader in mobile checkout with almost 2 times the conversion of competing wallets. Venmo continues its significant momentum. At the end of Q1, over 40 million active Venmo customers drove significant increases in volume growth and monetizable transactions. Venmo total payment volume increased 73% year-over-year to $21 billion, and we remain on pace to drive nearly $100 billion in TPV through Venmo in 2019. As user growth continues to accelerate, merchants are increasingly turning to Venmo as a way to attract a valuable and engaged consumer base. For example, in the first quarter, we launched a customer engagement partnership with Chipotle, engaging customers through Venmo payouts to drive awareness for their new rewards program. In less than one week, they surpassed their launch campaign objective with 1 million signups. And this is just the beginning of brands leveraging Venmo to drive engagement and conversation within the social feeds. In January, we reported that Venmo had an annualized revenue run rate going into 2019 that exceeded $200 million. I'm very pleased to report that our annual revenue run rate coming out of Q1 is now over $300 million. And with over 40 million active users growing substantially each and every quarter, we fully expect to see that annualized revenue number continue to grow. In addition to Venmo, core peer-to-peer continues to experience strong growth. P2P is the large source of net new active users on our platform, as well as a significant driver of lifetime value. Total P2P volume was $42 billion, growing 41% year-over-year. Over the past several years, we've announced more than 40 partnerships with leaders across the tech and financial services industries. These partnerships have enabled new experiences for customers and have helped to connect businesses and consumers across new platforms and marketplaces. Last month, we extended our partnership with Facebook to support the payments infrastructure for Instagram shopping, starting in the U.S. which will allow users on the platform to pay in context using their PayPal account or with other financial instruments. We are building deep platform integrations with Facebook, which also include product experiences within Facebook Messenger and donations. Instagram shopping is an important expansion of our strategic relationship as we work to create new experiences for our joint customers. We continue to help consumers and businesses get faster access to their money. We are rolling out the ability to complete instant transfers to bank accounts for consumers and businesses in the U.S. with international expansion expected in the near future. For too long, digital payments offered a faster and better technology, but in many cases it actually made getting access to money slower. We’ve launched multiple initiatives over the last few years to get people and businesses more ways to instantly move money using their PayPal account. Through our partnership with JPMorgan Chase, PayPal is one of the first companies to introduce real-time payments for both consumers and merchants as part of our ongoing effort to offer our customers faster and flexible access to their funds. Our $750 million investment in MercadoLibre was a meaningful development in our drive to increase our international scope and scale. We expect to significantly expand our footprint with a strong global partnership. Our aspiration is to be the global digital payments platform of choice for merchants and consumers around the world. Our full suite of services and products are intended to bring everyone into the digital economy. MercadoLibre is one of the largest online commerce and payments ecosystems in Latin America. Our two companies share a common vision. We both want to help small businesses compete globally and offer innovative financial solutions to help people that may be underserved by the traditional financial system. By working closely together, we can jointly leverage our scale and platform capabilities to help drive inclusion and access to the global digital economy. As part of our investment, our teams are working hard to develop a robust commercial agreement that brings together our respective payments capabilities to unleash incremental value to our combined 500 million plus customers around the world. We look forward to sharing more about our plans to work together as we finalize our agreement. I would like to end my remarks by reiterating our commitment to our values and to being a role model corporate citizen. I strongly believe that companies need to stand up and take responsibility to address the issues that face every global citizen. In a few days, we will release our Annual Global Impact report, highlighting the progress we've made in driving social impact, managing our environmental footprint, and supporting our employees and their communities. We had a strong start to 2019 and we remain confident in the annual targets we outlined during our last earnings call. We will continue operating in a disciplined manner, leveraging our wide range of unique assets, strategically investing, both organically and inorganically with the goal of strengthening our two-sided platform. We look forward to delivering another strong set of results this coming year. And with that I'll turn the call over to John.

Thanks, Dan. We started the year with a great first quarter. Our financial and operational performance was a continuation of our trends exiting 2018. Our results demonstrate the increasing relevance, functionality, and utility of our payments platform. We delivered solid volume and revenue growth with strong expense discipline and earnings growth. Importantly, similar to the fourth quarter of last year, we achieved these results in the face of declining eBay volumes, ongoing year-over-year pressure from a stronger dollar, and a continued mixed macro environment. Overall, our first quarter performance is consistent with the recent results that our business has been delivering in terms of growth, volume based expense dynamics as well as operating leverage in our non-transaction related expenses. I will discuss our financial results and then I will spend some time on our investment in MercadoLibre, our restructuring charge, and our updated guidance. Revenue in the first quarter increased 12% on both the spot and currency neutral basis, to $4.13 billion. Adjusting for the sale of receivables to Synchrony, revenue growth would have been approximately 19%. Acquisitions contributed approximately 1.5 points to revenue growth in the quarter. The translation effect from the stronger dollar negatively impacted revenue by $116 million. This impact was offset by $52 million in revenue from hedge gains. As a result, the net effect of the stronger dollar was a revenue headwind of $64 million in the quarter. U.S. revenue grew 8% versus Q1 2018, and approximately 22% adjusting for the credit receivable sale. International revenue grew 17% on a currency-neutral basis. On a spot basis, transaction revenue grew 17% in the quarter. Revenue from other value-added services declined 19%. Normalizing for the receivable sales, this revenue would have grown approximately 35%. In the quarter, we recognized $55 million of revenue from Synchrony related to transitional loan servicing and collections. In the first quarter, transaction take rate was 2.31%. Compared to Q1 2018, the transaction take rate declined 11 basis points. Strong P2P growth contributed to two thirds of the decline. Weakness in eBay’s marketplaces business as well as pressure on some of our key cross-border corridors from the stronger dollar were also drivers of the reduction in transaction take rate. Total take rate in Q1 declined 22 basis points from the prior year. Approximately two thirds of this decline was attributable to the credit receivables sale. The same factors that affect the transaction take rate also contributed to the decline in our total take rate. Both transaction take rate and total take rate benefited from revenue related to our hedge gains. Volume-based expenses increased 20% in the first quarter to $1.9 billion. Transaction expense represented 96 basis points as a rate of TPV, flat sequentially and versus last year. Transaction loss was 18 basis points as a rate of TPV, also flat sequentially and versus last year. Loan losses were 3 basis points as a rate of TPV. Transaction margin dollars grew 6% to $2.2 billion in the first quarter. Transaction margin as a rate was 54%, a decline of approximately 290 basis points versus Q1 ‘18. The credit receivable sale was a meaningful driver of this decline. We expect to see transaction margin dollar growth reaccelerate in Q3. Non-transaction related expenses grew 2% versus last year. Growth in these expenses was affected by both the lapping of the held for sale accounting changes, which resulted in a lower rate of growth year-over-year, as well as an increase in expenses related to our 2018 acquisitions. Normalizing for both of these, non-transaction related expenses grew 7%. On this adjusted basis, we delivered 280 basis points of operating leverage. Operating income in the first quarter grew 13% to $934 million and our operating margin modestly improved versus last year. Adjusting for 2018 acquisitions, operating income would have grown 16% and our operating margin would have expanded 110 basis points in the quarter. Other income in the quarter increased by $185 million, primarily from net unrealized gains on strategic investments. On a per share basis, unrealized gains contributed approximately $0.12 after-tax. $0.04 of the benefit was included in the EPS guidance we provided in January. The incremental $0.08 was not in our guidance and resulted from our investment in MercadoLibre, which closed on March 15th. Going forward, our other income line item will be affected each quarter by movements in MercadoLibre’s stock price. I will discuss this more in a moment. Non-GAAP EPS for the first quarter grew 37% to $0.78. We ended the quarter with cash, cash equivalents, and investments of $9.5 billion. In addition, we generated $809 million of free cash flow and repurchased $750 million of stock. Before discussing guidance for the second quarter and updated guidance for the full year, I would like to provide more color on how we plan to disclose the effect of unrealized gains and losses from strategic investments on our income statement as well as context for the restructuring charge that we recorded in Q1. Our strategic investments create earnings volatility, given that unrealized gains and losses are recognized from observable price movements. As a reminder, as of January 2018, equity investments are required to be marked-to-market when a reportable event occurs. Given the difficulty in predicting public market valuation changes when we provide quarterly guidance, we will not be able to estimate the overall EPS impact from our strategic investment portfolio. For the remainder of the year, as soon as practicable following quarter end, we will issue an 8-K providing the net gains or losses and related earnings impact on the entire strategic investment portfolio for the prior quarter. In addition, going forward, to the extent that our guidance includes an expectation of gains or losses related to these investments, we will quantify this estimated impact when we provide that guidance. In the first quarter, we also recorded a $78 million GAAP-only restructuring charge. This charge relates to workforce actions that are intended to better align our teams in support of our key business priorities as well as actions related to the transitioning of our credit and collection operations to Synchrony. As we grow and evolve, we will continue to evaluate our structure, processes, and resource allocation for improvement opportunities. We expect to reinvest the majority of the related savings back into our business to drive growth. This charge was previously contemplated by the GAAP guidance we provided in January for the first quarter and the full-year 2019. Now, I'd like to discuss our updated guidance for 2019 and our guidance for the second quarter. For the full-year 2019, we are raising our earnings outlook and affirming the revenue guidance we previously provided in January. We now expect GAAP earnings per share to be in the range of $2.94 to $3.01, representing 22% to 24% growth. Our raised earnings guidance incorporates both our core earnings outperformance in the first quarter as well as the unrealized gain we recognized from our investment in MercadoLibre. As a reminder, we expect this investment to create earnings volatility as we move through the year. For the second quarter, we expect revenue in the range of $4.3 billion to $4.34 billion or 12% to 13% growth on a currency-neutral basis. Adjusted for the credit receivable sale, we expect our revenue growth rate to be 19% to 20%. In addition, we expect non-GAAP earnings per share of $0.68 to $0.70, representing 16% to 20% growth. Our second quarter EPS guidance includes an estimated benefit from unrealized gains we expect to recognize in the quarter of slightly less than $0.01. To wrap up, our first quarter results set us up well for another year of strong financial performance. I would like to thank all of our employees, our customers, and our partners for a great quarter. And with that I will turn it over to the operator for questions.

Thank you for sharing the updated Venmo revenue numbers, which reflect impressive growth in a short time. I want to ask about eBay. I noticed you experienced a 4% decline in volume for Q1. How does this impact your outlook for eBay volume for the full year? Could you also quantify the effect eBay had on the first quarter results? Additionally, I have questions regarding the potential outlook for 2020, especially considering the operating agreement will expire in the middle of next year. While I understand it's too early for specific guidance, should we expect a significant decline in the P&L in the latter half of next year, or is that not necessarily the case given the offsets you may have found for continued development?

Thank you for the question, Jason. We'll take about 45 minutes to address it. There's quite a bit to cover. I’ll start and then John can elaborate on some aspects of your question. Firstly, I foresee eBay and PayPal maintaining a close strategic partnership for an extended period. eBay has recently integrated PayPal into their payment system, and both our consumer and merchant customers expect us to collaborate and ensure PayPal's availability. We currently have 277 million users on the platform, and consumers are 54% more inclined to make purchases when merchants accept PayPal. eBay sellers are aware of this and recognize that people are likely to abandon their carts if PayPal isn’t an option. Therefore, I believe we will continue to partner closely moving forward, and eBay's inclusion of PayPal in their payment system will benefit us going forward. Regarding our operating agreement, which extends through July 2020, our eBay transaction payment volume is currently at 9.7%, just below 10%. If you project this forward, by the conclusion of the operating agreement, it will likely drop to around 5% to 6% of our total transaction payment volume. By the end of 2020, as Devin mentioned, this agreement concludes in July, right before the holiday selling season, leaving little opportunity for merchants to make substantial changes during this period. Thus, by the end of 2020, our transaction payment volume will likely be well under 5%. I believe the trends we’re observing are influenced more by the decline in eBay's gross merchandise volume rather than the impact of intermediated payments. Despite a drop of 700 basis points in transaction payment volume over the last few quarters, our adjusted margins would have increased by 110 basis points this quarter. We've also reaffirmed our revenue guidance, anticipating a growth of between 19.5% and 20.5%, and we've raised our earnings-per-share guidance for the year. Hence, eBay is becoming a smaller component of PayPal at a quicker pace, which is actually beneficial as the decline has been more gradual than expected, and we're confident this can be managed within our forecasts. Currently, we don't see any issues with eBay's intermediated payments. In fact, we feel quite confident about our position moving forward. Bill mentioned this in the previous call, but I want to emphasize that merchants using PayPal to list across multiple markets typically experience a threefold increase in sales and often incur lower total expenses compared to eBay when accounting for commissions and payments. We're assisting small businesses in listing on multiple marketplaces through our One Touch activation, which we see as a critical responsibility. Additionally, our top 20 marketplaces, excluding eBay, generated $90 billion in transaction payment volume over the last year, growing by 39%. This illustrates our strong integration into these marketplaces, which are expanding significantly. Once the operating agreement concludes, we have a substantial opportunity to collaborate more closely with major marketplaces that we've previously been restricted from working with. Overall, we feel very optimistic about our current standing, and nothing in eBay's results alters that outlook.

I’d just add a couple of things, Jason, to address your question on cross-border as well as the outlook for the back half of the year. First on cross-border. Like a lot of companies that have the global breadth that we do, we are affected by the stronger dollar. And eBay is part of that cross-border activity. I wouldn’t say that they are an outsized portion of that cross-border activity though. So, that does affect our numbers. Secondly, with respect to the outlook for the year, certainly to a certain extent we have to rely on the guidance that eBay provides and that influences our expectations around our business. And we’ve certainly seen slowing growth there and they are becoming a declining percentage of our business. But at the same point in time we’re demonstrating that we can expand operating margins and grow our revenue on an adjusted basis 20% while observing this decline and in fact observing the dilutive effect from some of the acquisitions that we had in 2018. And we’re able to do that through all of the other portfolio of products that we have, like we talked about the new experience with Instagram, what we're doing with Venmo, and we’re excited about the relationship with MercadoLibre. All of these things and others that we’re working on enable us to achieve those kind of financial results, while we absorb the declining percentage of eBay business.

I wanted to ask about Venmo. The 40 million Venmo users, that’s an impressive number. I think that’s ahead of the most people’s estimates. But, even the Q1 exit revenue run rate now, $300 million is above our expectations. So, just trying to get a feel where the excess growth is coming from or just give us a sense of the magnitude of the growth. Is it pay with Venmo, debit, instant transfer? And then, secondly, hearing plans to come out with a Venmo credit, maybe you could talk about that as well. Thanks.

This is Bill. We are definitely pleased with how Venmo is monetizing and the pace of that progress. As mentioned previously, our efforts aren't focused on a single area. We have several initiatives that are driving revenue for Venmo, including the Venmo debit card, pay with Venmo, and instant transfer. Instant transfer has been a major topic of discussion. About six months ago, we noted that nearly half of our monetization was coming from our commerce initiatives outside of instant transfer. We believe there is a solid balance among our various initiatives, as we've increased from a $200 million annual run rate last quarter to over $300 million now. It's significant progress, but not limited to any specific initiative. We're also observing that while the number of Venmo users continues to grow rapidly, they are increasingly engaging with us and seeking more products. Regarding your question about the Venmo credit card, we haven't announced anything beyond the Venmo debit card yet, but there is definitely strong demand for it. Our user base is looking for more products from Venmo, and we are actively engaging with the banking ecosystem through both PayPal and Venmo. We are always on the lookout for new ways to enhance user engagement and collaborate with our bank partners to offer excellent services. However, to clarify, there are no announcements beyond the Venmo debit card at this time.

Bryan, if I can add a little bit to what Bill said. One of the reasons why we announced 40 million is really a lot of numbers that we saw flying out there that were inaccurate. And we thought it was important to set the record straight and lot of people talk about downloads and different things. To us, what’s really important is, how many customers do you have, how many engaged customers do you have. And we've seen a tremendous number of new customers coming on board. But, we actually have an increasing engagement curve. In other words, the engagement of Venmo users increased over time, not churn over time. And so, to us, that really demonstrates some of what Bill was just saying that our base truly does want to engage in the service, is looking for more and more functionality from us. And brands are also increasingly seeing the value of that. I think, the Chipotle example is a really powerful one. Within a week, they hit their campaign objective with over 1 million sign ups. These are pretty impressive numbers. And we see a lot more opportunities to work with brands to engage with their consumers inside the structural fees.

I’ll also add that one of the reasons that we’re providing as much information as we are right now on Venmo is because of some of the questions that are out there about our ability to monetize that, which we've never questioned. But, giving you these nuggets of information around revenue growth and active accounts, it's not something we're going to do every quarter. We don't report different aspects of our business that way. But given the importance of Venmo and the focus of that, we thought that early on, we would give a couple of data points to markers out there to better understand the trajectory of Venmo.

I wanted to build actually on both Jason and Bryan's question with the margin clarification. You beat our forecast in this quarter but with eBay slowing again and cross-border slowing a little bit. And then just describe Venmo and the opportunities there to invest and monetize etc. I'm curious how often are you delivering on the margin expansion this year, what kind of levers do you have to grow that confidence. And maybe just a bigger picture question, does it make sense to expand margins when there are a lot of potential, sounds like really shaping consumer behavior on here, consumer platforms like Venmo etc by helping marketing or promotions or what have you, so a big picture question on margins if that makes sense?

Sure. Tien-tsin, I'll start and others can jump in. Certainly, as we look at this quarter that we're reporting today, we're able to modestly expand operating margins even with absorbing some of the headwinds that were discussed as well as the acquisitions that we brought on last year. But, we're constantly looking at our ability to invest in the business as well as expand margins and we believe that we can do both. We’ve got significant growth opportunities but we're beginning to really demonstrate the scalability of our platform at a low marginal cost. And we demonstrated that by 280 basis points of operating leverage this quarter, but at the same point in time, investing in things like Venmo, investing in other things that we're doing organically and still using our free cash flow to go out and augment that with inorganic investments. So, I guess to summarize my answer to your question is, yes, we do believe that we can do both. But at the same time, we are not going to be a prisoner to trying to show operating margin expansion each individual quarter. We're managing this business for the long term. And we will periodically make investments that might cause us to in one quarter, see a decline in operating margin but maybe there is a better growth opportunity. Other quarters that may be the opposite of that. But we believe over the long term, we can invest in our business to grow it at the rates that we talked about with mid 20% TPV and revenue growth that’s in the high teens and also expand our operating margins.

It's important to note that expanding our operating margin is not solely about reducing expenses. As we increase revenues on Venmo, you can see the improvement in our margin structure, and we expect this trend to continue. This approach is an effective way to enhance margins while increasing revenues. We also observe this in other areas of our business. We believe there are numerous opportunities for us to improve efficiency, and we are actively pursuing these as a company. Additionally, we will grow margins by increasing our top-line revenues in specific parts of our business and addressing gaps in our income statement.

One more thing I would add is that when we look at some of the below the line benefits that we had, not related to MercadoLibre, but the $0.04 that we considered as we provided our guidance and entered the quarter, along with some of the benefits in our fourth quarter results, we intentionally mentioned reinvesting in the business. This represents earnings growth. While some may argue that it has lesser quality because it’s below the line, it presents an opportunity to increase earnings and reinvest some of that back into the business, which allows us to grow our core platform in stronger areas like Venmo.

Thanks so much and congrats on the strong customer metrics, especially. Looking at the 15% growth in net adds in the quarter and the 9% increase in customer engagement, can you talk about what you're seeing in some of these newer cohorts overall in terms of engagement? You touched on that with respect to Venmo, but I’d be curious in terms of what you're seeing for PayPal overall in terms of the new cohorts.

Thanks, David, for your question. I'll begin, and I'm sure Bill will join in. To reiterate what I mentioned earlier, we had a very strong quarter in terms of new active users, marking our second-best quarter ever in this area. The growth was primarily driven by core PayPal, but Venmo also contributed significantly. Both platforms showed year-over-year growth in net new actives. I believe the rise in engagement and new actives can be attributed to a few factors. Firstly, we are experiencing a network effect, especially with Venmo's 40 million users benefiting from a social connection feature. Additionally, our two-sided platform has become essential for both merchants and consumers, with 22 million merchants and 255 million consumers. Our product teams have done well in enhancing customer experiences through features like One Touch and P2P enhancements, as well as new offerings such as rewards on the platform. This has not only increased engagement but also reduced churn. The growth in new actives results from efforts at both the top and bottom of the sales funnel, and we are seeing improvements on both fronts. Partnerships are also playing a significant role, as many financial institutions are eager to boost transaction volume through us because of the value we provide. Venmo is performing well, and I am optimistic about our global expansion efforts in markets like India and Japan, as well as our partnership with Itaú in Brazil, which is gaining momentum. Overall, I feel positive about the variety of initiatives driving engagement and new active users.

And I would just say, with regard to how the cohorts are performing, we’ve talked about this on prior calls. For the last three years or so, you're seeing a kind of a steady trend line up on increasing the number of net new actives each quarter. And we closely watched the quality of those cohorts, and we’ve seen that each cohort has gotten better and better and better over time. And that really just speaks to everything Dan was describing in terms of how well-rounded our offerings are. We’ve expanded the range of services we can provide to consumers, the different places that a consumer can engage with us. And so, engagement is up overall and the quality of our cohorts even as we really widened the top of the funnel, so to speak, in terms of getting new users onto the platform, the quality of the cohorts does not only remain strong but we see each successive cohort, being stronger and stronger than the prior cohorts. There is nothing we’ve seen has really changed in that overall trend.

Just to dig into the acceleration in merchant services growth a little bit, now that we’ve seen it for a few quarters. Dan, you've talked us in the past about the leverage that you're seeing, processing payments for companies like Uber and Airbnb and Apple Pay and now you're adding Instagram shopping. How much of these named partners are impacting the acceleration and merchant services growth? And particularly something that's relatively early stage, like Instagram shopping. How do you think about the impact that it or maybe other partners that we haven't talked about yet are meaningfully contributing to future growth?

Yes, I believe some of these initiatives are just getting started, which indicates there is significant potential for future growth. Instagram shopping is a prime example of this. Another noteworthy example, which was not mentioned, is our partnership with Paymentus. We estimate that there could be at least tens of billions of dollars in additional total payment volume from this sector, possibly even more. These partnerships are expanding rapidly. We've noted that our top 20 partners generated 90 billion in total payment volume, growing at 39%. Additionally, there are other large marketplaces with which we cannot currently collaborate due to our operating agreement, and we are fully committed to honoring that agreement. However, those marketplaces are eager to work with us, and we are prepared to deepen our partnerships. Partners like Uber, Airbnb, and others present significant growth opportunities, and our long-standing collaborations with them are key to benefiting our mutual customers.

Dan mentioned that our partnerships are at various stages of maturity, ranging from longstanding ones like Uber and Airbnb to newer ones like Instagram. Across these partnerships, we're seeing PayPal emerge as the preferred platform for excellent commerce experiences, both in the payment market and more broadly. As noted earlier, our top 20 marketplace partners outside of eBay processed over $90 billion in volume in the past year, reflecting more than 39% year-on-year growth. One of the most significant trends in e-commerce today is that small to midsize sellers now have a multitude of platforms to choose from to sell their products, unlike a decade ago when options were limited. This landscape has expanded significantly, with both newer and more established platforms available. PayPal has become the partner of choice for both marketplace providers and the small to midsize businesses that sell on these platforms. This has led to notable growth for us. The diversity of our partners in terms of their maturity levels is encouraging, and it’s beneficial that no single partner dominates our strategy. This trend is well-established, and we have become a key partner within the ecosystem for both marketplaces and sellers operating in those marketplaces.

Yes. Just adding 22 million merchants, we talk about our overall 277 million, but 22 million merchants that are growing quite nicely every single quarter as well, being able to take those predominantly small merchants and be able with One Touch authentication, get them into all these marketplaces that Bill just talked about, helps those marketplaces and helps us to deliver incremental sales to those small business partners.

Thank you for having me. The net new active numbers continue to significantly exceed the 300 million year-end expectations, and while this is just based on the last quarter, I want to emphasize the importance of ensuring that these trends can be sustained. I'm particularly interested in the international aspect, as it represents a major opportunity. I would like to hear more about progress in India and the MELI deal. The commercial agreement seems like it could be a substantial opportunity, similar to past initiatives aimed at facilitating cross-border transactions for millions of Latin American users through international platforms like PayPal. Are we on the right track with this and other international opportunities? Additionally, an update on the pipeline of new marketplaces, beyond what we've seen with Instagram, would be appreciated. Thank you.

Let me start off a little bit maybe with how we thought about MercadoLibre, and Bill can talk about maybe the sustainability of the net new actives going forward. So, Darrin, you are exactly right, I mean, we see international as tremendous opportunity space for us. And if I take a step back, we're willing to invest in companies or acquire companies that we believe advance our strategic agenda. I said this in my remarks, we do want to be the leading global digital payments platform. And that means, looking across the world who are the leading players there, and how might we partner together in some way to take our respective platforms, the respective number of customers we each have. MercadoLibre, between their marketplace and part of their payments infrastructure, 200 million plus customers themselves. And so, you’ve put that together with ours, you have almost 500 million customers. And there to your point, you can see that combination being quite powerful for driving growth for both companies. And so, there are companies like MercadoLibre where a strategic partnership may make a sense for us, and they allow us to expand our presence into geographies or set of capabilities. And by the way, there may be other companies around the world that offer similar strategic options for us. And we’d be willing to explore partnerships, very akin to what we did with MercadoLibre. None of our investments, whether it’d be MercadoLibre or others, prevent us from working with anybody else. We are an open platform, we intend to work with everyone in driving this agenda helping consumers and businesses have access to the digital economy. And so, we're very pretty pleased with the overall partnership and relationship we’re developing with MercadoLibre. We do have a Board observer seat, I think it’s going to allow for deep collaboration and maybe our platforms into a commercial relationship, I think will drive a lot of value for us. But again, there are others like this that we see around the world as well.

And on the sustainability of the net new actives, it's really about three years now since mid-2016 when we started to bend the curve on accelerating net new actives. And we’ve gotten this question on sustainability consistently since I think three years in and I think we’re demonstrating that sustainability. And the thing that we’ve talked about throughout has been that it’s not about any one particular product experience, it’s not about any one particular geography, it’s that we revamped all of our product experience and broadened the set of services that customers engage in across many geographies. And so, the fact that that acceleration and that new actives is not tied to any one particular product experience, not tied to any one particular geography and is well diversified across product experiences and across geographies, I think this speaks to the ongoing sustainability that we’ve demonstrated over the last three years. I think further on the marketplaces, you asked about pipeline there but Dan alluded to this earlier, but what we can deliver for those marketplaces, we talk a lot about what we drive in terms of much better conversion for consumers on a front end. If you are a marketplace, the fuel that sees the marketplace oftentimes attracting sellers on the other side of the marketplace. And those 22 million sellers that we have that can be One Touch activation, as Dan was describing earlier, that’s quite significant for those marketplaces because it’s not just that you're taking friction out of the sign-up in terms of having to provide information, those marketplaces are looking for vetted sellers with proven selling history, wanting to understand what vertical those sellers engage in. And all those things that we can do to really bring sellers into this exclusion of new marketplaces out there really makes us a partner of choice, not only on the consumer buying side but in terms of fueling those marketplaces with proven sellers, it is a tremendous benefit. So, we see a really rich pipeline of marketplaces there, both for the infrastructure that we provide with our PayPal for Partners platform as well as what we're able to do to go bring customers and enter those marketplaces both on the consumer side as well as on the merchant side.

Thank you for the insights so far. My question is regarding the relationship with Synchrony. Could you provide an update on the expected growth of the revenue share for the consumer lending business this year? Additionally, could you clarify the timing and scope of the servicing aspect of that agreement? Does it conclude at the end of the second quarter or inter-quarter? How should we interpret that?

Sure, Ashwin. I will address that. Regarding the agreement and its transition, it will conclude at the end of June this quarter. As mentioned in our prepared remarks, we received a payment from Synchrony related to some of the servicing aspects. Additionally, as part of the charge we announced, there will be a reduction in workforce involving employees currently servicing that business, which will provide an offsetting benefit moving forward. Concerning growth, it aligns more closely with the overall business. Credit, particularly merchant and international credit, is growing slightly faster than the rest of our operations due to the opportunities we have in those areas. All these figures are included in our full-year guidance. Fortunately, we look forward to moving past this next quarter when we can stop making adjustments related to held for sale accounting and the revenue impacts from other value-added services. The second half of the year will give a clearer representation of our ongoing business outlook.

Yes. And let me maybe add to that. We just had our credit operations review yesterday. And I'm really pleased with what I'm seeing from that team right now. They are really embracing partnership. Synchrony is unleashing our ability to look at all forms of growth on the credit side. There is a ton of new innovative incremental things that they're looking at. Our merchant lending business is right now over $10 billion, since we started. We think we're one of the top lenders of working capital for small businesses. So, on every front, I'd say I’m quite pleased with what I'm seeing and what the future holds as a result of what we've done in our partnership with Synchrony. So, I think we'll continue to see good growth on that side. And as John said, we will be glad to get through the second quarter, so we don't have to keep adjusting results and you will be able to see that clearly in our revenues.

Hey. Good afternoon, guys. Just a quick one, maybe going back to Jason’s question around cross-border. I mean, obviously, the volume there of TPV has been under some pressure for the myriad of reasons that you talked about. But now going into 2Q and through the rest of the year, the comparisons ease, FX should be less of a headwind than what we had before. And obviously, sort of international opportunities are sort of front and center. Do you think that the volume growth or the TPV growth has slowed there, has bottomed, and is there a reason why that shouldn't really start to accelerate over the back half of the year? Thank you.

Hey, George. It’s John. I’ll take this. In the latter half of the year, we do expect an increase in cross-border activity. The second quarter will likely be similar to the first quarter. There are two main factors at play. One is a translation effect that will self-correct as we compare to previous periods where we experienced changes in currency values. The second factor involves behavior related to cross-border transactions; for those in countries where their currency has depreciated significantly against the U.S. dollar, the prior year's changes don't instantly make purchases cheaper. This creates ongoing pressure. However, I want to emphasize that this situation can work both ways. We operate in 200 markets worldwide, and currency fluctuations can vary. At times, we may face challenges, while at other times, we may benefit. Thankfully, due to the diversity of our portfolio across different regions, we have a natural hedge in place. Regarding earlier questions about growth and investment opportunities globally, we definitely consider this aspect. For example, with our MercadoLibre investment, we see Latin America as a region where we are not as strong compared to other markets. We will continue to invest in expanding our presence in areas with greater growth potential where we currently have a smaller footprint. This approach allows us to manage the impacts of currency fluctuations effectively.

Thanks so much for that. And thanks everybody for joining us today, really appreciate your time. And we look forward to speaking with all of you soon. Thank you.