PayPal Holdings Inc (PYPL) — Q2 2019 Earnings Call Transcript

Thank you, Cheri. Good afternoon and thank you for joining us. Welcome to PayPal Holdings’ earnings conference call for the second quarter 2019. Joining me today on the call are Dan Schulman, our President and CEO; 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 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 second quarter and full year 2019, our medium-term outlook and the impact 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, July 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. I’m pleased to report that PayPal had a solid quarter. In the second quarter, we generated $4.31 billion in revenue, growing 12% year-over-year on an FX-neutral and spot basis, or 19% adjusted for the sale of our consumer credit receivables to Synchrony. For the second quarter, we delivered $0.86 of non-GAAP EPS, which included a $0.14 gain from our strategic investments, including MercadoLibre, Uber, and others. Non-GAAP EPS grew 47%, and excluding strategic investments grew by 27%. Our Q2 non-GAAP operating margin increased by approximately 200 basis points year-over-year to 23.2%. This represents the largest year-over-year increase in our non-GAAP operating income margin since becoming an independent public company four years ago. Another highlight of the quarter was our growth in both net new actives and engagement. We added 9 million net new actives in the quarter, up 17% year-over-year. We now have 286 million active accounts on our platform, including 23 million merchants, and we remain on pace to exceed 300 million active accounts by the end of the year. Over the past 12 months, we've added 41 million net new actives, a new record for us. Engagement also continues to consistently improve, growing by 9.3% to 39 transactions per active account. Increasing use of our platform helped to drive $172 billion of total payment volume in the quarter, up 26% on an FX-neutral basis, an increase of approximately 100 basis points from last quarter. Total payment volume, excluding eBay grew 30% on an FX-neutral basis, up 70 basis points from last quarter and outpaced the overall payments market as we continue to gain share. eBay Marketplaces total payment volume once again declined approximately 4% in the quarter and now represents just 9% of our overall total payment volume, down nearly 300 basis points from Q2 last year. We processed approximately 1 billion transactions per month in Q2, up 28% year-over-year. Mobile total payment volume grew by 37% to more than $73 billion in Q2. One Touch with 149 million consumers and 13 million merchants remains a clear leader in mobile checkout, with nearly two times the conversion of competing wallets, helping merchants of all sizes increase sales in the competitive omni-channel retail environment. One Touch now enables over 80% of the Internet Retailer 100 in the U.S. Venmo continues its significant momentum and is well on its way to becoming a daily part of our consumers' financial lives. Venmo's total payment volume increased 70% year-over-year to $24 billion in Q2, and we continue to expect to drive nearly $100 billion in total payment volume by year-end. Venmo continues to significantly grow its revenues with approximately 15 million Venmo users having engaged in a monetizable transaction. With another quarter of outstanding net new active growth, Venmo continues to offer significant opportunity for merchants to attract a valuable, engaged consumer base. In addition to adding Fandango, Stitch Fix, 1-800-Flowers, TodayTix and TicketNetwork to our growing list of merchant partners offering Venmo as a way to pay, we continue to enrich the Venmo experience by making it even more engaging and personalized. In the second quarter, we added Bitmojis to the Venmo app allowing users to include a personalized Bitmoji along with the payment notes of their Venmo transactions. As we work to improve the financial health of hundreds of millions of people across the globe, I'm thrilled that we recently expanded Xoom into 32 new send markets throughout Europe. Customers across Europe can now use Xoom to send money, pay bills, or reload phones to more than 130 markets internationally. Launching Xoom's full capabilities globally is an important development for us as our upgraded tech platform increasingly allows us to deploy capabilities across multiple countries as opposed to the country-by-country rollouts we've previously deployed. This quarter, we announced the PayPal commerce platform, a new solution that will help our merchants drive their sales volumes in the digital commerce era. The PayPal commerce platform is designed to meet the specific needs of marketplaces, e-commerce platforms, and crowd-funding sites by bringing together a comprehensive set of technologies, tools, services, and financing solutions for businesses of all sizes. Powered by PayPal's unique two-sided network, the PayPal commerce platform provides nearly any business access to a flexible, customizable suite of services that enables global growth, simplifies compliance, provides risk protection, and empowers their end-to-end payment capabilities. Our business financing solutions are another way that we're helping businesses grow and achieve their ambitions. This quarter, we began offering our PayPal business loan product to PayPal merchants in Canada, allowing them to access financing to build and sustain their businesses. This follows the expansion of our business financing solutions to Germany in Q4 2018 and to Mexico earlier this year in partnership with Mexican lending platform Konfio. Since launching our business lending solutions, we have provided access to more than $10 billion in funding through 650,000 loans and cash advances to more than 250,000 small businesses around the world. In June, the UK Competition and Markets Authority provided final approval of our acquisition of iZettle. We are now beginning to integrate iZettle's products and themes around the globe, which we expect will significantly strengthen PayPal's in-store presence. Finally, we continue to partner with leading technology platforms and financial institutions to reimagine financial services. We believe that the full potential of FinTech can only be realized through partnerships that leverage the best of our collective assets. In the quarter, we expanded our collaboration with Google to allow businesses to accept PayPal with Google Pay through their apps and websites. This feature is now available in all 24 countries where Google Pay supports PayPal as a payment method. We both solidified and extended our global partnership with Uber and also announced that we intend to explore future commercial payment collaborations including the development of Uber's digital wallet. As part of this agreement, we invested $500 million in a private placement and we are excited about deepening our relationship with this innovative partner. We are almost complete with our MercadoLibre commercial agreement. This will significantly deepen our strategic relationship and expand our international scope and scale. We expect this to include integration of PayPal into the MercadoLibre marketplace, opening our merchant network through our smart payments button platform to MercadoPago customers and linking our respective consumers together for peer-to-peer and international remittances. These developments represent significant milestones on our journey to be the worldwide payments platform of choice, helping to enable global commerce by connecting the world's leading marketplaces and payment networks. These are complex multifaceted partnerships and they take multiple quarters to come to fruition. As we've deepened these relationships, we are frequently seeing the opportunity to deploy capabilities well beyond our initial scope. While the scope expansion has delayed some of our initially planned deployment dates, it bodes well for the ultimate scale of these initiatives. And while these delays have slightly affected our revenue guidance for the year, we remain confident that the majority of these will be implemented by year-end. We are also raising our EPS guidance for the year and expanding our operating margin, and we are confident in the medium-term targets outlined at our Investor Day last May. We have no shortage of opportunities in front of us, and we look forward to shaping an exciting future with our partners, customers, and employees. And with that, I'll turn the call over to John.

Thanks, Dan. I would like to begin by expressing my gratitude to our customers, partners, and global team for their contributions to another strong quarter. We achieved solid financial and operational performance, with a 22% increase in non-GAAP operating income to $998 million and record highs in both operating margin and its expansion. Additionally, we generated over $1 billion in free cash flow, reflecting a 40% growth on a normalized basis. Our operational metrics, including new active accounts, engagement, and total payment volume, are performing well. Our results highlight the robustness of our platform and the ability of our model to scale. Revenue for the second quarter rose 12% on both a spot and currency-neutral basis to $4.31 billion, and if we exclude the sale of U.S. receivables to Synchrony, revenue growth was around 19%. Acquisitions added about 1.8 percentage points to our revenue growth this quarter. However, the stronger dollar slightly impacted revenue, resulting in a $35 million headwind. U.S. revenue grew 7% compared to Q2 2018, and roughly 20% when adjusting for the credit receivable sale. International revenue was up 18%, and transaction revenue increased by 17% during the quarter. Revenue from other value-added services dropped 21% due to the receivable sale but grew nearly 30% on a normalized basis. Additionally, we recognized $58 million in revenue from Synchrony related to loan servicing and collections, as they took over these services at the end of June. Moving forward, we will not see revenue benefits from these services. In the second quarter, the transaction take rate was 2.25%, down 13 basis points compared to Q2 2018. A significant portion of the decline was due to strong growth in peer-to-peer transactions. The ongoing challenges in eBay's Marketplaces business and pressure from the stronger dollar on some key cross-border transactions also contributed to this decrease. The total take rate in Q2 declined 27 basis points year-over-year, with about 60% of this decline linked to the credit receivable sale. The same factors that impacted transaction take rates also led to the drop in the total take rate, although both benefited by around five basis points from revenue linked to our hedge gains. Volume-based expenses rose 15% in Q2 to $1.9 billion. The transaction expense was 94 basis points as a percentage of total payment volume, improving by four basis points year-over-year and two basis points sequentially. This reduction was mainly due to the timing of benefits from volume incentives recognized in the third quarter last year. We anticipate that our transaction expense as a rate of total payment volume will range between 95 and 98 basis points for the rest of the year. Transaction loss was 14 basis points of total payment volume, down five basis points from Q2 2018 and four basis points sequentially, driven by enhancements in our risk management capabilities. Loan losses remained consistent at four basis points of total payment volume. Transaction margin dollars increased by 9% to $2.4 billion in Q2, with transaction margin as a rate at 55%, which is approximately 120 basis points lower than Q2 2018. The credit receivable sale has significantly influenced the decline in transaction margin dollar growth over the past four quarters. We expect growth to pick up in the second half of 2019, aligning with rates reported before the Synchrony announcement. Non-transaction-related expenses rose by 2% compared to last year, with growth impacted by the lapping of held-for-sale accounting changes and an increase in costs due to our 2018 acquisitions. Normalizing for these factors, non-transaction expenses grew by 6%. On this adjusted basis, we achieved 300 basis points of operating leverage, with these expenses increasing by only $0.11 for every dollar of revenue growth, reflecting our ability to grow with low incremental costs. We are satisfied with our operational discipline and cost management across our business. Our scale provides us with leveraged opportunities. On a non-GAAP basis, operating income for the second quarter rose 22% to $998 million, and our operating margin expanded by approximately 200 basis points from Q2 2018. Adjusted for 2018 acquisitions, operating income grew by 24%, and our operating margin expanded by 280 basis points this quarter. Other income increased by $201 million, largely due to a $187 million rise in net unrealized gains from strategic investments, contributing about $0.14 after tax on a per-share basis. $0.01 of this benefit was previously included in our EPS guidance from April, while the remaining $0.13 was not anticipated and primarily arose from our investments in MercadoLibre and Uber. In line with our previous earnings call discussions, we shared the anticipated impact of these unrealized gains on our second quarter earnings in an 8-K released on July 9th. Non-GAAP EPS for Q2 increased by 47% to $0.86; after adjusting for unrealized gains of $0.14 this year and $0.02 last year, non-GAAP EPS grew by 27% in the quarter. Our strong EPS results reflect operational excellence, driven by solid revenue growth, efficiencies, and cost management, all making significant contributions. We concluded the quarter with cash, cash equivalents, and investments totaling $10.7 billion. Furthermore, we produced over $1 billion in free cash flow, approximately $0.24 for every dollar of revenue. Now, I’d like to outline our updated guidance for 2019 and the third quarter. For the full year, we are raising our earnings outlook while lowering our revenue guidance, which I will elaborate on shortly. We now anticipate non-GAAP earnings per share to grow between 29% and 31%, translating to a range of $3.12 to $3.17. This revised earnings guidance reflects our strong performance in the first half of 2019 and factors in the unrealized gains recognized from our strategic investment portfolio. As a reminder, these investments may introduce earnings volatility throughout the year. Following the quarter's end and before our earnings release, we plan to continue disclosing the effects of these investments on our performance. We also anticipate an expansion of our non-GAAP operating margin by about 100 basis points this year, illustrating our ongoing capacity to scale our business with incremental costs. For the full year, we are adjusting our revenue outlook to a range of $17.6 billion to $17.8 billion, down from the previous range of $17.85 billion to $18.1 billion. This updated range signifies a growth of 14% to 15% for the year and, after accounting for the receivable sales, an 18% to 19% growth. Several key factors have influenced these revisions since our last guidance update in April. First, as Dan mentioned, we are encountering delays in several large product integrations with partners, partly due to an expanded scope. Second, our earlier guidance assumed the implementation of specific price changes that we are now postponing. While the timing has extended by a few quarters, we still expect to realize the complete benefits of our partnership and pricing strategies. Lastly, around 20% of our volume is cross-border, impacted by fluctuations in foreign exchange rates. We now expect that ongoing strength in the U.S. dollar will affect our revenue in the second half of the year more than we previously anticipated. These adjustments to our 2019 revenue expectations primarily relate to the timing of various initiatives. Our medium-term projections for revenue and earnings, as communicated in May 2018, remain unchanged. For the third quarter, we estimate revenue will be between $4.33 billion and $4.38 billion, which represents 18% to 19% growth on a currency-neutral basis. We expect non-GAAP earnings per share to fall between $0.69 and $0.71, indicating a growth of 20% to 23%. Our third quarter EPS guidance includes an estimated benefit of $0.03 from unrealized gains expected to be recognized during the quarter. In conclusion, we are pleased with the advancements we are making across multiple areas. We are progressing with our strategic priorities while sustainably enhancing our cost structure. The cash flow generating strength of our business continues to provide us with significant flexibility as we allocate capital judiciously. Our focus remains on delivering value for our shareholders and solidifying our status as the leading digital payments platform for our customers. Now, I will turn it over to the operator for questions. Thank you.

Hey, great. Good afternoon, guys. Just wanted to start with a question on the revised revenue outlook. So we're taking, I guess, about $300 million out, and John, you walked us through three factors driving that. Any way you can kind of give us the relative sizing on those factors? And then, if you could also just elaborate on some of the comments you alluded to about these revenues absolutely being delayed, not lost. Are we interpreting that properly, and should we assume that the lion's share of this essentially ends up getting recognized in 2020, or does some of it bleed into 2021? We'd love some more color on that. Thank you.

Sure, Jason. So without being specific on any one of the three items I've mentioned, I would say that the magnitude of them are in the order that I laid them out: product integration first; pricing second; and then macro FX being third. I think, to address your last point, we expect to realize the full 100% of the benefit from all of these. This is simply a delay in the realization of those benefits until 2020. I'll emphasize that when you're a company our size that is growing at the rate that we are, oftentimes we have to make educated guesses about the timeframe of a lot of these launches taking place. Sometimes, we do better than what we expected. Sometimes you get into something and you see scope expansion because of good opportunities or more complexity, and that results in a delay such as the case that we're seeing right now, but we still have a lot of excitement about what these opportunities present for us and do expect to realize the full benefit on a run rate basis.

Let me just jump in on this, Jason. Appreciate the question. Yes, this is a matter of when, not if. And when we talk about when, we're talking about the next several quarters. And so for us, we feel like we had strong operational performance in the quarter. If you look at our net new actives, those were up by 17%. If you look at our engagement, again up by 9% plus. You look at just little things that actually matter a lot like our risk improvements that we've put into place, part of that is the result of acquisitions that we've done with Simility that's lowering our risks and helping our losses. These are all very sustainable types of things, and that, while the revenue is delayed, it's certainly not lost. In fact we're confident all of that revenue will come in. The margin improvements are more permanent. And because we're just seeing those, this isn't taking away expenses from one thing to improve margins. These are sustainable margin improvements based on either better experiences that we're putting out or just better capabilities that we now have in the business. So I would say, we feel really good as we look forward on this. It's unfortunate that some of these are slightly delayed, but I'll give you an example. One of these that were delayed was Paymentus. Paymentus is an extremely large strategic partner of ours. It is a brand-new vertical and we're putting into our stack. It involves integrating all of their multiple pillars into our platform, involves integrating them into our app, and is a massive partnership for us. It's going to take a little bit longer than we thought, but everything we hoped for is there and actually more. So it's just a good example. We probably underestimated the amount of work it would take to go and do that, and there is also as John mentioned a lot of scope expansion that occurred. But it's a great partnership and we'll have other bill payment players that will join as well. And so, this is a matter of revenues being delayed, not lost, and we're trying to do this in a way that assures that when we do implement whether it's partnerships or pricing changes, they're done in a world-class manner. And so, I don't want to jam something in, in the quarter. I want to make sure that we're building the right sustainable long-term things for this business. And if we've got to delay something a quarter or two, so be it to make sure that we do this the right way.

Okay, understood. Thank you.

Thanks. Good afternoon. I want to ask on margin again. It looks like you were able to take the bottom line up by showing a little more operating leverage against the lower revenue outlook. So what levers exactly are you pulling to make this happen? Are you sacrificing growth investments to do it? And I guess very importantly here for a lot of us, do you have more margin levers available to you in the event revenue continues to face delays? Thanks.

Hey Tien-Tsin, thanks for the questions. I'll start and Dan may want to add a couple of things, but let me start with the headline that we are not turning away growth opportunities to achieve the leverage and the operating margin expansion that we have in business. We believe that we've got significant opportunities. And we've talked a lot about these in the past, things like what we're doing around customer service for example, how we're driving the contact rate down, how we're actually lowering the cost of that service. Even the very way that we develop product, we're becoming more efficient at. And then, you have to also remember over the last four years, we were propping up an independent public company, and that requires investment in things like compliance and a lot of the back-office functions. And so those are largely behind us. And so what you're beginning to see right now is the realization of those economies of scale. That said, I think fundamentally the main point here, but there's also an added point that I would point to this quarter, which is slightly different than what you've seen in some of the more recent quarters, and that's what we've done in our volume-based expenses. So if you look at both transaction expense and transaction losses, they appreciably declined as a rate of total payment volume from the prior quarters. Now, I called out the reasoning for the transaction expense decline, and that's certainly more of a transitory nature and sort of a timing impact on that, but transaction losses is one that has the potential to become more permanent. Now, one quarter does not make a trend, so I don't want to call this out as what we should expect going forward, but this was driven by improved modeling and capabilities that we have in our fraud detection and risk management. And so, we are very encouraged about that. And as we begin to or we continue to refine those models over time, hopefully that type of decrease in the rate of losses for total payment volume is something that can become more sustainable for us.

Yeah. I'd just add on top of that. When I look at like for instance our Q2 revenues, we're right in the range that we predicted. And we would have been at the high-end of the range were it not for some of these FX headwinds. And as everyone on the call knows, FX headwinds can be against you one quarter and with you another quarter and that's why we give a range on that. Even with that, we still grew our revenues by 19% on a normalized basis, EPS was up 27%, and we generated more than $1 billion of free cash flow. But most important to me the operational metrics that we really look at whether it be net new actives, whether it be engagement, whether it be total payment volume were all close to records for us. Like total payment volume excluding Marketplaces or eBay was up 30.2%. I think that's like in the last six quarters is like at a high before that or tied for high in the last six quarters. So when I think about our revenues, and I think about our operating metrics and what the drivers of those are, they're all really quite strong. Yes, there are delays in some of these key partnerships and these key partnerships will drive a lot of revenue, but those key partnerships will happen. We're well underway. We understand exactly what the critical path is going forward on that, and the pricing as well. We have pricing. It's both up and down, but when we put pricing out there, I want to make sure that it's transparent, it's easy to be understood, and we have all of our processes in place to support any pricing changes that we might make and just be sure we execute in a world-class manner. So I think not only do I think the margin improvements are sustainable, and as John mentioned, potentially there are quite a bit more to be found, but the drivers of our revenue are quite strong and I anticipate those to stay that way.

Understood. Thank you.

Yeah. Thanks, Tien-Tsin.

Thank you, everyone. When looking at the medium-term outlook, it seems that the revenue perspective appears to be more short-term based on what you've shared. However, as you mentioned, Dan, the underlying drivers are quite robust. In fact, I believe they are stronger than what your typical medium-term guidance indicates regarding total payment volume, net active growth, and engagement levels. First off, could you clarify if you still see the same sustainability in the drivers you've mentioned? What gives you the confidence that they will continue in the next year or two? Additionally, regarding the partnerships, it seems these present significant opportunities. Could the combination of new active growth and these drivers lead to a substantial reacceleration in 2020?

I believe the drivers of the business are not only sustainable but have the potential to improve further. We've experienced strong growth in our net new actives, with 41 million over the past year, and nine million this quarter, representing a 17% increase. Our total active users have reached 286 million, also up 17% year-over-year, and we now have 23 million merchants on the platform, adding almost one million merchants each quarter. Both PayPal and Venmo are accelerating compared to last year. The network effect is becoming significant; merchants feel the need to be part of our network due to the high number of consumers wanting to use PayPal or Venmo for payments. On the consumer side, many merchants are accepting our services, reinforcing this network effect. While many people view net new actives as the top of the funnel, our large base makes the churn rate equally important. Improvements in customer experiences, through options like additional monetization efforts for Venmo and enhancements to our app, are helping to reduce churn, positively influencing our net new actives. We're just starting our global expansion, generating net new actives from markets like Brazil, India, and Japan, with significant partnerships with MercadoLibre and Uber on the horizon. We've expanded Xoom to 32 new send markets and have plans for further international entries. I see our net new actives as sustainable, and possibly better than current levels. Engagement is also improving. For instance, new net actives on Venmo are engaging more than previous ones, especially with monetizable services. This trend is reflected in increased engagement and revenue. Venmo has shown strong quarter-over-quarter revenue growth, exceeding both our budget and forecasts. I'm very pleased with the team's efforts and anticipate further monetization initiatives later this year.

Darrin, I would just add a couple of points, I think, to emphasize some of the items that Dan spoke to, but when you ask, like, what gives us confidence in our medium-term outlook, I put it in three categories. The first is that our business is performing very well. If you take our quarterly results, growing revenue 19%, another quarter of 9 million net new actives, expanding operating margin to 200 basis points, the type of cost performance that our core business is performing well. The second, as Dan mentioned, is that one of the best indicators about the future of our businesses is the new cohorts of customers that we're bringing on. And we are seeing those cohorts be more engaged than the previous cohorts. And the third category, I would put broadly into just the opportunity set that we have. So when you look at things like the partnership with Paymentus or Facebook, or what we're doing in Venmo, what we're doing from a product development standpoint around reward points and card recovery, all these opportunities and more that we haven't listed give us a lot of conviction about our ability to continue to deliver on that medium-term guidance.

Yeah. And to your point, Darrin, when you think about something like Paymentus and what the revenue opportunity is there, it is quite significant, because we're entering into a brand new vertical. And when we're entering into a brand-new vertical, it's a lot of work to get it done, but the reward is quite large and commensurate with that work as well.

All right. That’s really helpful. Thanks guys.

Yeah. Thank you, Darrin.

Hi, guys. Just want to follow up on the pricing changes that are now delayed. I guess, where were the pricing changes delayed and why? And then, when does it get implemented now?

Hi, Bryan, I'll start with that. This is John. We made some changes to our user agreement that allowed us the ability to make certain pricing changes. And I would emphasize that I think sometimes the knee-jerk reaction is to assume that all price changes are up. Sometimes we can decrease prices to go after more volume. So we haven't been real specific about what those are, but when we implement a price change, we always want to have that associated with a value proposition to the customer. And when we took a step back and we looked at the effort to improve some of those customer experiences around those price changes, it was more complex than what we imagined, and we want to be measured as we roll this out. I think a theme that you'll continue to hear from us is like we are trying to build a great company over the long-term and we're not going to be so rigid and pushing products out to market or otherwise that we do something that is not to the standard that we hold ourselves to. And so generally, that's how we're thinking about some of these pricing changes. We would expect though to go forward with these price changes and perhaps others, either at the tail end of this year, or early 2020 and realize the benefit from them.

Yeah. I'd just add on to John's comments, because I think we're right on. Look, pricing is like an ongoing journey for us. We're always assessing better, maybe more transparent ways to serve our customers. We are always looking at the market dynamics out there, evolving practices of our competitors, and then we look at the value we provide and we try to price appropriately based on those factors. And as John said, we're absolutely determined to be sure that anything we put out into the market that the experience is a great one. So understand both transparent, we've got all the support necessary for it, and we'll make sure that happens. But as John said, we do anticipate all of these go into effect over the next several quarters.

Got it. Thanks for taking the question.

Yeah.

Thanks so much. You highlighted that Venmo was exceeding your revenue growth forecast. Can you give us some color on where you stand with the biggest drivers in terms of monetizable experiences whether it be instant withdrawal, Venmo debit card or a Pay with Venmo with merchants?

Sure, David. I'll take that. If you look at the composition of the various ways that we can monetize Venmo, it hasn't changed that much from previous quarters. To date, still instant withdrawal is the largest contributor of monetization for us, and then the other half roughly is split between Venmo card and Pay with Venmo. We do expect those to change over time as we've said previously to where ultimately pay with Venmo will be the largest contributor of how we monetize Venmo. So in terms of the progress there, I would say that, when we look at all of the initiatives that we've implemented this year or have made progress on this year, this is one probably that stands out as performing better than what we initially expected going into the year. I don't want you to misread my comments. I don't think it's appreciably different from what we talked about, but certainly better than what our initial expectations are. So we're still very pleased about the progress that we're making there and it's well on track with our expectations.

Thank you.

You bet.

Great. Thank you. As we think about the string of deals that you announced back in the spring with Uber, MercadoLibre, Facebook, even iZettle's clearance, is there a benefit to the 2019 revenue expectations or guidance from those deals? Or maybe just more broadly when and to what degree do you expect to begin to see an impact from that spring of deals?

Yes. So I'll start off and then maybe John will talk. I think we'll talk a little bit more about next year on our next call. But overall, those are two relationships that we would do time and time again. MercadoLibre is going to significantly enhance our international scale and scope. We see a tremendous amount of opportunity as we integrate our two networks together. If you think about it just in big generic terms, we'll have some 500 million people on our combined network together. MercadoPago customers will now be able to access PayPal merchants around the world. PayPal consumers will be able to buy from MercadoLibre marketplaces merchants. And we're very excited about the potential of linking wallet to wallet on international remittances as well. And so we see a tremendous amount of learning we'll get from each other and a tremendous amount of incremental opportunity as a result of that. Uber, we already had a very strong relationship, but this not only solidifies that relationship, but we're in deep conversations with them on how to expand the extent of our partnership and to help them drive growth and experiences that they want for their customers and our mutual subscribers. And so that is really quite a bit of an everyday use case for us. We think that will help on both engagement metrics for us both on the Venmo and the PayPal site. These other partnerships that we have certainly going to add to our volumes and our capabilities, we have a lot of high hopes for what bill pay can do. It's obviously a huge vertical. We've had numerous people talk to us about it. Our customers are clamoring for it. We'll do full-step processing around that as well. So it will drive quite a bit of incremental volume and revenues for us. As John has mentioned numerous times, partnerships like Facebook take time to develop and to move forward. Facebook like us wants to assure that they have the right experience, but when you look at the volumes that can be driven there, we'll be measured and how we think about it as we look at next year, but we're excited about that potential.

If I may add just one thing, as it relates to capital allocation some of the acquisitions that we've already made. And so, I think sometimes what is overlooked is the opportunity for a compounding effect with multiple of these acquisitions. And so I'll give you two examples. The first are the acquisitions of Hyperwallet and Simility which provide capabilities like payouts and risk-as-a-service. That enables us to provide a more comprehensive suite of services and a new product rollout like PayPal Commerce Platform, very important to that. Second example would be something like iZettle. So, I think it's generally acknowledged that Latin America is an area that we are less strong. Certainly, that influenced our strategic investment in MercadoLibre, but iZettle has a presence in Latin America. And so, we can build upon these complementary capabilities from either the partnerships or acquisitions that we've taken to strengthen our presence in some of these geographies where we are less strong today.

Great, Dan and John, really appreciate that.

Yes. Thank you.

Hey, thanks. Thanks for squeezing me in guys. Maybe just building on that capital allocation theme, I think John you guys didn't buy back any stock this quarter. How are you thinking about the buyback going forward relative to some of the other capital allocation priorities M&A and like?

Sure, George. It's good to speak with you. So, if you go back to May of last year, where we laid out our capital allocation priorities, they still remain the same. And that's over that medium-term timeframe of the next call it three to five years. We expect that approximately 40% to 50% of our free cash flow will be used to return to shareholders and that we will spend on average about $1 billion to $3 billion a year with acquisitions and strategic investments. Now, as I'm sure you appreciate that we are going to be optimistic from one quarter to the next. And sometimes, there are competing priorities in a quarter. And also times, it's worth noting that because of things we may be working on, we may be subject to blackout dates as well, in terms of when we can go buy back stocks. So I would discourage you from reading too much into the fact that we didn't buy back stock. We still intend to buy back the amount that we've talked about. But again, we I think we have the sort of fortunate position to be opportunistic given the opportunity set that's out there in the industry, and so we'll kind of bounce around from one quarter to the next with how we allocate capital, but over that medium term, we'll stick to those tenets that we've provided.

Thanks very much George for that question. And thank you everybody for joining us today. We really appreciate your time, and we look forward to speaking with all of you soon. Thanks.