PayPal Holdings Inc (PYPL) — Q4 2020 Earnings Call Transcript

Thank you, Gabriel. Good afternoon, and thank you for joining us. Welcome to PayPal’s earnings conference call for the fourth quarter and full year 2020. 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 on the Investor Relations section of our website. In discussing our Company’s performance, we’ll refer to some non-GAAP measures. You can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. 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 the first quarter and full year 2021. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our results in our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC and available on the Investor Relations section of our website. You should not place undue reliance on any forward-looking statements. All information in this presentation is as of today’s date, February 3, 2021. We expressly disclaim any obligation to update this information. With that, let me turn the call over to Dan.

Thanks, Gabrielle. And thanks, everyone, for joining us today. I’m pleased to report that PayPal just completed the strongest year in our history, achieving record growth in net new active customers, volume, revenue, operating income, earnings and free cash flow. Consumers and businesses of all sizes have embraced a new digital era, erasing the distinction between online and offline. A digital-first world is no longer our future. It’s our current reality, and it will forever change the way we interact across almost all elements of our lives. At the beginning of the pandemic, consumers in lockdown had no choice but to do all of their shopping online. Today, the vast majority of consumers state that post pandemic, they will continue to shop online at their current elevated levels because it is more convenient, easier, and saves time. Retailers are rapidly adapting to a new landscape, adjusting their strategy from encouraging consumers to visit their stores to optimizing for home delivery. The pandemic has accelerated a digital wave of change across almost every industry by three to five years, unleashing a profound and permanent structural transformation. Our results in Q4 highlight these strengths. In the quarter, we added 16 million net new active customers, including an incremental 1.4 million new merchants. For the year, we delivered a record 73 million net new actives, ending the year with 377 million active accounts, up 24%. And we now have over 29 million merchants interacting with nearly 350 million consumers. In 2021, we expect to add another 50 million net new active accounts. Equally important, our daily active users remain elevated versus a year ago, up 29% from Q4 of 2019. Our expanding scale and increasing engagement drove a record 4.4 billion transactions in the quarter, up 27%. Our total payment volumes in Q4 were $277 billion, up 36% on an FXN basis. Our TPV excluding eBay was up a record 40% as we continue to gain market share. eBay TPV grew at 1% and exited the year at just under 6% of our total volume. For the full year, our TPV was up 31% to $936 billion. In Q2 of 2020, our quarterly revenue surpassed $5 billion for the first time. In Q4, we surpassed $6 billion for the first time, with our quarterly revenues growing by 23% to $6.116 billion. For the year, our revenues grew by a record 22% on an FX-neutral basis to $21.45 billion. Our non-GAAP EPS grew a record 31% to $3.88, and our free cash flow increased by 48% to $5 billion. Venmo continued its strong performance with Q4 TPV of $47 billion, up 60% year-over-year. Venmo’s customer base grew by 32% in 2020, ending just shy of 70 million active accounts. This continued momentum reinforces our conviction that revenues will approach $900 million in 2021. In early January, eligible customers were able to cash their stimulus checks within the Venmo app for the first time. Later this month, our Venmo credit card will be available to 100% of our base. And in the coming months, we will launch the ability to buy, hold and sell crypto via the Venmo app. And finally, our revamped Pay with Venmo experience will launch in Q2, offering a best-in-class checkout experience. Today’s digital reality is rapidly accelerating the need for a digital wallet that encompasses payments, financial services and shopping. This year, our digital wallet will change more than it has ever changed before, significantly increasing its functionality within a single, integrated and beautifully designed app that should meaningfully increase consumer engagement. In 2020, we made significant progress in expanding the functionality of our PayPal and Venmo wallets. We added the ability to buy, sell and hold crypto currencies, the option to buy now and pay later, direct deposit, check cashing and bill payment capabilities. We introduced Venmo and PayPal QR codes for in-store purchasing as well as our Venmo credit card. This year, we expect to work with our financial industry partners to introduce even more functionality, including budget and savings tools, investment alternatives, including, but not limited to crypto, and enhanced bill pay options. We also intend to fully integrate the entire suite of Honey’s shopping tools, including wish lists, price monitoring, deals, coupons and rewards for use in the physical and digital worlds. I’m very pleased with the early reception of our PayPal and Venmo QR codes, which are now accepted at over 600,000 retail locations. In 2020, we signed 29 large enterprises, including CVS, Foot Locker, Nike, Five Below, Levi’s, Bloomingdale’s, Macy’s and Uniqlo, and our early in-store results are encouraging. Merchants are experiencing double-digit increases in average basket sizes with consumers who frequently use our QR codes. And we are seeing a 19% increase in TPV from consumers who use our QR codes. Across all of our in-store efforts, including QR, tap and pay and cards, we processed over $20 billion of TPV, with almost 10 million consumers using PayPal in store. We also saw an exceptional response from our crypto launch. Even with high initial expectations, the volume of crypto traded on our platform greatly exceeded our projections. We are excited to build upon this early success by allowing customers to use their crypto balance as a funding source whenever they shop at our 29 million merchants. We anticipate the rollout of that capability to begin late this quarter, and we hope to launch our first international market in the next several months. These initial steps are just the beginning of an extensive road map around crypto, blockchain and digital currencies. We are already working with regulators and central banks to reimagine and shape the next-generation of the financial system as consumers no longer want to handle cash. We all know, the current financial system is antiquated. And we can envision a future where transactions are completed in seconds, not days, a future where transactions should be less expensive to complete and a future that enables all people to be part of the digital economy, not just the affluent. We are significantly investing in our new crypto, blockchain and digital currencies business unit in order to help shape this more inclusive future. I would also highlight the rapid growth of our Buy Now Pay Later functionality. We saw tremendous and growing demand throughout the quarter, and witnessed the fastest start to any product we have ever launched. Millions of consumers transacted at hundreds of thousands of merchants in Q4 alone. As with QR codes, we are seeing a meaningful halo effect on overall transactions and TPV, including over $750 million of TPV in our first quarter out of the gate. It’s exciting to see that each new service we launch drives incremental increases in our overall consumer lifetime value. Consequently, I would expect that our engagement levels will increase beyond our historic run rates. I’m proud to see that the PayPal platform was especially leveraged during the pandemic for philanthropic giving and community support, enabling over $17 billion for charities and those in need. And we also put our $535 million commitment to black and minority-owned businesses and communities into action. We have already invested over 50% of those committed dollars, and we plan to report on their impact as results come in. We have entered the next chapter in PayPal’s history. The efforts of our employees, along with the investments we have made over the past five years, have transformed our technical and compliance infrastructure, enabling rapid product development. We released more products and services in 2020 than in any previous year, and we will step up that pace in 2021. Merchants and consumers are turning to PayPal in record numbers as we accelerate into the digital age. Our opportunities over the next five years have never been greater. We remain focused on democratizing financial services, assuring that everyone has access and can thrive in the new digital paradigm. We intend to shape that future, and in doing so, become one of the world’s leading digital payments, financial services, and commerce platforms. I look forward to expanding on this vision during our Investor Day next week. With that, I will turn the call over to John.

Thanks, Dan. I want to start off by thanking our customers, partners, and employees for helping us deliver a record-breaking year. 2020 was pivotal for PayPal and the broader payments industry, marked by rapid acceleration in digitization, cash displacement, and e-commerce adoption. These secular trends have been shaping our sector for some time. That said, the rate of change we experienced last year, resulting from the widespread implications of the COVID pandemic, was profound and transformative. Crisis, which has led to hardship and suffering for so many, increased the urgency across our organization to serve our customers in new and innovative ways. Notably, the isolation defined by lockdowns and working from home actually resulted in greater collaboration and brought our teams closer together. We’ve entered 2021 energized by a greater sense of purpose and responsibility and ready to build on our strong momentum. Now, to our fourth quarter results. Total payment volume grew 36% on a currency-neutral basis. This is the strongest quarterly growth we reported in history and represents 14 points of acceleration from 2019. Our merchant services volume grew 40%, another record for PayPal, accelerating each quarter in 2020. Volume contribution from eBay Marketplaces continued to decline. We exited December with eBay representing less than 6% of our overall volume. Revenue in the fourth quarter increased 23% on both a spot and currency-neutral basis to $6.1 billion. Relative to the fourth quarter of 2019, U.S. revenue grew 18%, and international revenue grew 29% as the U.S. has a greater proportion of revenue from credit and the travel and events verticals. Transaction revenue grew 25%, representing 8 points of acceleration from last year on a spot basis. This growth was primarily driven by strength across our core PayPal business, including strong cross-border activity. Our core payments platform continues to deliver exceptional growth, with transaction revenue, excluding revenue from eBay, growing 30% in the fourth quarter, also an acceleration of 8 basis points from 2019. Other value-added services revenue increased 1% on a currency-neutral basis, reflecting incremental Honey revenue, offset by lower interest income on customer balances and less credit revenue. Honey contributed approximately 1.7 points of growth to total revenue and approximately 20 points of growth to other value-added services revenue. In the fourth quarter, transaction take rate was 2.05%, and total take rate was 2.21%. The 22 basis-point decline in transaction take rate resulted primarily from changes in volume mix with eBay’s contribution continuing to decline, bill payment, and P2P volumes accelerating and a reduction of $97 million in international transaction revenue from foreign currency hedges. The 28 basis-point decline in total take rate resulted from these factors as well as lower value-added services revenue. In the fourth quarter, our volume-based expense performance was exceptional. These expenses delivered 216 basis points of leverage in the quarter, increasing 18% to $2.7 billion. Transaction expense improved 12 basis points as a rate of TPV to 84 basis points, driven by both volume mix and funding mix. Transaction losses improved 5 basis points to a record low rate of 10 basis points. Credit losses were 3 basis points as a rate of TPV. Our credit loss reserve coverage ratio at the end of the quarter was approximately 23%, decreasing slightly from the third quarter. The combination of strong revenue and volume-based expense performance resulted in transaction margin dollars increasing 28% to $3.4 billion. In the fourth quarter, we generated incremental transaction margin dollars of $753 million, more than 2 times the incremental contribution last year. Non-transaction-related expenses grew 28%, reflecting increased investments in our key strategic priorities as well as growth related to our acquisitions. This higher level of investment contributed to a 56% increase in sales and marketing expenses and a 27% increase in technology and development spending in the quarter. Leverage across customer support and operations, and general and administrative expenses partially offset this increased level of investment. On a non-GAAP basis, operating income in the fourth quarter grew 29% to $1.5 billion. Our operating margin was 24.7%, expanding more than 100 basis points and representing our strongest performance for any fourth quarter. We continue to demonstrate our ability to deliver operating efficiencies and scale our platform at a low incremental cost, while investing in our strategic growth priorities. Non-GAAP other income declined by $62 million relative to last year, driven by reduced interest income from lower interest rates and higher interest expense from our debt issuance last May. The negative impact on non-GAAP EPS from the decline in other income was offset by a lower effective tax rate. For the fourth quarter, non-GAAP EPS grew 29% to $1.08. We ended the quarter with cash, cash equivalents and investments of $19.2 billion. In addition, we generated $1.1 billion in free cash flow, representing 50% growth from the fourth quarter last year. I’d now like to discuss our guidance for the full year and the first quarter. We’ve just completed the strongest year in our history, achieving record growth in net new accounts, volume, revenue, operating income, earnings, and free cash flow. We delivered these results while absorbing meaningful macroeconomic headwinds affecting our credit business, the revenue and income effects of lower interest rates, idiosyncratic pressure on the travel and events verticals, and the initial step down of volumes from eBay, post operating agreement. These headwinds persist as we move into 2021. And yet, our core business continues to perform at unprecedented levels. Our addressable opportunity has never been more expansive, and we’re confident we’ve never been better positioned to capture the benefits of this accelerated secular growth. We believe the effects of the pandemic on consumer behavior and business transformation are enduring and sustainable. We also expect e-commerce to drive continued strong payment volume and transaction growth globally. While it appears that additional stimulus measures will support the path toward a more sustained economic recovery, the backdrop continues to evolve and much remains uncertain. And as we’ve commented on several occasions over the past nine months, we’re focused on balancing transparency with certainty as we develop our outlook. It’s with these considerations that we’re providing our full year guidance, which is our best estimate at this time. For the full year, our plans contemplate TPV growth in the high-20% range. We expect to generate revenue of approximately $25.5 billion, representing growth of approximately 19%, based on current spot rates. Included in our guidance is a headwind to revenue growth of approximately 400 basis points from eBay’s managed payments transition. In addition, our current forecast contemplates an approximate 200 basis-point impact from foreign currency translation as the U.S. dollar has weakened relative to 2020. As we’ve discussed previously, in 2021, we will absorb the greatest revenue impact from the loss of volumes from eBay. In the face of this pressure, we’re pleased to be guiding spot revenue growth at 19%. Equally important, once we are beyond the eBay transition, we expect our rates of growth for total payment volume, revenue and earnings to accelerate. In 2021, we also expect to deliver approximately 17% growth in non-GAAP earnings per share. This earnings guidance contemplates ongoing elevated levels of organic investment. We believe the structural tailwinds for PayPal have never been stronger. To fully realize these opportunities, strengthen our competitive positioning, and advance our leadership in digital payments, sustained investment in our business is critical. Cost discipline, together with our ability to efficiently scale our payments platform, will allow us to generate modest operating margin expansion in 2021. In addition, we anticipate that below-the-line factors, namely higher interest expense and a higher tax rate in 2021 relative to 2020, will offset much of this margin expansion. For the full year, we expect to generate approximately $6 billion in free cash flow. Before I discuss our Q1 guidance, I’d like to contextualize how to think about the trajectory of our revenue and earnings performance for the year. This year, there are several dynamics that we believe will contribute to more durability in our year-over-year growth rates from quarter-to-quarter than our historic trends. These include lapping our 2020 performance, this year’s cadence of planned investments and product introductions, the roll-off of eBay volumes, and our timing expectations related to the recovery of travel and events volumes and of a more normalized growth in our credit portfolio. Underlying our guidance for 19% revenue growth on a spot basis is our expectation that we’ll report our highest rate of revenue growth for the year in the first quarter, followed by relatively stable but more moderate growth in the second, third and fourth quarters of 2021. Our full year earnings guidance of 17% growth also contemplates delivering the highest rate of growth in Q1. In the second quarter, we anticipate non-GAAP earnings to be relatively flat year-over-year, primarily due to the outsized EPS growth we experienced in Q2 last year, which exceeded 49% as well as the expected timing of our investment spend. Then, in the back half of 2021, we expect a meaningful and sequential reacceleration in earnings growth. Importantly, throughout the year, we expect the absolute dollar performance of our business to be very strong. As we move through the year, we’ll keep you updated on how we’re tracking relative to this expected cadence. Consistent with my earlier comments, in the first quarter, we expect revenue growth of approximately 28% on a spot basis, with non-GAAP earnings growth of approximately 50%. In summary, last year was a year like no other. But, in all of the turmoil and difficulty that people encountered, one thing was clear in our business, PayPal has never been more relevant and needed than we are right now. Our industry, our Company is moving forward. The next five years will be very different than the last five, and we’re striving to shape that outcome, that future, a future where e-commerce and digital payments are not just a fallback when one can’t make it to a physical store or doesn’t want to handle cash, but instead a necessity, a necessity that is sought out as the preferred way for people to transact every single day. It’s a future where I expect that our scale, our brand of trust and security, and our leading solutions for merchants and consumers alike, will allow us to continue to create immense value for all of our stakeholders. With that, I’ll turn the call back over to the operator for questions.

Good afternoon, guys. Congrats on the results. I wanted to ask about the new growth initiatives, and two-part question here, maybe one for John and one for Dan. First part is, does your guidance assume that the aggregate revenue contribution of these new growth initiatives will be enough to offset the 4% eBay headwind in 2021? And then, the second part is, among the various new growth initiatives, which have surprised you the most to the upside so far, and which did you perhaps think would be seeing a little bit more adoption to date than they have been?

Hey Jason, I’ll begin with the first part of your question and then pass it to Dan. Regarding how we plan to counter the challenges from eBay, the fact that we’re expanding our operating margins suggests we believe that the combination of our business momentum and the additional initiatives will help us manage the pressure from eBay. It’s important to note that all initiatives take time to develop. We expect to see the financial impact of most of our new initiatives in the second half of the year. However, when we combine that with the ongoing momentum in the business, it certainly helps us to overcome that challenge.

Jason, I'll address your second question. That's like deciding which of my favorite kids to choose, and none of the product managers would allow me to pick. We've launched several major initiatives, including in-store, crypto, and Buy Now Pay Later, and all of them have performed better than our internal expectations while also generating a positive halo effect. I mentioned that QR had a 19% halo effect. Crypto started strong and has continued to perform well. However, if I had to highlight one standout, it would be Buy Now Pay Later, which has exceeded my expectations the most. Since I've been here, I've never seen a product launch achieve such rapid scale. We announced our entry into the U.S. in October, and we already had nearly 3 million customers using Buy Now Pay Later, along with hundreds of thousands of merchants. That figure does not account for the total number of transactions; we also recorded a 40% repeat rate in the quarter. Customers are actively engaging with the service. We believe we offer a unique value proposition. With 350 million customers already trusting PayPal, our approval rates for Buy Now Pay Later are likely higher than our competitors. Furthermore, merchants incur no additional costs; unlike other competitors who impose significant fees, we charge the same take rate they already pay. The integration is very straightforward, which explains why over 10,000 merchants have added Buy Now Pay Later to their product pages, not just at checkout. We anticipate seeing more of this growth throughout the year. Additionally, the halo effect is still in its early stages, showing about a 15% increase in total payment volume, which we believe is entirely incremental for us. We are also observing a significant double-digit decrease in transaction costs. Considering the scale and value proposition, and the ongoing merchant adoption, this initiative has proven to be a tremendous success for us. While I don’t want to overlook my other initiatives, as they all had strong performances, Buy Now Pay Later has been the most surprising success.

Okay. Well, thanks for all the commentary.

I really enjoyed the presentation here. I wanted to ask on M&A, if that’s okay. I just wanted to check your appetite on acquisitions, and especially at this point of the cycle, given that so many of these digital assets have been inflated in terms of valuation during the pandemic here. And any change in your thinking around M&A? I saw on the slide you had some great detail on your strategic investments, but how about M&A?

Tien-Tsin, I’ll start and maybe Dan will jump in. But, I think, there’s two really important points to consider when we think about acquisitions for PayPal. The first is that we are somewhat unique in the FinTech ecosystem, in so far as we enjoy outsized growth rates, but we also are extremely profitable. And that results in the type of free cash flow generation with 20% plus free cash flow margins. And that uniqueness that allows us the ability to have this effectively an asset where we can go out and look at inorganic opportunities to complement what we’re doing organically. So, I think that’s one important point to think about. The second, and it really gets to your point around where some valuations are, but we exercise a tremendous amount of discipline in the way that we look at this. And from an overall capital allocation perspective, our view is, every dollar of capital has to compete with the other alternatives out there, whether that be organic or that be returning cash to shareholders or going out and acquiring a company. And so, we will remain disciplined and really view our acquisitive strategy over a multi-year longer term timeframe.

Yes. I’d just add to that, Tien-Tsin. If you think about our need for acquisition, it's really about our pace of organic innovation. And in 2020, we put out more product and services than we’ve ever put out before. I said in my remarks that we’re going to step up that pace in 2021, and we’re going to go do that. When I look at all the investment we’ve made over the past five plus years in our tech infrastructure and our compliance and risk management, what that’s enabled us to do now is pretty radically accelerate the amount of software releases that we have. We put out last year, between config release and software releases some 60,000 releases. That was up 30% year-over-year at a time where we were all working from home. So, our productivity has gone way up. Our developer toolkits are much improved, using modern programming languages and having a service-oriented architecture. And by the way, all that’s happening while the number of bugs has gone down 25% in all of our releases from 2019 levels. And so, I’m really happy with the pace of organic innovation and our ability to deliver products. And that takes away a lot of our need to do acquisition. I would just build on John’s point. We obviously have a strong balance sheet, strong cash flow. We will be acquisitive going forward. But we’re going to look at that and, as John said, in a very disciplined manner. We’re going to look at talent, types of acquisitions, where can we do maybe a smaller acquisition to bring in great talent in a particular area. We’ll look at geographic types of acquisitions where we may want to go after geography and there may be a player or two there that could help us leapfrog into that market, and we’ll look at that carefully. And if there’s a real capability that not that we can’t develop and do, but it’s going to take us too long to get there. Because what we’re trying to do on our roadmap, then we would take a look at that as well. Those are kind of the basic areas, I would say. So, I think we’ve got a good one-two punch between what we can do internally and what we can do from an inorganic perspective.

Yes. It’s very clear. It’s going to be fun to track the organic products for sure. Thanks a lot, guys.

Hey. Thank you very much. And I’m really starting to feel clumsy with my phone. I wanted to ask John. And Dan, obviously chime in where appropriate. But, you alluded and mentioned specifically, John kind of your guidance and that kind of thing for this year. If you think back and just over the last few months, even of the fourth quarter, there’s been just a huge amount of volatility in closures and what consumers were doing or could do or couldn’t do, et cetera. So, how are you trying to think about all those puts and takes, as you formulate your full year ‘21 outlook today? And what are the things maybe that you’ve seen as we’ve gone through, particularly the latter few months of ‘20, that kind of give you confidence in our forecasting methodology being pretty sound, at least from where we stand right now?

Sure, James. We're projecting a revenue growth of around 19% for the year as we sit here in February 2021, though there is still uncertainty related to stimulus measures and the pace of vaccine distribution. However, we have more confidence now compared to nine months ago when there was significant concern about the economy's future and its impact on various companies. The trends that Dan mentioned in his prepared remarks are certainly sustainable, particularly the shift toward digitization and the accelerated growth of e-commerce, which should benefit us and others in the industry. We provided an approximate figure of 19% growth without a typical range, as any range could feel somewhat artificial or arbitrary, given the wide array of possible outcomes. Nonetheless, we feel good about what we are observing in the business. It's also important to note that we have a diversified portfolio of products, so we're not overly dependent on any single aspect. For instance, regarding the travel and events sector, our baseline assumption for the 19% revenue growth considers that as vaccinations roll out, there is likely pent-up demand for travel. People are eager to take vacations they missed in 2020. We anticipate seeing a rebound in travel and events as early as the second quarter, which would benefit the Braintree side of our business. If things don’t proceed as hoped, such as concerns impacting mobility, our core PayPal business could still benefit. While we're projecting this almost a year out, we've gained confidence from the trends we've observed and feel positive about our guidance.

Great. Thanks, guys. Good afternoon, everyone. A lot of good stuff here, but hoping you could provide a little more color on the strategy to build out the presence in China? How you see the combination of GoPay and PayPal position from a competitive standpoint, both within the country as well as the cross-border perspective?

Thanks for the question, Colin. So, obviously, we’re really pleased that we now own 100% of GoPay. And we’re the first and so far the only foreign payments company to operate a full domestic payments business in China. And that, obviously, gives us a very strong legal foundation for the business we have there and for the business that we intend to drive. Very recently, Deputy Governor Pan from the PBOC, an article in the Financial Times that was really kind of this clear statement of China’s commitment to trying to strike the right balance between innovation along with prudent regulation. And that plays right into what we want to do inside the market. We really want to work with the regulators there on both of those objectives and assure that we’ve got both safe and secure digital commerce. And we really have three goals over the next couple of years in China. So first, obviously, is to make sure we invest to have the right compliant infrastructure inside China. The second is to really leverage all of our cross-border expertise, and that goes in two directions. First, we want to significantly increase the amount of cross-border that Chinese merchants can get from the 350 million consumers we have outside of China. And we also want to work inside China that Chinese consumers purchase from the 29 million merchants that we have outside of China. Both of those are already growing elements, and we think that those can grow quite nicely in the years to come. The third thing, though, is that we do want to work within the ecosystem inside of China with companies like China UnionPay, with the banks there, and with the tech platform companies there as well to drive new types of payment services or incremental payment services inside the domestic market, like that could be payouts, could be some unbranded full-stack processing. It could be QR codes. For instance, I’ll just give you an example. China is holding the Olympics in the next couple of years. There’s going to be a tremendous amount of visitors going into China. And we want our QR codes to be deployed so that people coming into China don’t necessarily have to download WeChat Pay or Ant. They can use their PayPal wallet inside China to make purchases at merchants. And I think there are a lot of ways that we can leverage our strength, the strength of our partners inside China and our strong regulatory relationship that we have right now to both grow cross-border and then to start to slowly, but surely add incremental services into the domestic market as well.

A question for Dan, really kind of looking into the long term. It looks like PayPal is increasingly becoming sort of, in my view, the world’s best super app, especially now that you’re offering bitcoin, QR, Buy Now Pay Later and counting. Can you maybe talk a little bit about what you’re seeing in terms of engagement that brings PayPal closer to becoming an everyday super app? Maybe touch on your broader engagement strategy given 73 million accounts that you added in 2020? And what are your long-term digital wallet ambitions as you introduce traditional functionality and services? Thank you.

Yes, that's an excellent question that really addresses the core of our strategy. We will discuss this in more detail at our Investor Day next week. To summarize, we are already observing engagement levels rising. If we adjust for Honey and the additional active users we've acquired, which affect our traditional metrics, we've generally not exceeded 9% or 10%. However, normalized growth is currently around 11.5%. Our churn rates are declining, and the new features we've introduced, such as crypto, Buy Now Pay Later, the Venmo card, and QR codes, are all contributing to increased usage. Notably, users of our PayPal product in-store are making 54 additional transactions that do not replace online shopping, effectively doubling the number of transactions. As we develop our digital wallet into a comprehensive app that integrates payments, commerce, and financial services on a unified platform, utilizing shared data and machine learning for optimal recommendations, I anticipate a significant shift in engagement rates. This transformation will center around the super app functionality in our digital wallet, expanding its purpose beyond just payments. Thank you for that insightful question, and I appreciate everyone’s time today. I hope you and your families are safe and healthy, and I'm eager to speak with you again next week at our Investor Day. Thank you, and take care.