PayPal Holdings Inc (PYPL) — Q4 2024 Earnings Call Transcript

Thanks, Sarah. Welcome to PayPal's fourth quarter and full year of 2024 earnings call. I'm joined by CEO, Alex Chriss and CFO, Jamie Miller. Our remarks today include forward-looking statements that involve risks and uncertainties. Actual results may differ materially from these statements. Our commentary is based on our best view of the world and our businesses as we see them today. As described in our earnings press release, SEC filings, and on our website, those elements may change as the world changes. Now over to you, Alex.

Thanks, Steve, and thank you to everyone for joining us this morning. PayPal had a successful 2024, delivering strong operating and financial results. The improvements we've made to branded checkout, P2P, and Venmo, plus the progress we have made on our price-to-value strategy, are beginning to show up in our results. We set out at the beginning of 2024 to make it a transition year, to narrow our focus and to make sure we are executing the initiatives that matter the most to the growth of our business. One year later, I'm proud that we've laid a strong foundation for durable growth. We drove branded checkout transaction margin dollar growth in each quarter. US branded checkout growth accelerated in the fourth quarter to exit the year at a high point as our new checkout innovations are scaling to customers. Driven by a renewed focus on pricing to value, Braintree has meaningfully contributed to our transaction margin dollar growth over the last three quarters. Venmo monetization is making great strides with over 20% growth in Venmo debit card and Pay with Venmo monthly active accounts. Put simply, the PayPal team executed well during our transition year and made strong progress on our transformation. The investments we made throughout 2024 allowed us to perform well during the holiday shopping season and finished the year strongly. Total active accounts returned to growth in 2024, as we enhanced our value proposition and brought innovation to market. Total payment volume grew 10% to nearly $1.7 trillion. We delivered $32 billion in revenue, up 7%. We reached an inflection point for transaction margin dollar growth, which increased 5% excluding the benefit of interest on customer balances. Our non-GAAP earnings per share increased 21% year-over-year. We generated $6.8 billion in free cash flow and completed $6 billion in share buybacks. For 2025, we expect another solid year of transaction margin dollar growth and strong free cash flow, which Jamie will discuss. As we look ahead to 2025, I want to share the areas we're most focused on. First is innovation. With the leadership team in place and the velocity with which we're executing, we've proven we can bring innovations to market. In 2024, we rolled out new branded checkout experiences, launched PayPal Everywhere, introduced Fastlane, and expanded PayPal Complete Payments. We are not stopping there and will continue to innovate to solve our customers' biggest challenges. The second is product adoption. 2025 will be focused on scaling adoption of our innovations. We have world-class products and solutions, and we'll continue educating customers about all we have to offer. In 2024, we completely revamped our marketing and go-to-market playbook. We're just scratching the surface, so you can expect more ahead. Third is partnerships. Last year we formed significant partnerships to drive Fastlane adoption and bring more value to customers. We're building on our leadership position in payments and commerce and establishing ourselves as a platform that leading brands want to work with. We will strike even more partnerships throughout 2025. Fourth is efficiency and effectiveness. In 2024, we reduced headcount by 10%. We made deliberate investments in AI and automation, which are critical to our future. This year, we are prioritizing the use of AI to improve the customer experience and drive efficiency and effectiveness within PayPal. We expect to make meaningful progress on all four of these areas in 2025. Let me walk you through how this focus will drive our results this year and beyond. In 2025, our key strategic initiatives will be to win checkout, scale Omni, grow Venmo, and accelerate SMB. Our teams are organized around these priorities and tracking progress daily. Starting with Win Checkout, our #1 priority. With our upgraded experiences, we now have the leading checkout solution on desktop and mobile. When fully implemented, the upgraded experiences reduce latency by more than 40% and drive more than 100 basis points of conversion lift on average, consistent with the early results we've shared. These upgrades are now live for more than 25% of U.S. Checkout traffic, which is up from 5% last quarter. We have a lot of room to grow here as adoption increases in the U.S. and then expands globally. On top of the benefit of higher conversion, these new experiences improve the presentment of our branded marks and solutions like buy-now-pay-later, which can help to expand our share of wallet. BNPL customers spend 30% more on average and merchants see higher sales after adding BNPL messaging to their sites, which is critical when one more sale can make all the difference. In 2024, we drove approximately $33 billion in BNPL total payment volume, growing 21% from the prior year. Consumers and merchants trust the PayPal brand and experience. We have a lot more we can do with BNPL in the next year. Merchants continue to show strong interest in Fastlane. In the fourth quarter, we focused on selling Fastlane to large brands that can drive future volume. I'm excited to share that we have signed NBCUniversal, Roku, and StockX and are working on implementation. We now have nearly 2,000 merchants up and running with Fastlane. We expect an inflection point in adoption when we expand our go-to-market efforts and bring Fastlane to even more merchants through Adyen, Global Payments, and Pfizer this year. From early data, what's exciting is that 25% of Fastlane users have never had a PayPal account before. More than half have a PayPal account but haven't been active in the last 12 months. Simply put, 75% of Fastlane consumers are new or dormant PayPal users. This means that Fastlane not only improves conversion for our merchants, but also introduces more shoppers to PayPal and enables us to reengage active users. We've shared that one of our strategies is to build deeper relationships with our largest merchants as we renegotiate deals to reflect the value we provide. A key part of that is adding value-added services that improve the experience for our mutual customers. We've built a suite of world-class value-added services and continue to introduce new ones. In the fourth quarter, we launched FX-as-a-service, which is automated currency conversion, and it's already live for Meta. We also actively scaled the use of network tokens for automated billing capabilities, which is live with merchants including Instacart, Mint Mobile, and Poshmark. The expansion of our value-added services is a key driver of the transaction margin dollar growth we are delivering. Next, let's talk about our initiative to expand beyond e-commerce to become truly omnichannel. We launched PayPal Everywhere in September which is driving significant increases in debit card adoption and opening new categories of spend. We added more than 1.5 million first-time PayPal debit card users in the fourth quarter, and debit card TPV was up nearly 100% in Q4. Our most active reward categories are gas, groceries, and restaurants. These new capabilities are driving deeper relationships with our users and more PayPal volume overall, offline and online. The average debit card actives generate 5 times the transaction activity and 2 times the average revenue per account compared to users who only use branded checkout. This is leading to habituation. Power users, which are PayPal consumer accounts transacting more than 100 times per year, grew more than 9% year-over-year in the fourth quarter. So we are seeing strong momentum today with our omnichannel push, but we are just getting started. We plan to expand our PayPal Everywhere value proposition to several European markets this year, including launching NFC capabilities in Germany. Moving to our progress to grow Venmo, our task is twofold. First, continue to improve the social P2P payment experience that made Venmo a verb, increasing engagement and bringing on more users. Second, drive adoption of our monetized products, including the Venmo debit card and Pay with Venmo. In the fourth quarter, we continued improving the Venmo experience by giving our users more of the capabilities they've been asking for, like scheduled send and improved search. With these steady improvements to the experience, we see engagement increasing. Our engaged Venmo user base grew 4% in the quarter, reaching more than 64 million monthly active accounts. On monetization, we increased the average revenue per active Venmo account in 2024, and we plan to build on that growth in 2025. Monetized Venmo monthly active accounts beyond P2P and instant transfers grew more than 20% in the fourth quarter, driven by the adoption of Venmo debit card and Pay with Venmo. Venmo debit card monthly actives grew more than 30% and Pay with Venmo monthly actives grew more than 20%. We continue to expand Venmo's acceptance with major brands like Instacart and MoonPay, adding Venmo in the fourth quarter. As we recently announced, JetBlue became the first airline to accept Venmo for flight bookings. So while we are still early in monetizing Venmo, we have a proven playbook that is resonating with customers. This gives us confidence as we move to 2025 and beyond. Finally, I'd like to cover our efforts to accelerate growth for SMBs. We are moving from a disparate set of payment products to building an end-to-end suite of solutions that solves more small business needs. PayPal Complete Payments was the first step towards an integrated suite of solutions, and we continue to make progress driving adoption with 45% of SMB processing and checkout volume now on this platform. Merchants on PPCP benefit from our upgraded branded checkout experiences. Key to our success in growing with small businesses on our platform is our expanding set of connected and value-added services, which move us beyond a payment provider to a growth partner and help us retain customers throughout their business life cycle. Take for example our merchant financing solutions. Entrepreneurs come to us for payment services as they start their business. As their business grows, they need access to capital to buy inventory, invest in marketing, and hire. PayPal Working Capital is a financing solution purpose-built for early stage companies. As the business matures, PayPal Business Loan offers more traditional merchant financing to match the increasing complexity and multichannel nature of larger businesses. Our business financing solutions increase loyalty and engagement, driving the PayPal flywheel. Merchants typically increase their PayPal volume by 36% after adopting PayPal Working Capital and 16% after taking a PayPal Business Loan. Our merchant lending originations were $3 billion in 2024, demonstrating our leadership and that there is plenty of room to grow to support our customers. This is just one example of the services we offer that help SMBs change the trajectory of their businesses. Expanding this ecosystem of value-added services is a focus in 2025 and beyond. To close out, I want to thank the PayPal team for their focus on delivering for customers every day. I’m proud of how far we have come in the last year. It was an important transition year for PayPal. We created strong momentum that sets up well for 2025 and beyond. We are now executing a game plan that we have confidence in, and I'm excited to share more at our Investor Day later this month. With that, over to Jamie.

Thanks, Alex. Moving to Slide 7. PayPal delivered another solid quarter of results to end the year. While there is still more work to be done, the team is making progress, building on the firm foundation that we’ve established. As we enter the second year of the company's transformation, our teams are energized and moving quickly. We remain focused on better serving our customers as we seek to drive durable, profitable growth. Looking at the high-level financial results in the fourth quarter. Revenue grew 4% on both a spot and currency neutral basis. For the full year, revenue grew 7% on both a spot and currency neutral basis. Transaction margin dollars grew 7% in the fourth quarter or 6% excluding the benefit of interest on customer balances. Outperformance compared to our guidance was driven by higher contributions from branded checkout and Venmo, credit performance and interest earned on customer balances. For the full year, transaction margin dollars grew 7% or 5% excluding the benefit of interest on customer balances. Non-GAAP earnings per share were $1.19 in the quarter, up 5%. We ended the full year with $4.65 of non-GAAP earnings per share, up 21%. These full-year results benefited from a return to transaction margin dollar growth, fueled by our transformation efforts, expense discipline, the higher interest rate environment, and a strong capital return program. Turning to Slide 8, our operating metrics reflect another quarter of steady progress. Total active accounts increased by nearly $3 million from the third quarter and nearly $9 million from last year to $434 million. Monthly active accounts also continued to show steady progress, up 2% year-over-year to 229 million with contributions from PayPal consumer accounts and Venmo. Transactions per active account excluding PSP processing grew 4%. Moving to Slide 9. Total payment volume grew 7% on a spot and currency neutral basis to $438 billion. For the full year, TPV grew to nearly $1.7 trillion, up 10% on a spot and currency neutral basis. Looking at the TPV breakdown by product, we see strengths starting to build in some key areas. PayPal P2P accelerated for the sixth consecutive quarter to 6% growth. Venmo also accelerated by 2 points to 10% growth. Steady incremental product improvements combined with reinvigorated marketing campaigns are starting to make an impact. Global branded checkout volumes increased 6% on a currency neutral basis in the fourth quarter. This was about a 50 basis point acceleration from the prior quarter. Underlying this growth, we were encouraged to see U.S. branded checkout volume improve in the fourth quarter. Part of this increase can be attributed to a healthy spending environment and specific vertical exposure. In the U.S., we’re focused on scaling our modern, best-in-class experiences. From a merchant perspective, we continue to see the greatest strength across large enterprises, platforms, and marketplaces. Winning checkout remains our most critical priority. Our goal is to drive more consumer engagement and a higher PayPal selection rate, which should accelerate TPV over time. Turning to PSP. As discussed throughout the past year, we moved rapidly within our Braintree business to prioritize healthy, profitable growth and intentionally let go of unprofitable volume. In line with this strategy, PSP processing volume grew 2% in the fourth quarter compared to 11% in the third quarter. Our conversations with merchants have become more holistic, moving beyond price and share of card processing to a deeper appreciation of our customers' needs and how we can add value through our full suite of solutions. We expect a handful of large Braintree merchant renegotiations to result in a headwind to revenue growth of about 5 points in 2025. Shifting away from this volume pressures gross revenue but is accretive to transaction margin dollars and will result in more than a 1 point benefit this year. We expect this benefit to build over time as we drive more value-added services. Over the next few quarters, we will continue to work through renegotiations at which point we should reach a new baseline to drive faster volume and revenue growth. Moving to more financial detail on Slide 10, transaction revenue grew 4% on a spot basis to $7.6 billion, driven primarily by branded checkout and Venmo. Other value-added services revenue in the quarter grew 5% to $778 million. This acceleration was driven largely by a return to growth in credit revenue. We continue to see solid performance across our credit portfolio. As Alex shared, we have begun to modestly grow merchant originations and expect credit to be a positive revenue and profit driver in 2025. Transaction take rate declined by 4 basis points to 1.73%, driven largely by mix. Venmo monetization was a slight benefit, offset by merchant mix within branded checkout and Braintree, faster growth in payouts and foreign exchange. Turning to transaction margin dollars. The largest contributors were branded checkout, Venmo, interest on customer balances, a return to growth in credit, and Braintree. Transaction margin percent increased by more than 100 basis points for the second consecutive quarter, reflecting our focus on price-to-value and profitable growth. As planned, we increased our level of strategic investment in the quarter, growing non-transaction operating expenses by 10%. This growth included marketing spend deferred from the first half of the year and efforts to support the rollout of new products and initiatives. Non-GAAP operating income grew 2% in the quarter to $1.5 billion. Non-GAAP operating margin declined 34 basis points to 18%. PayPal generated $2.2 billion of free cash flow in the quarter, bringing full-year free cash flow to $6.8 billion. This is meaningfully ahead of the $5 billion we planned for at the start of the year and includes some benefit from lower cash taxes, which we expect to be a headwind in 2025. In the quarter, we completed $1.2 billion in share repurchases, bringing full-year share repurchases to $6 billion. Finally, we ended the quarter with $15.4 billion in cash, cash equivalents, and investments and $11.1 billion in debt. Moving to guidance on Slide 11 for the first quarter and full year 2025. For the first quarter, we expect flat to low single-digit revenue growth on a currency-neutral basis, which is heavily impacted by the Braintree renegotiation efforts I discussed earlier. This also includes about a 1 point headwind from lapping last year's leap day. We expect transaction margin dollars to be between $3.6 billion and $3.65 billion, which represents 5% growth at the midpoint. We are planning for low single-digit non-transaction OpEx growth in the quarter, and we expect to deliver non-GAAP EPS in the range of $1.15 to $1.17, or approximately 7% growth at the midpoint. Moving to the full year, we plan to continue guiding revenue one quarter at a time. We believe this approach has served the company well during our transformation, enabling healthy long-term decision-making that prioritizes driving faster transaction margin dollar growth. Over time, we are focused on accelerating both revenue and profitability. For the full year, we expect transaction margin dollars of approximately $15.2 billion to $15.4 billion, representing approximately 4.5% growth at the midpoint. In 2024, we had a two-point benefit from interest on customer balances. For 2025, our guidance includes about a $150 million or about a 1 point headwind due to interest rate cuts. Excluding interest on customer balances, we expect transaction margin dollars to grow by at least 5% compared to 4.6% growth in 2024. In the first quarter, we expect minimal benefit from growth of interest on customer balances and then a headwind for the remainder of the year. One other factor to keep in mind is that in 2024, we saw a 1 point benefit from transaction loss improvements. We are planning for some normalization and transaction loss during 2025, as we roll out new products. Our focus in 2025 is to strike the right balance between investment and productivity, seeking to fund long-term investments largely through savings generated from better tech and automation deployment. We expect full year non-transaction operating expenses to increase in the low single-digit range. There will likely be some unevenness quarter-to-quarter due to the timing of initiatives, marketing spend, and comparisons to the prior year. As a result, we expect second quarter OpEx growth to be higher than in other periods. We expect to deliver full year non-GAAP EPS in the range of $4.95 to $5.10, representing about 8% growth at the midpoint. This includes negative impacts from lower interest rates and just over a two-point increase in our expected non-GAAP effective tax rate. Our guidance also includes approximately $6 billion in share buybacks, and we expect full-year free cash flow of approximately $6 billion to $7 billion. I'd like to wrap up by thanking the PayPal team for their continued focus and dedication. The progress we made in 2024 gives us a strong foundation to build on, as we move into the second year of PayPal's transformation. One of our primary focuses this year will be driving adoption of recent innovation and scaling better customer experiences. It will take time for some of our efforts to build and drive financial impact, but we are confident in our roadmap and in our execution plans, and we're excited to share more with you at our Investor Day on February 25. I'd like to close by thanking the PayPal team for their dedication and focus in 2024.

Thanks, Jamie. To summarize, in 2024, we executed the transition plan we laid out. We have positioned PayPal to compete and win and delivered strong results along the way. I'm very proud of our team and the impact they made during a year of intense change. The momentum we have created sets us up well for 2025, which is about scaling adoption. It is still early in our transformation, but our objective is clear. We are evolving PayPal from a payments company to a commerce platform that helps merchants win every sale and helps consumers shop smarter. Steve, let's go to Q&A.

Sarah, please open the line.

Hi, Alex and Jamie, it's great to see the next phase of the transformation taking shape. I'm curious about the growth in branded volume, particularly in the U.S. for the fourth quarter. How did that performance align with your expectations regarding market share? Looking ahead to 2025, what should we anticipate for branded volume growth? I recall you mentioned several factors driving this, including your checkout integrations and revitalizing the consumer aspect. Could you remind us what the key milestones are within this timeframe to see those efforts come to fruition? Thank you.

Thank you, Andrew. I’ll start and then pass it to Jamie. First, let’s revisit the context we encountered in 2024 regarding branded checkout. I've highlighted this as our top priority throughout the year, focusing largely on enhancing the customer experience. We were pleased with the desktop performance but identified clear gaps in mobile. The team worked hard on various innovations in 2024, testing different payment sheets and vaulted experiences. By the end of the year, we were confident about the innovations we were about to introduce. As a reminder, our one-time checkout improvements converted at 400 basis points, while the vaulted improvements converted at 100 basis points. The most significant impact was seen in mobile and among small businesses. We are excited about these innovations, which we began to roll out in the third quarter, increasing that rollout to about 5% by the middle of the fourth quarter and reaching 25% by year-end. As we concluded 2024, I felt optimistic about the quality of the innovations and our capacity to implement them effectively for our customers. Looking ahead to 2025, I believe we now offer a best-in-class experience on both desktop and mobile, and we are starting to notice positive effects from initiatives like our Buy Now, Pay Later program, which has increased by 20% with this new payment sheet. Overall, from both an innovation and customer impact perspective, I feel confident as we move into 2025.

Yes. And Andrew, good morning. Just to add on there with respect to the U.S., we did see sequential improvement in branded checkout in the U.S. in the fourth quarter. And that was about three points of growth quarter-over-quarter really due to market dynamics, but also specific key vertical exposure around travel, crypto, gaming, et cetera. Alex mentioned we are still early in the ramp of our modern checkout experience, and that is certainly something that as we get into '25, we are very, very focused on. Our biggest priorities are really around innovation, driving those improvements in checkout experience. And you mentioned also giving consumers more reasons to choose. So some of the things we've done throughout the year around really improving the app experience, adding rewards, adding different elements to how people can find contacts and things like that, all of that is around engaging the consumer in a different way. And as we talk about internally, really getting the flywheel continuing to move between our consumers and our merchant experience. So from a 2025 guide perspective, we still expect branded checkout TPV to grow about mid-single digits and to have consistent growth from last year into this year with some acceleration with our initiatives, initiatives on top of that.

Hi, thank you for taking my question this morning. As expected, unbranded volumes decelerated again as you pursue the price-to-value strategy. Can you give us your updated thoughts on your sort of confidence level, timing and toolkit to reaccelerate unbranded volume growth at the higher baseline profitability levels as we move forward here?

Yes. Thank you for the question, Ramsey. I’d like to discuss how our conversations are evolving. This has been our strategy throughout the year, and I'm encouraged to see another quarter of contribution to dollar growth from both branded and unbranded Braintree. Our discussions are becoming increasingly strategic, which is exciting for us. We're moving beyond just processing conversations to include value-added services that we're launching, such as FX-as-a-Service, Risk-as-a-Service, chargeback automation, and orchestration. We're now able to price these services based on their value and monetize them as part of our top-tier unbranded offering. Additionally, we are starting to set ourselves apart in these discussions by involving customers directly. When I meet with CEOs of our largest customers to discuss their primary needs, it extends well beyond processing. It’s about how we can bring more customers into the fold. For the first time, we are leveraging PayPal’s two-sided network to highlight that we have hundreds of millions of consumers globally. We now possess an ads platform and rewards programs, which allows us to help our unbranded processing customers create incentives within our PayPal app to drive additional growth for them. These conversations are becoming quite engaging, as we explore comprehensive strategies that integrate their marketing resources with our customer acquisition capabilities within our two-sided network.

Yes. And with respect to forward trends on this, we do expect similar dynamics in the next few quarters, some volatility. I mean, this is not something that just happens in a perfect line. And we still do have some large agreements over the next couple of years that we will work our way through. But the revenue growth should build as we lap some of the larger agreements fluffing-off over time. For 2025, we expect the renegotiations to be about a 5-point revenue growth headwind. But the other important point here is that it's a 1-point accretive on the TM dollars growth in 2025. So I think an important dynamic there that as you mentioned, we are very intentionally driving.

Good morning guys. I just wanted to come back to the branded TPV topic. I think you mentioned U.S. accelerated 3 points in the quarter, if I caught that right. I guess that would imply international slowed. So perhaps you can quantify that and then maybe give us a sense of how that mid-single digit global branded volume outlook for '25 splits between U.S. and non-U.S. And just a little bit of color on how the transaction margin profile differs between U.S. and international branded. Thanks guys.

Good morning Jason. With respect to international, we are still in a very strong market position there and we continue to take share internationally. We had less than a full point international pullback. Just some softness in Europe is what I would say. And when you look at the split, international to U.S., both in the TPV line and in the TM line, it is really 50-50. And from a margin perspective, it is slightly healthier outside the U.S., but it's very much in line.

Hi, good morning. Thanks for the update. Regarding Venmo's growth, could you clarify whether it's primarily focused on user growth, new products, or increasing ARPU from existing products? I'm interested in understanding the strategy behind it. Also, could you provide some clarification on the increase in CapEx for 2025? Is this expected to be a one-time expense or a sustainable level for your future considerations? Thank you.

Hi, Tien-Tsin, let me discuss Venmo briefly before handing it over to Jamie. Regarding Venmo, we will go into greater detail at Investor Day, but we are seeing both customer growth and growth in monetization, which is exciting. Venmo remains the leading P2P platform in the U.S., with monthly active users projected to reach 63 million by the end of this year. The total payment volume is also growing at 10%, reaching $76 billion, marking a return to double-digit growth for the first time in several quarters. We are excited to see ongoing growth in active users. Our focus on monetization has remained steady, driven by significant increases in debit card monthly active users, which are up 32%, and Pay with Venmo monthly active users, which are up 22%. This growth is significant because we've noticed that debit card users generate average revenue per account four times higher once they adopt the debit card, while Pay with Venmo users see a threefold increase in revenue per account. It's important to note that we currently have low adoption rates for these products, which leaves room for growth as we expand our customer base and increase penetration of monetizable features. We are also dedicated to innovation, tapping into a highly engaged and valuable demographic. We've introduced new features like scheduled send, gifting, groups, and direct deposits to enhance our ecosystem. The team is already developing an exciting roadmap for 2025, focusing on additional needs our customers may have once they utilize Venmo, enabling them to spend in various ways and transfer money among each other. We have established a strong foundation for monetization in 2024, which positions us well for continued success in 2025.

Good. And then with respect to CapEx, we are seeing, over the next two years, an increase in the program to about $200 million to $300 million. And it relates to tech infra build-out and data center build-out in connection with both platform consolidation and a few other things. But after the two years, it should come down.

Yeah. Thanks guys. Jamie, I think you said you would expect stable branded growth through '25, based on what's built into your outlook. You guys have initiatives now where 25% of your checkout experience is on the more modern checkout, which I know has kind of ramped through the end of last year and were there now, and so it should impact, I think. The debit card is more further out. Marketing has been more substantial. I guess I'm just curious when those initiatives you think would have a more material impact. Or are they embedded in your outlook that they could have an impact on branded acceleration as the year progresses? Are you just building in uncertainty around things like international, maybe Germany or any other softness? And then just my one quick follow-on would be the exit rate of transaction margin growth ex flows, I think 6%, in the context of this 6% branded. So I'm just curious, when you think of your forecast, is there anything about this fourth quarter growth rate that was unsustainable other than maybe leap year? Otherwise, you're 5%, and I think you've added 5% plus, so it may capture that. Thanks guys.

Yes. So first, let us talk about the branded checkout growth in 2025. You were specifically asking about initiatives. And as Alex mentioned, we've got 25% of our U.S. TPV flowing through the most modern checkout experiences at this point. That is something that we expect to scale as we get into '25. In addition, we are going global with that as well. So to your point, we do expect some impact from that to start to flow through. And we have embedded some of that in our guide, and we expect it to build over time. Having said that, we also think we've prudently planned here. And I wouldn't say, we've explicitly put an overlay for European softness in there. Having said that, we've left ourselves room to navigate different things because as we roll this out, the impact of how this will flow through may be uneven as we see it. And then Darrin remind me of your second question? It was on TM, but I didn't pick up the exact question you were asking.

Your growth rate is already at 6% without any increase in the key performance indicators despite all the initiatives you've implemented. You're projecting more than 5%, I believe, from a non-float impacted perspective. I just want to clarify that there’s nothing unsustainable in the exit rate for Q4 that would affect your growth in 2025.

Yes. When you look at '25 from a TM perspective, there are probably two things to think about that are headwinds to 2025 TM. The first is we expect transaction loss to normalize as we get into the year. We had a full point benefit of that in '24, or a full basis point benefit. When we get into 2025, we expect about a 0.5 basis point headwind. We are growing products that should carry with it a higher transaction loss rate. And then you mentioned the 6%. I would talk a little bit, even though around interest rates. When you look at total all-in TM, we are expecting about $150 million of interest rate headwind on all-in TM there, too. But when you look at the underlying profile of TM which really revolved around branded checkout, Braintree, Venmo and credit, I mean all of those things are things that we believe are durable. It is clearly diverse and things that we fully expect to continue as we get into '25 and beyond.

And Darrin, I want to build on Jamie's comments because it's crucial to understand our branded checkout strategy in context. First, as Jamie mentioned, we've been consistent this year in expressing our excitement about the innovations. We've been careful in our forward guidance, wanting to see results before we announce them. Looking back at our strategy in '24, we focused on innovation and enhancing the fundamentals of branded checkout. We now have an improved product available to customers on both desktop and mobile, and we are beginning to see significant scaling of up to 25%. We’ve also expanded to guest checkout, which we hadn't previously explored. Now we're attracting new users through our Fastlane product, which will continue to grow in the coming years. Our best-in-class innovation is enhancing the guest checkout experience. Additionally, we've ventured into offline commerce, engaging in an omnichannel approach that includes not just online sales but also offline transactions. This is fostering customer habits, with our debit card users transacting twice as much as regular branded users and generating 20% higher average revenue per active user. We're developing a comprehensive strategy that goes beyond a single-button experience, aiming to engage our expanding customer base in a meaningful way, positioning ourselves as their commerce partner for the future.

Great. Thank you for taking the question. So in the past, and when we talked about the mix within the branded checkout, we typically talked about it being very skewed to discretionary and to goods. And in prior periods of strong discretionary growth during 2020, 2021, the branded checkout button grew in-line if not faster, depending on the metric or the industry data that you are looking at. The growth was better than the industry. Could you maybe talk a little bit about how that mix might have evolved, if at all? And if we were to expect a better period of discretionary spend, should we see another period of the branded checkout button growing in line, if not faster, than the industry?

Good morning Tim. So when you look at the composition of our verticals now, I would say that one of the things we've done a really nice job of in the last couple of years is really expanding to services. When you look at some of the dynamics that you might have seen three years or four years ago, when you shift to now, we are just more balanced across different verticals. I mentioned some of the growth in a few of the areas, but services in particular is one that has been a larger space. So I expect the dynamic to be more muted with respect to that discretionary side of it, on the good side of it.

Thank you, good morning. Just a follow-up question on the U.S. branded volume. I think, Alex, you mentioned that it exited the quarter at the high point. I mean, is there any color on sort of what that growth rate was and how it trended into this new year quarter-to-date?

Yes. So really, the way I think about branded U.S. is that we have been moving along, and we are obviously very focused on continuing to shift, continuing to impact our U.S. market position. Alex talked about a lot of the innovation, specifically around mobile and around a couple of other areas that are really focused on driving shifting there. We saw some lapping in the first part of the year. But as we hit the third quarter and into fourth quarter in particular, that was pure growth off a base. And that 3 points was reflective of that.

Thanks and good morning. I would like to discuss the non-transaction expenses for the year. Can you elaborate on the potential of using AI for improving operational efficiency? Are these initiatives requiring additional short-term investment, or are you already experiencing a positive return on investment? Additionally, in relation to scaling innovations and educating consumers, how does that specifically translate into investments in customer acquisition and rewards that could affect operating margins throughout the year? Thank you.

Yes. Thank you, Colin. Let me start with AI and then maybe hand it over to Jamie. AI is opening up a huge opportunity for us. First, at our scale, we saw 26 billion transactions on our platform last year. We have a massive data set that we are actively working and investing in to be able to drive our effectiveness and efficiency. Let me break it into a couple of different pieces. First, on the customer-facing side, we're leveraging AI to really become more efficient in our support cases and how we interact with our customers. We see tens of millions of support cases every year, and we've rolled out our PayPal Assistant, which is now really cutting down phone calls and active events that we have. We also are leveraging AI to personalize the commerce journey, and so working with our merchants to be able to understand and create this really magical experience for consumers. When they show up at checkout, it is not just a static button anymore. This really can become a dynamic, personalized button that starts to understand the profile of the consumer, the journey that they've been on perhaps across merchants and be able to enable a reward or a cashback offer in the moment or a Buy Now, Pay Later offer in a dynamic experience. This is all AI-enabled and all things that will generate both efficiency for us from the consumer standpoint, but also drive more branded checkout and more sales for our merchants. In addition, we also are looking at our back office and ensuring that not just on the engineering and employee productivity side, but also in things like our risk decisions. We see billions and billions of risk decisions that often, to be honest, we are very manual in the past. We are now leveraging AI to be able to understand globally what are the nature of these risk decisions and how do we automate these across both risk models, as well as ensuring that customers get the right response at the right time in an automated fashion.

Yes. And then with respect to scaling consumer and non-transaction OpEx, we increased our marketing spend in 2024 by about $250 million, and we were very focused around really reinvigorating the brand and reinforcing the consumer value prop as we did it. As we get into 2025, we will be increasing marketing slightly. Our total OpEx guide is up low single digits. I would say marketing is up low single digits plus in terms of how we look at it, heavily weighted towards the second quarter as we really look at the profile throughout the year. But it has been very targeted. We’ve seen the results of that starting to come true with consumer MAAs up sequentially. We saw debit card MAAs up sequentially. We are seeing P2P improvement. There has been a nice flow-through of what we've seen. We've got some CAC, or customer acquisition cost, budgeted for this year but really haven't started deploying that yet. We've been testing that. But the full suite will be things that we'll be looking to deploy as we get into 2025.

Hi, good morning. I want to follow-up on Fastlane. You talked about the new merchant wins. Now that the holiday season is over, and the merchants are more open to integrating new solutions, how are those conversations going with large merchants especially because there are also some competitive dynamics there? And then, Alex, you also talked about 75% of Fastlane consumers kind of being new or dormant PayPal users. Can you just remind us about how you are converting those into PayPal users? Thank you.

Yes, thank you, Harshita. You're absolutely right. Guest checkout for Fastlane has only been available for six months, making it a relatively new option. Other guest checkout experiences have been established for many years, some even close to a decade. However, we are entering the market with the best conversion experience for our merchants, which excites us. As we scale our Fastlane experience, we're still achieving double-digit increases in conversion for our merchants. Our main focus has been on enterprise merchants like NBCUniversal, Roku, and StockX. We set up discussions during the holiday season, but many were not prepared for integration. Now, as we approach 2025, we are ready to move forward aggressively. The conversations have been positive, particularly regarding the conversion gains. Merchants haven't spent much time exploring guest checkout yet, so they are currently focused on their development plans. While it may take several quarters to fully implement this across our merchant base, we’re optimistic about the partnerships. Regarding customer data, 25% of Fastlane users are new to PayPal, and 50% were inactive in the past year. These customers are opting into Fastlane at a rate of 45%. We see that once customers experience guest checkout, many choose to engage with Fastlane. This is just the beginning of reengaging them. Our marketing efforts are ramping up, utilizing both offline channels like email and notifications and online methods through our app. The good news is that these customers have already had a guest checkout experience, and we can now remind them of the benefits of a branded checkout with offers like cash-back and package tracking. We plan to encourage these users to become more engaged and active on PayPal. Additionally, it's important to note that our online PayPal users do not use our service for every purchase, highlighting the need for omnichannel strategies. While many users appreciate PayPal and actively use the app, they still only engage with us for a small portion of their transactions. Our goal is to attract these users back and remind them of the advantages of the branded PayPal experience, which is essential for driving our branded checkout growth.

Alex, any final thoughts?

No, just a huge thank you to all of you, and thanks, Steve. I look forward to seeing many of you later this month at our Investor Day on February 25, where we will share our vision for the future and dive into our strategies for medium and long-term growth and what it's going to take to get us there. So take care, everyone.