PYPL
#Thank you, <UNK>
And thanks everyone for joining us today
I’m pleased to say that PayPal delivered another strong quarter of financial results, achieving new milestones for the Company on multiple fronts
PayPal generated 3.136 billion in revenue, the first time we've exceeded 3 billion in a single quarter and representing 20% of FX-neutral growth, nearly a 110 basis point acceleration from the first quarter and 70 basis points from a year ago
We've exceeded our guidance and delivered $0.46 of non-GAAP earnings per diluted share, up 27% year-over-year
Our non-GAAP operating margin grew by a 110 basis point year-over-year to 21%
We generated 747 million in free cash flow, up 51% from a year ago
Perhaps more importantly we had strong performance across our customer metrics
We gained 6.5 million net new active accounts, the largest organic quarterly gain in the past three years and up over 80% from a year ago
We ended the quarter with 210 million active accounts including 17 million merchant accounts, growing our base at 12% year-over-year
Given our first half results, we now anticipate our net new active additions will exceed 25 million for 2017. Engagement once again increased growing 10% year-over-year, our customers now transact 32.3 times per year, up from 29.4 times a year ago, and 31.7 last quarter
Our growing base and increasing customer engagement enabled us to pass another milestone, as we processed a 106 billion in payment volume exceeding 100 billion in quarterly TPV for the first time
TPV grew at a currency neutral rate of 26% year-over-year, accelerating 75 basis points from last quarter
Our volume growth was driven by our leadership in mobile
In the quarter, 34% of the payments on our platform were made on a mobile device
PayPal processed approximately 36 billion in mobile payment volume in Q2, up 50% year-over-year
This growth is largely driven by the exceptional and differentiated consumer experiences we enabled on mobile devices
One Touch adoption continued to expand in the quarter with over 60 million consumer accounts opted in
Merchant accounts accepting One Touch now numbered just over 5.5 million growing by 500,000 in the quarter
Venmo users sent and received 8 billion in the second quarter representing a 103% increase from this time last year, as we continue to achieve increasing network effects in the millennial markets
Based on the strong trends we're seeing across the business, we're once again raising guidance for revenue and EPS for the full year
<UNK> will share more details about our results and guidance in his remarks
Our performance is driven by the cumulative effect of multiple incidents
We have fundamentally retooled our technology and infrastructure, leading to significant improvements and availability and develop our productivity
We have meaningfully improved our core experiences and expanded our suite of products
Our overall scale is accelerating due to the network effects of our two sided platform
It is clearly a macro secular shift toward digital payments and our customer choice results continue to exceed our expectations
We have completed a rollout of choice across our on-boarding, servicing and checkout experiences in the United States and over 13 million customers have opted into choice
We have the data from millions of customers over multiple quarters
We are beginning to see clear trends resulting from our choice initiative
Choice is both simplify and clarify our customer experiences, which has meaningfully reduced the volume of calls into our customer service centers
Despite our transaction volumes increasing by more than 20%, our net call volume into our global operations are down year-over-year
The results of choice on the numerous other product improvements, we delivered significant OpEx savings over the course of our three-year finding horizon
More importantly, customers who have opted into choice have meaningful increases in overall satisfaction
As a result, choice is driving a significant reduction in churn and a meaningful lift in overall engagement
And consistent with last quarter, the impact on our funding cost continues to remain well within our expectations
Based on the success of choice in the U.S
, we are pleased to be expanding this rollout into Australia, Canada, The UK and Japan later this year
Choice will also help to expand PayPal's presence in our customers' lives
These opportunities are driven by the land mark partnership agreements we have announced with technology companies, financial networks, wireless carriers and financial institutions around the world
In the second quarter, we continue to make excellent progress with our partnerships
We continue to expand our relationship with Visa, expanding our partnership in the Europe
As most of you will recall, last quarter, we announced an agreement with Visa that covered the Asia-Pacific region
Consequently, we now work around the globe with Visa
And as part of our network agreement announced last year with Visa and Mastercard, we recently announced the new service as it designed to allow PayPal and Venmo users in the U.S
to instantly transfer money to their bank account via eligible debit card, linked to their PayPal account
Findings faster and more convenient ways for our customers to fund into and out of their PayPal accounts is a key part of our overall value proposition
Throughout the quarter, we saw a relationship with issuers grow increasingly collaborative and productive
For example, we are pleased to see leading issuers including Wells Fargo and HSBC actively marketing PayPal to their customer base, encouraging their clients to link their cards into PayPal accounts
We also announced new strategic relationships with JPMorgan Chase and as of today Bank of America to utilize their token services and enable their customers to easily integrate their cards into PayPal and seamlessly create a new PayPal account from their properties
Furthermore, as part of our expanded relationship with Citi and Chase, we will make Citi ThankYou Rewards Points and Chase Ultimate Reward Points available in our PayPal wallet to be used as a funding source for consumers shopping at our 17 million merchants
As I've said on last quarter's call, it's hard to overstate the difference in the relationships we now have with companies across multiple sectors to many once view as potential competitors
We are confident these partnerships will drive enhanced value to our mutual customers
The accelerating and extensive scale of our two sided global platform, which will allow consumers and merchants to transact instantly in new context, across operating system, technologies and platforms, create a strong foundation and is very attractive to multiple partners
Our open technology platform has enabled expanded partnerships with Google, Apple, Facebook and Samsung over the past few months
These agreements benefit both PayPal and our partners by creating innovative consumer-focused experiences that connect their combined billions of consumers to new buying experiences enabled by PayPal's powerful platform
In April, Google announced an expansion of our partnership to make it easy for consumers to use PayPal as a payment method in Android Pay wherever it is accepted, in-store, in app and online
In addition, Android Pay users on Google's Chrome mobile-web will be able to seamlessly pay at the millions of online merchants that accept PayPal, simply by using their PayPal account and fingerprint authentication
Just like the deployment of One Touch, this great new checkout experience will be available to millions of PayPal merchants without requiring any integration work from the merchant, further extending the value we bring to our merchant customers
Also in the quarter, Facebook announced additional commerce experiences with PayPal that will be available within its Messenger platform
At F8 Facebook shared that over 1 million joint PayPal and Facebook customers have already enabled our payments experience within Facebook Messenger
Earlier this month, PayPal and Apple announced an expansion of our iTunes integration, which mean customers can now buy games, music, movies and in-app purchases with PayPal, on their iPhones and iPads in the Apple App Store, iBooks, Apple Music and iTunes stores in 12 countries including the U.S
, Australia and parts of Europe
We anticipate that this integration will expand to more countries around the world in the coming months
This complements our existing integration into Siri and Apple iMessage and marks a growing relationship with Apple
Finally, we announced a strategic partnership with Samsung
Users of Samsung Pay in the U.S
will be able to use PayPal to pay for purchases in-stores using Samsung Pay's mag-stripe emulation technology, which is used at the vast majority of merchants that accept cards
The totality of these partnerships reinforces the fact that we're becoming an underlying open payments platform and wallet for many of the leading technology platform, OEMs and wireless carriers around the world
We continue to make good progress in rolling out Venmo as a payment option for PayPal merchants
As we shared last quarter, we're not introducing the ability for U.S
PayPal merchants to accept Venmo as a mobile payment option
Venmo users are now able to use Venmo at an expanded number of PayPal merchants such as lululemon and Forever 21 and I'm quite encouraged by the early results
We expect that the ability to pay with Venmo will be widely deployed across millions of our PayPal merchants by the end of this year and I look forward to sharing more details in the coming quarters
The ability to deliver new consumers and enhanced sales growth to merchants of all sizes is a key benefit of PayPal, especially as the world becomes more global and increasingly digital
As of today, this includes bringing the power and reach of the PayPal platform to the expansive and rapidly growing Chinese consumer market
We're very pleased to announce that PayPal has signed a strategic partnership agreement with Baidu, the leading Chinese language internet search provider with approximately 700 million users
This partnership allows Chinese consumers to pay with their Baidu Wallet and PayPal at our merchants outside of China
Beginning later this year, this partnership will provide Chinese consumers more ways to discover and buy from PayPal merchants in the U.S
and will eventually expand the PayPal's entire global merchant base outside of China
We expect this partnership to drive significant demand and additional cross-border trade over the PayPal platform
In addition in helping our merchant customers maximize their opportunities in the age of digital commerce, another key part of our strategy is helping underserved consumers, join and thrive in the digital economy
This vision drove our recent acquisition of TIO Networks, which adds bill pay functionality to our two sided platform, offering consumers the ability to access a digital network and benefit from the convenience and speed of digital bill payments
Last week, we announced that we have closed our acquisition of TIO Network and I would like to take this opportunity to welcome Hamed and the TIO team to the PayPal family
Three years ago, we set off to transform PayPal
Our goal is to create an open platform for digital commerce to deliver innovative mobile checkout experiences that blur the lines between physical, online and mobile shopping
We set off to create an integrated suite of services, experiences and APIs that could extend the power of our two sided ecosystem, to our merchants with a little and I'd say no integration work required
That vision has grown increasingly important to our merchants in today's rapidly evolving retail landscape
Our execution in support of that vision is yielding strong results and expanding our leadership position
Our efforts to place our customers' frontend centered everything we do is driving the scale and engagement on our platform
It has opened the door to strategic and reductive partnerships that have extended the PayPal experience across multiple contexts in existing and new geographies
But we know we are still in the early stages of our transformation and we are just scratching the surface of the opportunities in front of us
We are fully committed to delivering a true core experiences and additional innovative and comprehensive solutions for our customers, helping our consumers and merchants to navigate the rapidly evolving and expanding digital payments landscape
And with that, I would like to now turn the call over to <UNK>
Dan, it’s Dan on
Nice to hear you and thanks for the question
So I am quite pleased with our progress on engagement
It is up 10% despite really what is an accelerating day right now which is kind of the high-class to have
We are seeing tremendous adoptions across merchants and consumers into the PayPal franchise
As I mentioned, we think we’ll exceed 25 million net new actives for the year
In past couple of years, we’ve taken our active user engagement up almost seven transactions per user across the whole days
And if you look under the covers what we’ve done here quite a bit, the news is even better because the majority of our user engagement right now is coming from the core PayPal Wallet and in many prices before it was coming from growth of Braintree and core PayPal
But now it is being driven the majority from our PayPal core wallet and that is a great story for us
And if you look at our product growth and our core PayPal franchise over the last several quarters, we’ve taken multi-year trend that have been drifting slightly down in terms of their real growth year-over-year and we have bent these curves across pretty much every single one of our core products and they're now up and accelerating
So, that is a piece of really good news that you probably wouldn’t see from a number in and up itself
And it kind of feels like, we’re just at the beginning of this
We've got One Touch that is driving engagement, that’s driving increased engagement and it’s accelerating across the base
Choice still new, but choice engagement and summing up into choice that engagement is up quite substantially, and I am really pleased with what we are seeing from choice
As I mentioned, we're about 13 million plus customers that are in choice now, that will grow and that will impact engagement
We’re obviously just beginning of the journey the movements in your context
Now, we now at basically major agreements, we're pretty much every major issuer, we’ve got agreement from the financial networks to utilize their tokens and those start to move us, move more an in-store environment as we go into next year, that'll also drive engagement
Right now, there's no engagement with Venmo, it's P2P, but we don't count that in our engagement
So also you'll see that drive up
TIO just came on
Our new partnerships with Facebook and Google are going to start to kick in, that's really not in our guidance right now, as they ---+ those things are going to start to accelerate and drive our future growth as we look into '18, '19, '20. So, we still have a goal that would consumer use PyaPal two times a week
That is our goal, not to drive once a week, but to drive two times a week
And I feel with all the initiatives we've right now and the trending that we're seeing that over ---+ our medium to long term that’s within our reach too
So feeling pretty good about where we're on the engagement side
You've violated first quarter rule, one question, but otherwise okay
Correlate with it and I admire that
So, listen one of the things I mentioned in my opening remarks is we're beginning to see a tremendously collaborative relationship with issuers right now
We're seeing I mentioned two that are marketing to their pace to actively encourage them to link their cards into our PayPal account
And that's happening because we're going to drive growth for them, as <UNK> mentioned in his remarks, our MS TPV ---+ our TPV growth outside of eBay is growing at 30% and we're the perfect digital distribution channel for financial institutions especially now that we've implemented choice
And consumer will opt on how they want to pay and where they want to pay on that
And so I think this acceleration of our net new actives is coming at a lower cost to it, so it's really found sort of one-two punch that’s positive for us now, but especially as we look forward
Just to add to that, we saw first [indiscernible] well and we spent a lot of time as we started the transition of the Company from being really single product type of company to being a platform company that offers a suite of services to both merchants and the consumers
And where we found and with a ton of detailed research and analytics on this is when we add an incremental service to a consumer or even to our merchants, we see the lifetime value basically double
And so a consumer adds to P2P, we see them they engaged more, their use of PayPal goes up, their churn goes way down, and it is a gigantic benefit for our flywheel and for our economics
And so, the more products and services and experiences and more engagement we could have with the consumer and a merchant, the better the LTV is for us
And that comes through us, as Bill said, historically as we have seen with P2P and others
We also start in-store with Vodafone as we go down, we have seen these
People have used Vodafone and PayPal in-store
They use PayPal more in app and online because the distinctions between those things are blurring especially with mobile
And so, our ability to engage with consumers and drive that engagement is a good thing both for consumers, for merchants and for the economics of PayPal
I'll start then maybe Bill can supplement
So, I would say and as I mentioned in my remarks, there's no one single thing driving the growth of those net new active
And as I mentioned, you know, I said I think we'll do an excess of 25 million net new active that would imply so that we're going to do another on average 6 million or so in the third and fourth quarter
So we see a continued strength in net new active
That's coming as a result and Bill won't say this, but I will from the great work that Bill and his product and engineering teams have done, great work that have done
The risk teams have done around improving our core experiences
And as I mentioned, we're bending multiyear curves now and we’re seeing now really nice year-over-year growth in our core experiences
Availability just thing like availability is up, that matters a lot, we'll wait and see
That matters a lot
We got a new mobile app there
We got One Touch
We got choice coming in
Choice is driving both reduction in churn which helps to net new actives obviously, but it’s also driving additional new adds because the on-boarding process is so much more streamlined, and then you also have partners that are now actively marketing PayPal because together we're sort of allies in advancing digital payments and tapping into that growth
So I think there is a number of things and we also obviously with 210 million people now on the platform, we’ve got maybe at a tipping point of these network effects right now where there's so many merchants on the platforms, so many consumers on the platform, that it's a must have for people especially if they move into mobile check out experiences
I think what Bill and the risk teams have done and things like One Touch have really been an unparalleled kind of a mobile checkout experience, almost two times the conversion of the industry average
And so, I'll look at a number of things that we've done over the course of the last several years, and they're beginning to take hold in the market, and really driving our results and Bill would you answer that
I'll just add one last thing and then we'll be done with your question, <UNK>
We didn't underestimate what can happen with Baidu, I mean we're now tapping into that Chinese consumer marketplace, and that is going to open up a whole new market for consumers to come on to the PayPal platform, interact with our PayPal merchants outside of China and drive what we think could be substantial cross-border traffic
And I talked about this, it's not just Baidu, it's Baidu and PayPal
So almost a little like we've done with Android Pay that it's a cobranded experience and sign up to our PayPal account from there
So, there're a lot of things that we're working on, a lot of things we still want to implement but feel good about the current trend right now
Yes, so, we've done I think 24 major partnerships in the last 18 months and you've seen it last quarter starting to accelerate actually
And it's accelerated that people are beginning to understand the assets that we bring to our partners
We obviously bring our scale to partners and when you talk to different platforms whether it'd be Baidu or Google or Samsung, the ability to tap into 17 million merchants we have that long tail of merchants, that's a very difficult asset for others to replicate and it's accelerating in its growth
If you look at other partnerships, we can add potential for pretty significant additional growth for them, whether that's driven by mobile and we can do a One Touch or TPV that's accelerating
And as you know, we also control value prop end-to-end, there're very few players who do that, there're some players that can take a piece of it, but very few players own it including risk, custom service, brand reputation
And we own all of that parts of that proposition and we've also changed our model, quite a bit, we're an open platform and a suite of service both branded and unbranded that's operating system and device and technology agnostic
And so, we're ---+ and very importantly, we're a neutral third party platform
So we don't compete with any of our merchants or partners who are allies in advancing digital payments
So, I think our positioning is really good within the entire ecosystem to continue to partner
There're a number of other partnerships that are on the horizon and I think the more we partner the more people see that the benefit of doing that could be quite substantial, so I think we announced enough partnerships right now, so we'll save some for the next ---+ for the next announcement
But I think we're really well positioned on that front
On the M&A front because you got two questions in there in a very subtle way
But on the M&A front, look we've a very strong balance sheet
<UNK> mentioned, we've $6.4 billion of cash equivalents on our balance sheet
We're generating ---+ now with our guidance is over $2.9 billion of free cash flow for the year
So that’s the competitive advantage for us
There is no question about it and we are very active and looking at range of opportunities around the world, both big and small
But look those opportunities needs the time to our vision in our mission
They got to accelerate our progress either against the key vertical or geographic expansion
We do tuck-in acquisitions from a tech or functional capability like a TIO type of things, but we look at this in the through the lens of do we build, do we partner or do we buy
And the amount of work that <UNK> and Bill done on there, respective platforms with risk capabilities or full infrastructure ---+ I mentioned the increased developer productivity, we can put out a ton of releases, now we put out some like 30,000 releases in the quarter
I mean it's amazing in velocity of new functionality and innovation that Bill and his team are putting out into the market place
And so, well, we used to have to buy at onetime because it would take us month to make a change on our website because we have such a monolithic infrastructure
Now, there is a rapid velocity, a very innovative services coming in
Second thing is we can partner now in ways that we never partnered before
We have new velocity about cooperating with people
It's created in environment that gotten very competitive one to one that’s much more cooperative
We have a ton of complimentary resources that we can use with partners
And now many times where we used to think that we will have to buy something, we can that partner on a commercial relationship to go and do that
And then obviously, if we can't do any of that we look at buy and we do that in a very disciplined manner
We have got certain amount of skill and capabilities and so you can expect us to continue to be acquisitive, but in a disciplined fashion and within the context that what I just mentioned
So, I’ll start off and then I’ll turn it over to Bill
But I think there is a real difference now with the partnerships that you mentioned that are major tech platform companies
I think none of that really wanted to go into payments as an end to itself
It was a means to an end that they have
And so, it might be more engagement on their platform and that engagement lead to key metrics that they want to try to keep the advertising, it could be other thing
And when we made the shift to being an open payments platform as opposed to just seeing a button as I check-out experience, and really open our platform up to pretty sophisticated technological upgrades through open APIs with the partnership we had with tokenization and that kind of thing
We were then able to become really in many ways an underlying payment OS or those tech platforms that enable them to create the experiences, that they wanted to drive for their end user
And so that partnership is fundamentally different right now and it has evolved greatly over the last several years
I'll ask Bill to add a color to that, but it's a very different conversation that we have now then we used to have
I'll start off with that
Obviously, we've worked closely with JP Morgan Chase over the last couple of years actually, as we've talked about the potential for how we might work together
And I'm really pleased with where we came out in this partnership
We both see a lot of value in it, if two very strong companies lending what are really impressive assets to create consumer experiences, including as you mentioned processing through Chase Net which obviously does give the potential
We are not talking about any deal terms one way or another, but potential for lower cost from that
So I'm really pleased with the comprehensive nature of the partnership that we have with Chase because time to work through all the details of it
But I think both of us are really good about and really good about what we can drive coming out of that
I think you just think about things like reward points, Discover, Chase, Citi have all decided that utilizing the reward points within the PayPal platform to utilize those for purchases that are 17 million merchants
That’s a real significant differentiation for those particular financial institutions and their customers who are using their instruments, but also for PayPal because you now can utilize those reward points in a split transaction
You have X number of reward points, but maybe couldn’t do that full transaction
You can now split that, you can use this reward points to purchase 40% of which we are going to do and then the other 60% can be done to whatever funding instrument you select as a consumer
That’s a little over a cost funding mechanism as well for us so
There are all sorts of things within these relationships that we have, they try to enhance value for our mutual customers that, if you parse through them, it's really quite significant and differentiated from where we were certainly a year or so ago
Now the in-store stuff, we obviously now have the ability to use industry tokens from these Mastercard and others
And now, we are working with each of the FIs to use their tokens for their particular instruments
And so, you will start to see that’s just a naturally begins our rollout
There really is much of a trial and error per se on this
We will have the ability for our PayPal customer, if they are opted into one of the bank services that’s provided token, we will use network tokens with that
And you will simply be able to use that instrument seamlessly across where actually it is accepted now on android phone for instance across in-app experience, online experience, or an in-store experience without us having to do bespoke customization of software at the point of sale terminal
So that would just be a natural rollout utilizing existing POS technology
Okay, so thank you for that last question, <UNK>
And thanks everybody for joining us
We really appreciate your time and we look forward to speaking with all of you soon
Thanks a lot everybody and thank you operator
