PayPal : Q1-21 Earnings Buyside Call Transcript (opens in new window)

First Quarter 2021 Buyside Call | May 6, 2021

C O R P O R A T E P A R T I C I P A N T S

John Rainey, Chief Financial Officer and Executive Vice President, Global Customer Operations Gabrielle Rabinovitch, Vice President, Corporate Finance & Investor Relations

C O N F E R E N C E C A L L HOST

James Faucette, Morgan Stanley

P R E S E N T A T I O N

Operator

Welcome to the PayPal Virtual Fireside Chat conference call. At this time, all participants are in listen only mode. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speakers today, James Faucette, please go ahead.

James Faucette

Hey everybody. And thanks for joining us today in this conversation with John Rainey, CFO of PayPal. We also have Gabrielle Rabinovitch from the IR team, who's now doing more work within operations itself [corporate finance], so she can provide some color there as well. Look, as we go through, I've got prepared list of questions here. Honestly, we've got 45 minutes. Hopefully, we can get through a big part of those. I think that we actually could do a Joe Rogan podcast if we want, John, but I won't subject you to that. As we're going along, if anybody does have anything that they want to make sure that we hit on,

1

First Quarter 2021 Buyside Call | May 6, 2021

feel free to email me here at [e-mail], and we'll try to incorporate that as well. So John, big quarter, a lot of growth, TPV growth at 50% or 46% FXN, was obviously excellent. Would love to dissect that a bit. And I guess starting here, and this was something that we got a lot of input from people wanting to get a little more color. What was the biggest contributor to the upside there? Was it core TPV? Ex‐Venmo on eBay growth was stronger in Q1 or even looking at a two‐year CAGR basis. So just give us as much color as you can on kind of what you're seeing and what's driving that.

John Rainey

Sure, James, and it's always a pleasure and a lot of fun to be able to do this with you. You're right. I mean the year over year numbers are kind of eye‐popping. We obviously benefited from softer comps in March last year. But even then, if you look at your over two‐year numbers or even quarter over quarter, you saw that there was really strong TPV growth, and that obviously falls to revenue and the bottom line. There are a few things that stand out, and one is, we just started off the quarter really, really strong, and getting to sort of your question around where that's coming from, the thing that stands out the most is just the strength of our core markets and just this continuing pull forward of e‐

commerce where we're seeing this persistence in some of the trends around people and their behaviors

in terms of using digital payments. But the holiday period at the end of 2020 was more challenging to predict, because there was concern that there may have been pulled forward in some of the holiday sales, and we certainly saw an elongated holiday shopping season, but getting to your question, it extended on the tail end as well. The first 10 to 15 days of January were exceedingly strong relative to the normal low that you'll see after the holiday shopping season. You then go to the stimulus payments. We had that modeled in our guidance that we gave, and it generally tracked pretty close to what we expected. And were able to isolate the impact of stimulus pretty well, particularly as welook

2

First Quarter 2021 Buyside Call | May 6, 2021

at what happened last year. We talked a little bit about that on the call yesterday, but that was not something that I think was an outsize or driver of the results or the outperformance because we did model that pretty closely to what actually happened. And then we get to March, and March has softer comps. And there's a number of things there, but like just take Venmo. Venmo was really strong in March, and it always is around March Madness, which if you didn't follow, Baylor ended up winning it all. But Venmo is used a lot in the March Madness timeframe. And remember that last year that was canceled, incidentally when Baylor was also number one in the nation. But anyway, as we look at the quarter in total, just really strong growth across all parts of our platform, and a lot of these behaviors that are displacing cash are persisting, and that really plays into the increase in guidance for the back half of the year.

James Faucette

That makes sense. And John, at some point, Arizona's going to be back, I promise, but that's neither here nor there. But when you look at Venmo, one of the things that I wonder, and you mentioned kind of easier comps and kind of like some of the impact there, but what about other metrics that you're looking at, whether it be frequency of engagement or other things that could be telling and help you kind of sort out really what's happening there, particularly on a go‐forward basis?

John Rainey

Well, remember at our Investor Day, we talked about this idea of increasing the ARPU, the average revenue per user, 2X for PayPal [from a medium engaged to high engaged user] and 10X for Venmo. And what really underlies that is an increase in engagement. And perhaps one of the more exciting things internally that we rally around is the strong correlation that we see and increases in level of engagement with additional experiences that we're providing to our customers that provide more utility to that wallet.

3

First Quarter 2021 Buyside Call | May 6, 2021

I'm looking more closely at engagement lift than I am at the monetization efforts around things like buy now, pay later or crypto or other things like that, because all of this plays to this thesis of the ascendancy of the digital wallet over the next three to five years, which we firmly believe in. And if we can increase these levels of engagement, which directly flows to increased levels of revenue in there and then to the bottom line. It's sort of following suit to what the thesis is around what we're going to do over the next five years.

James Faucette

Yeah. And when you look at that point around increased use of wallet, etc., how much benefit

were you getting from things like Paymentus or Bill Pay generally, or even things like crypto wallet funding? Were those enough to move the needle in any of, whether it be TPV or other financial metrics?

John Rainey

I wouldn't say that any one of those individually moves the needle. I think the collective impact of all of them probably move the needle a little bit. Let me give you a couple of data points there: around net new actives, one of the primary activation channels for net new actives is P2P, and that's been consistent for some period of time, but in the most recent quarter, one of the things that was at the very top of driving net new actives was what we call recurring payments or subscriptions. And so that's again something that we're really excited about that it is improving our financials and creating a stickiness to the platform. Paymentus is driving more volume. We certainly had a full quarter of Paymentus being effectively a hundred percent ramped. And you see a little bit of the impact of that in our take rate, but you also see it in our transaction expense. And again, this goes back to this idea of creating utility in the digital wallet with things like Bill Pay, subscriptions, all these things that are inherently very sticky versus someone just using PayPal to pay at a website.

4

First Quarter 2021 Buyside Call | May 6, 2021

James Faucette

Got it. John, you cut out right before and you came back right before you started talking about Paymentus, etc. So if there are any secrets of the universe that you disclosed, then maybe you should revisit those really quickly.

John Rainey

Sorry. We did hear a little static. I apologize about that. The only thing I was saying is that recurring payments or subscriptions was one of our largest activation channels for net new actives for the quarter. Think of that as something like vaulting a PayPal instrument into Uber that is just sort of opaque and happening in the background there, but it's a recurring type payment.

James Faucette

Got it, got it, got it. Now on the outlook itself, obviously you seem very confident and one of the questions we've gotten not just about PayPal, but generally is, and concerns even better said, is people worried that the stimulus may be distorting current activity and then making forecasting that much more unpredictable. Are you able to isolate stimulus impact within what you're seeing very well? And then how are you adjusting as you build plans for a more normalized environment?

John Rainey

Yeah, it's a great question. Let me pull that apart in a couple of different directions. One is, this is a challenging time to forecast. There's a lot of variability given with vaccine rollouts, how quickly people are returning to physical experiences. And so I don't want to suggest that we have a crystal ball and we know exactly how this was going to play out. That's not the case at all, but that said, that should not

5