PayPal (NASDAQ:PYPL) reported second-quarter results that exceeded its expectations, citing growth in Venmo, credit products and Braintree, while raising full-year guidance for transaction margin dollars and non-GAAP earnings per share.
CEO Enrique Lores said revenue increased 5% during the quarter, while transaction margin dollars rose 1%. Excluding interest on customer balances, transaction margin dollars grew 3%. Non-GAAP earnings per share declined 1% year over year to $1.38, but exceeded the company’s guidance.
Raised Full-Year Outlook
Chief Financial and Operating Officer Jamie Miller said PayPal now expects full-year transaction margin dollars of approximately $15.6 billion, or $14.5 billion excluding interest on customer balances. The company raised its full-year non-GAAP EPS outlook to $5.38 and expects at least $6 billion of adjusted free cash flow.
The company also expects approximately $6 billion in share repurchases for the year. PayPal repurchased $1.5 billion of stock during the second quarter, bringing its trailing 12-month repurchases to $6 billion. It ended the quarter with $15.3 billion in cash equivalents and investments and $13.4 billion in debt.
For online branded checkout, PayPal raised its full-year expectation to low-single-digit currency-neutral payment-volume growth. Miller said the company expects branded checkout growth of about 2% in the third quarter, consistent with first-half performance, and low-single-digit growth in the second half.
Third-quarter guidance calls for low-double-digit currency-neutral revenue growth, slightly positive transaction margin dollar growth, high-single-digit growth in non-transaction operating expenses and a low-double-digit decline in non-GAAP EPS.
Venmo, Credit and Braintree Drive Growth
PayPal said its financial services portfolio, including credit and buy now, pay later offerings, is on pace to grow revenue at least twice as fast as the overall company this year. Buy now, pay later volume grew 26% in the second quarter, while Pay with Venmo grew 44%.
Venmo total payment volume increased 14%, marking its seventh consecutive quarter of double-digit growth. PayPal said it rebuilt the Venmo application during the quarter to provide a more personalized peer-to-peer experience and improve product discovery.
The company is seeking to turn Venmo into a broader money-management platform, with a focus on driving adoption of monetized products including its debit card and Pay with Venmo. Monthly active accounts for Venmo Debit Card users rose more than 50% year over year, according to Lores.
Customers using both Venmo Debit and Pay with Venmo generated more than nine times the average revenue per active account of peer-to-peer-only users, and that customer group roughly doubled in size over the past year, he said.
Payment-services volume growth accelerated to 13% from 11% in the first quarter. Braintree, PayPal’s payment service provider business, has delivered profitable growth for nine consecutive quarters, Lores said. The company aims to expand merchant adoption of payouts, risk-as-a-service, payment optimization and embedded-finance products.
PayPal is also working to unify Braintree, PayPal Complete Payments and Hyperwallet on a single technology foundation, with near-term priorities including interoperability, self-processing capabilities, merchant lending and payouts.
Checkout Stabilization and Consumer Focus
Branded experiences payment volume, which includes online checkout, PayPal and Venmo Debit, and tap to pay, grew 6%, up from 5% in the first quarter. Debit card and tap-to-pay spending increased more than 60% year over year, though Miller said those categories remain a small share of branded-experiences volume.
Miller said U.S. branded checkout performance improved sequentially, aided by buy now, pay later, Pay with Venmo, early returns from investment programs and some benefit in June from the World Cup. Core European markets also improved, though to a lesser degree, and early-quarter pressure in the travel vertical moderated later in the period.
Lores said the company is focusing on highly engaged consumers that account for the majority of payment volume and are growing faster than the rest of PayPal’s customer base. The strategy centers on expanding financial services, increasing customer lifetime value and using improved data and artificial intelligence capabilities for segmentation and personalization.
The company cited several buy now, pay later initiatives, including Temu’s introduction of the product in Canada, expanding availability to eight global markets, and Home Depot Canada’s launch of upstream presentment for PayPal’s offering.
Cost Savings, Reinvestment and Technology Modernization
PayPal said it remains on track to produce at least $1.5 billion in gross run-rate cost savings over the next two to three years. The company has identified actions expected to generate approximately $400 million in new run-rate gross savings by the end of 2026, with a portion expected in the fourth quarter.
The initial actions could result in transformation-related charges of approximately $120 million to $140 million during the second half, Miller said. PayPal plans to reinvest a significant portion of the savings into growth initiatives, including financial services, product development, marketing, risk management and technology modernization.
The company is working to remove three organizational layers this year, increase spans of control, migrate from owned data centers to the cloud and create a more modular technology architecture. Non-transaction operating expenses increased as PayPal invested in cloud and platform modernization, risk capabilities and targeted growth programs. Non-GAAP operating income fell 8% to $1.5 billion.
Addressing recent merger-and-acquisition speculation, Lores said PayPal does not comment on market rumors or potential discussions. He said the board and management team would evaluate opportunities that could create superior shareholder value, but that the company’s current focus remains executing its transformation strategy.
About PayPal (NASDAQ:PYPL)
PayPal Holdings, Inc operates a global digital payments platform that enables consumers and merchants to send and receive payments online, on mobile devices and at the point of sale. The company provides a broad set of payment solutions, including a digital wallet, merchant payment processing, checkout services, invoicing and fraud-management tools. PayPal’s platform is designed to support e-commerce, in-person retail and person-to-person transfers, targeting both individual consumers and businesses of varying sizes.
Key products and services in PayPal’s portfolio include the PayPal wallet and checkout ecosystem, the Venmo peer-to-peer mobile app, Braintree’s developer-focused payment gateway, Xoom for international money transfers, and PayPal Credit and buy-now-pay-later options.
