Posted June 26, 2023

Management Meeting | June 8, 2023

This transcript includes a clarification on page 24 in respect of a response to an analyst question.

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

Ryan Wallace, Head of Investor Relations

Dan Schulman, Chief Executive Officer and President

Peggy Alford, EVP, Global Sales and Merchant Services

John Kim, EVP, Chief Product Officer

Gabrielle Rabinovitch, Acting Chief Financial Officer

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

Ashwin Shirvaikar, Citi

Tien-Tsin Huang, JP Morgan

David Togut, Evercore ISI

Lisa Ellis, MoffettNathanson

Ramsey El-Assal,Barclays

Michael Ng, Goldman Sachs

Trevor Williams, Jefferies

Darrin Peller, Wolfe Research

Jamie Friedman, Susquehanna

Craig Maurer, FT Partners

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

Ryan Wallace

Management Meeting | June 8, 2023

All right. Good afternoon. Welcome.

My name is Ryan Wallace, Head of Investor Relations for PayPal. We're live here from our office in New York City.

I just want to thank you all for being here in person with us as well as everyone else that's tuned in to the audio webcast. So the plan for today is spend about an hour on some remarks presentations. We'll follow that up with Q&A.

Our lineup is going to include Dan Schulman, President and CEO; Peggy Alford, EVP, Global Sales and Merchant Services; John Kim, EVP, Chief Product Officer; and Gabrielle Rabinovitch, SVP, acting Chief Financial Officer, who will join in for Q&A. We're also excited to have a few members of the Board of Directors in the audience here with us today as well as other leaders across PayPal's business. They're all looking forward to speaking with you at the reception after the event.

Before we get started, some quick disclosures.

Today's presentations may include forward-looking statements that are based on our current expectations, forecasts and assumptions.

These statements involve risks and uncertainties that we described in our Forms 10-K and 10-Q filed with the SEC.

Our actual results may differ materially.

You should not place undue reliance on any forward-looking statements, and we assume no obligation to update them.

Please visit the disclaimers tab on our Investor Relations website for information regarding these statements. In discussing our company's performance, we may refer to some non-GAAP measures.

You can find the reconciliation of non-GAAP to GAAP measures on our Investor Relations website.

All right. With that, I'd like to turn the stage over to our President and CEO, Dan Schulman.

Daniel Schulman

Hi, everybody. Welcome. So good to see everyone.

Since this might be one of the last times I'm standing in front of all of you as PayPal's CEO, I did want to thank everyone because over the last numerous years, you provided me with a lot of messaging, a lot of counsel, a lot of guidance and definitely a lot of words of encouragement. So I wanted to thank you for that.

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Management Meeting | June 8, 2023

I've had the privilege to lead PayPal for the past 9 years, and I think if we're all honest with ourselves and we look back 9 years ago, I don't think we would have ever expected that we would have the market leadership position we have in payments today and the scale we have today.

I remember distinctly coming in to campus and having a lot of friends saying to me like, why are you taking this job? PayPal is a dinosaur. Payments is commoditizing. There's a very brittle infrastructure there that you're going to have to modernize. You've got a ton of regulatory scrutiny right now with very little regulatory compliance folks in place. And there's going to be competitors all over the place.

There's going to be Apple Pay, which, by the way, welcomed me into my job by announcing Apple Pay the same day I joined PayPal, so we've been competing against them for the past 9 years. If you remember all the wireless carriers got together to take on mobile payments. You had all the big merchants come together with MCX to take on mobile payments. You had all of the banks come in to try and put their checkout on merchants. Yes, the networks do that, then the networks came together to try and do that. And through all of that, we've basically tripled our size.

When I came in 9 years ago, we were a little over $8 billion of revenues. We're $30 billion-ish this year of revenues. Our profits, even though, during this time frame, when we spun out from eBay, about 40% of our profits came from eBay. Today, less than 2% of them come from eBay. When we spun out, our tax rate was like 10% to 11%. Our tax rate now is like 17% to 19%.

Even through that, we tripled our profits in that time frame, we more than tripled our free cash flow from $1.5 billion to over $5 billion, almost tripled our customer count, and more than tripled our transactions per active account. And so here we are today, really one of the market leaders in payments across the globe with substantial scale.

But I would say this. As I look back at what we've accomplished over the last 9 years or so and I look ahead to the next 3 to 5 years, I hope you'll come away today with a sense of the same excitement we have in terms of what that next chapter for PayPal will bring.

There is a tremendous amount of innovation going on inside the company today. I think that both Peggy and John will kind of tell you a little bit about and serve our strategic intent, what our product road map looks like, what we are doing now and iterating off of, and I think you'll walk away with the same sense of excitement that we have today.

And so without any further ado, I want to introduce Peggy Alford to all of you, and welcome her on stage.

Peggy Alford

Well, hello, everyone. I'm excited to be here today with all of you. And I want to tell you just a couple of things about myself so you know why I'm here. I'm the EVP of Global Sales and Merchant Services at PayPal, and have actually been at PayPal for a very long time. I joined eBay in 2002 within the same month that PayPal was acquired, and over that time, I've held a number

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Management Meeting | June 8, 2023

of roles in finance, cross-border trade, HR and now sales. I'm responsible now for delivering all of the revenue for PayPal.

I'm also on the Board of Meta and Macerich, which is one of the large shopping mall REITs [real estate investment trusts]. And so I spend a lot of time thinking about the payments ecosystem, the evolution of the payments ecosystem and what that's going to do to consumer behavior. So I come to you with a perspective not just on all of the work we're doing internally for PayPal, but more importantly, the perspective of our merchants that we serve with our products and services.

I'm not going to dwell on this slide. You know our stats, but there's 2 messages I'd love you to take away from this slide. The first is about our scale. Across many metrics, we have true scale. Dan talked to you about a few of those. And we're going to walk through some of the product experiences that we're developing. And those only work though with the scale that we have. So size matters. The second is that the cornerstone of PayPal is trust. The strength comes from trust. We are the most trusted brand, not only in fintech but also in payments.

I thought this slide was a good way to talk about the breadth and the quality of our value proposition. And you'll see on this slide, we have 3 businesses. And we have the scale to compete in each one of these, but we are the only global player that has all 3 of these reinforcing businesses at scale. So let's walk through them.

If you look on the right, our payment service provider, PSP, [solutions]. This is all about Merchant Services. And the go-to-market motion here is serving merchants. And there's way more than just processing here. We have, obviously, our Braintree and our PayPal Complete Payments platforms that are for payment processing, but we also have in-store in the form of Zettle as well as on our PayPal Complete Payments platform.

We have merchant lending. We serve with invoicing. We have payouts in 2 forms. We have it on the PayPal brand as well as in Hyperwallet. And here, we have massive scale. You see it in the volumes that we're delivering, but the focus now is about margins.

And I'll talk about this in detail, but the 3 things that we're doing to grow margins in our PSP business, number one, going down market to sell to SMBs [small- and medium-sized businesses]; number two, to sell outside of the U.S. in markets like Europe, Asia, where the margin profile is much more favorable; and three, to enhance the value-added services that we can offer on both of our processing platforms.

On the left, we have our wallet and commerce. And this is about the consumer services that we serve, and it's the offerings in our wallet. JK is going to talk a lot about how we're going to enhance these, but there's many things here in the wallet. We have P2P [peer to peer] friends and family, remittances, debit and credit on both Venmo and PayPal.

I don't know how many of you may have a Venmo or PayPal credit card. If you don't have one, you should check it out because not only can you get cash back, but you can also manage all of your activity right in the app. We have savings, bill pay and crypto. And so there's lots to come here. We're going to walk through some of it, but the best is yet to come here.

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But then in the middle, we have our network business. And this is about our global checkout services. It's the key to our 2-sided network. And the value here is about engaging both the consumer side and the merchant side because in order to get scale, you have to have that traction on both sides of the network.

We have a strong value prop in each of these businesses. But we are the only global brand that has all 3 at scale, and they are reinforcing to each other. I talked about what we're going to be doing in Merchant Services and our plans to improve the margins, but we also will get data that's going to fuel great experiences from the scaled branded and unbranded business, and JK [John Kim, Chief Product Officer] is going to share more of that in his presentation.

Before JK walks you through the product experiences that we're thinking about, I wanted to share the strategic themes of our growth strategy. Number one, branded checkout. Branded checkout is our core, and our goal here is about a frictionless experience for consumers. Number two, a scaled Merchant Services business with runway to grow the top line, but at much more attractive margins. And number three, the vast data assets from both branded and unbranded that can enrich commerce experiences to create the next generation of checkout that only someone with the data assets that we have can deliver.

And by doing this, we're going to impact 3 metrics. The first, we're going to increase consumer engagement; the second is we're going to grow commerce share from both branded and unbranded; and number three, we're going to grow our transaction margin through driving consumer engagement, leading to a greater high-margin branded business.

When we think about advancing Checkout, we think branded Checkout. We think about supporting merchants across the commerce journey. Until now, we were primarily playing as a payment mark in this payment part of the funnel. But what we realized is that with our rich data assets, we actually can provide value across the commerce journey. Everything from traffic generation to the shopping experience, of course, creating a frictionless checkout payment experience and even in post purchase with things like returns.

So often when you're trying to create a checkout experience, you're often having to trade between frictionless and security. If you think about when you come across in a merchant's checkout, CAPTCHAs, where you have to identify all of the bridges and line them up or you have to find all of the crosswalks, it adds friction, it adds time, and it's super annoying.

And so what we've set out to do is really not only think about a frictionless experience, but also think about a secure experience. And we're able to do this by offering 2 things: one, passkeys in our log-in experiences, and device credentials in our checkout experiences. This enables us to deliver secure experience that are as seamless as the best in the industry, and JK is going to walk us through that in detail in his.

PayPal has massive scale, and we've built the scale over the years. And with that, it comes at a price because we have merchants that we've integrated years and years ago that have old integrations, and we have merchants that we've integrated most recently with our best-in-class technology. But what that does is it creates inconsistent consumer experiences as our consumers work across our network.

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PayPal Holdings Inc. published this content on 27 June 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 June 2023 03:11:09 UTC.