PayPal Holdings, Inc. Common Stock 2026 Q3 Earnings Call

Please go ahead. Thanks, Alexandra.

Welcome to PayPal's third quarter 2026 earnings call. I am joined by CEO, Enrique Lores, and Chief Financial and Operating Officer, 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.

Over to you, Enrique. Thank you, Steve, and good morning.

Today, I will discuss our third quarter progress, our multiple growth engines across PayPal, and how our work on cost, technology, and AI is helping us move faster and deliver for our customers. We are building on PayPal's unique strengths, the trust in our brands, our global scale, and the power of our two-sided network while expanding beyond checkout into financial services. This is an increasingly important part of our value proposition and a larger driver of our growth. Financial services expand our total addressable market, deepen customer relationships, increase lifetime value, and allow us to become a more relevant financial partner in consumers' everyday lives. Over the past several months, we have moved quickly to simplify PayPal, clarify accountability across our three businesses, and improve our cost structure and productivity.

We now have greater clarity on where our biggest opportunities are and how we will capture them. This quarter, we are beginning to see our strategy translate into financial results. We delivered a solid quarter with transaction margin dollars growing approximately 2% and non-GAAP earnings per share growing 8%. We also delivered $2 billion of adjusted free cash flow and returned over $1.6 billion through buybacks and dividends. Our key growth areas continue to perform well. We saw strong momentum across financial services, including buy now, pay later, credit, and debit. Venmo and Braintree each deliver double-digit TPV growth and are making important contributions to transaction margin dollar growth. Branded checkout TPV growth has remained relatively stable in the 1%-2% range for four quarters, despite various headwinds.

While there is more work to do, we are encouraged by the improvement relative to the market, continued momentum in the U.S., and strength in BNPL and Pay with Venmo. These results show that our financial performance is increasingly coming from multiple parts of the business. Last quarter, I outlined five changes we are making to build a stronger, more diversified PayPal. We have made good progress, and today each of our businesses has a clear plan for how it will contribute to durable, profitable growth. First, financial services are becoming a much more important part of our business. They already represent more than 20% of transaction margin dollars in 2026 and are growing double digits. For example, we continue to see good momentum in Pay Later with broader distribution this quarter through leading merchants like Amazon in Germany and Austria, American Eagle, Aerie, and Dick's Sporting Goods.

The momentum extends beyond Pay Later, with strong growth across consumer offerings like credit, debit, and tap to pay, as well as merchant lending. Second, we continue to build momentum in Venmo and PSP. We are building on the strength of the Venmo brand to broaden adoption of financial services, deepen customer relationships, and increase ARPA. The Venmo debit card reached 6.7 million monthly active accounts, up more than 55%, with a record 1.6 million first-time users in the third quarter. We also relaunched the Venmo credit card with a differentiated value proposition that rewards customers for splitting purchases with friends. In PSP, we are strengthening our position with large enterprises and leading commerce partners through unified processing and a broader portfolio of premium value added services, such as risk as a service, payouts, and merchant lending.

PSP volume grew 8%, while value added services attached increased to 6% from 5% a year ago. Third, we remain convinced that a consumer led approach is the right catalyst for durable, profitable growth. We have done significant work to understand who our highest value consumers are, what they need from PayPal, and how we can deepen our relationships with them and become more relevant in their everyday lives. Transaction margin dollar growth is our North Star. To drive that growth, we are placing greater emphasis on monthly active accounts and ARPA among these consumers. That means increasing adoption of financial services and improving retention, while also making PayPal easier to find and use at the merchants where these consumers shop. Over time, our opportunity is to serve more of their financial needs with checkout increasingly just one part of our broader relationship.

This consumer led approach also informs how we work with merchants. As you can see on slide 5, across many of our largest U.S. merchants, we are improving the checkout experience, strengthening presentment, and partnering on consumer marketing to drive PayPal selection. Where we have implemented multiple elements of this playbook, we are beginning to see improvement in our checkout performance. We are scaling this approach merchant by merchant and country by country. Fourth, we are changing how we operate to drive better execution. We have clearer accountability, faster decision making, and simpler ways of working. We have reduced headcount by more than 2,000 and removed three organizational layers across most areas of the company. We are also using AI and automation to drive productivity. For example, our AI chat agents now support customer service across 190 countries and six languages and have resolved more than 24 million contacts year to date.

Actions like these are creating capacity to reinvest in our highest return opportunities. We are on track to achieve our target of at least $1.5 billion in gross run rate cost savings over two to three years, including more than $700 million exiting the fourth quarter. Fifth, we are modernizing our technology and leveraging AI to innovate faster and at scale for our customers. We are making solid progress. This quarter, we migrated 7.5 billion customer records to cloud infrastructure. Our new modular risk platform is using real-time data and AI to cut credit decision times nearly in half in Canada, Italy, and Spain. Venmo has started processing select payments on PayPal rails, and Venmo authentication now runs entirely on PayPal's identity platform. These are important steps toward a more unified technology foundation.

We completed the global rollout of our new PayPal mobile app, built on modern architecture that will enable faster data driven innovation. We are building for what comes next, collaborating with Meta and other AI companies to integrate PayPal into AI for personal agents and bring our trusted value proposition to agentic commerce. We are still early in these changes. This is a multi-year transformation and there is much more work to do, but the progress we are seeing reinforces our conviction in the strategy. As I look further ahead, I'm increasingly confident in PayPal's earnings growth potential. Over time, we believe the changes I have described can drive sustainable total company transaction margin dollar growth in the mid single digit range.

Combined with operating leverage and disciplined capital allocation, including share repurchases, this should enable us to deliver solid double digit EPS growth. Importantly, we are building the business to make that growth durable. The key is a more diversified contribution across the business. We expect financial services, Venmo, and payment services to contribute a significantly greater share of transaction margin dollar growth over time, with each growing double digits. While we expect branded checkout TPV to improve, this algorithm does not require it to return fully to historical growth rates. The increasing contribution from the rest of the business can drive total company transaction margin dollar growth in the mid-single-digit range. We also have a significant cost opportunity. The at least $1.5 billion in savings we have identified gives us the capacity to both reinvest and drive operating leverage over time.

PayPal remains a strong cash-generating business, giving us the flexibility to invest where we see the greatest potential while continuing to return capital to shareholders. Getting there will require investment. Our U.S. playbook is showing encouraging early results, and in 2027, we plan to scale what is working across more merchants in the U.S. and internationally. We plan to invest further in both transaction margin dollars and operating expenses. We are targeting 2027 non-GAAP EPS growth similar to this year as we position the business for faster, more durable growth over time. What gives me confidence is that many of the changes we are making are structural. We have a clear strategy, a simpler operating model, and we are improving execution, and we have started to see the results. Thank you to the PayPal team for your hard work and continued focus. Jamie, over to you. Thanks, Enrique.