Sarah, the conference operator, introduces Ryan Wallace, Head of Investor Relations, who welcomes everyone to PayPal's Fourth Quarter 2023 Earnings Conference Call. Alex Chriss, President and CEO, and Jamie Miller, CFO, will also be speaking. The presentation and call are available on the Investor Relations website. Non-GAAP measures will be discussed and forward-looking statements will be made. The actual results may differ from these statements due to risks and uncertainties. Alex Chriss is pleased with the company's performance in the first four months and the solid financial results.

The speaker is excited about the progress and changes that have been made within the company, including additions to the leadership team. They highlight the company's solid performance in the fourth quarter and their commitment to making necessary changes for improvement. They also mention the importance of having a diverse and experienced leadership team, and introduce the new members who have joined in the past few months.

PayPal has hired new leaders who are motivated to reshape commerce and drive growth. They have also restructured their teams to focus on specific customer segments and are working towards making PayPal the obvious choice for users. To support their growth, they have announced a reduction in workforce and are prioritizing investments in innovation and product delivery. Their main priorities for the year include increasing growth, improving profitability, utilizing data, and operating more efficiently. They have recently made changes to demonstrate their commitment to delivering value to customers and are working towards driving change both internally and externally.

The company's initiatives have received positive response from customers and merchants, but it will take time for them to have a significant impact. 2024 will be focused on execution and reshaping the company for long-term success. The company has made strategic decisions to reinvest cost savings into important initiatives and remain on offense in the global commerce market. The company's operating principles include starting with the customer, prioritizing profitable growth, and driving operating leverage over time. The company is committed to being transparent and delivering on its commitments.

PayPal is committed to delivering personalized experiences for customers and improving efficiency across the business. They have set measurable goals and will maintain a strong balance sheet. They are focused on accelerating growth in branded checkout and PSP services for enterprises, and have redesigned their checkout experience to increase speed and minimize friction. They are also introducing a new guest checkout experience, Fastlane by PayPal, which will provide a compelling reason for merchants to use PayPal.

Fastlane, a solution that helps recognize guests and reduce checkout time, has been successful on the BigCommerce platform with a 79% conversion rate. PayPal is focused on driving profitable growth through their PSP services and by integrating value-added services. They are also working on a modern platform, PPCP, to provide a comprehensive suite of solutions for small businesses.

PayPal's full stack solution allows them to reach a larger market of processing volumes and they have seen record adoption from SMBs. They plan to continue driving adoption through various channels and improving their checkout process for both SMBs and consumers. They also aim to differentiate themselves and provide personalized and rewarding shopping experiences for consumers through their app and AI technology.

PayPal plans to increase understanding and awareness of their services through marketing efforts. They hope to drive customer growth and deeper relationships by promoting their new checkout and app experiences. They also see an opportunity to increase adoption of their rewards program and PayPal Cashback Mastercard, which have shown higher engagement and revenue per account. The company plans to redesign their app and improve onboarding processes to drive adoption. They are also focused on increasing adoption of the Venmo debit card, which has been shown to drive significant revenue. Finally, PayPal aims to operate more efficiently this year.

The company has consolidated technology services and is now focusing on unleashing the power of data to improve customer experience. They are simplifying processes and investing in tools and services to drive productivity and innovation. This will reduce costs, improve the developer experience, and give customers more reasons to choose PayPal. The company is also converging to a single merchant reporting system and will now have one view of the customer, allowing for more effective cross-selling. The team is excited about the year ahead and is focused on delivering the best experiences for customers. The new leadership team is also mentioned, along with changes in the company's materials to provide more transparency into their business.

In summary, the company will continue to evaluate changes, and in the fourth quarter, they reported 9% revenue growth. Non-GAAP earnings per share were $1.48, representing a 19% increase. The company ended the year with 426 million active accounts and 224 million monthly active accounts. They had modest growth in monthly active accounts and stable active base of engaged counts. Transactions per active account increased by 14%, and excluding PSP processing, it grew by 7%.

PayPal's growth rate is partly due to the churn of unengaged accounts, but also from increased activity among their core accounts. In the fourth quarter, total payment volume (TPV) grew 15% at spot and 13% on a currency-neutral basis, driven by Braintree, branded checkout, and Venmo. Branded checkout volumes grew 6% for the full year and PSP processing volumes grew 29% in the quarter. Revenue in the fourth quarter increased 9% on a spot and currency-neutral basis, driven by transaction revenue growth of 9%. U.S. revenue grew 8% and international revenue increased 10% at spot and 12% on a currency-neutral basis, with ongoing strength in Europe and improvements in Asia.

In the fourth quarter, PayPal's revenue increased by 9% overall and 7% internationally. Other value-added services revenue also grew by 9%, driven by increased interest income on customer stored balances. The transaction take rate declined by 10 basis points, mainly due to lower gains from foreign currency hedges and a shift in merchant volumes. However, transaction margin dollars remained flat due to the absence of merchant contractual compensation and growth in branded checkout and Braintree. Transaction expense as a rate of total payment volume increased by 4 basis points, primarily due to Braintree volume growth. For the full year, transaction expense as a rate of total payment volume was 94 basis points.

In the fourth quarter, PayPal experienced a transaction loss rate of 7 basis points, up 1 basis point from the previous year. Credit losses were $119 million, a decrease of 32% from the previous year. PayPal actively manages credit risk by tightening originations and externalizing portfolios. Non-transaction-related operating expenses decreased by 9% in the quarter and 11% for the full year. Non-GAAP operating income and margin increased, and PayPal generated $2.5 billion in free cash flow in the quarter. They completed $600 million in share repurchases and ended the quarter with $17.3 billion in cash and $11.3 billion in debt. The speaker has two updates to share about their guidance approach for the first quarter and 2024.

The company has decided to move away from providing annual revenue guidance and will instead provide guidance for the upcoming quarter. They will also begin including stock-based compensation expense in their non-GAAP earnings and expect revenue to increase in the first quarter. The company's full-year financial plan for 2024 includes a relatively consistent macroeconomic environment and they expect non-GAAP EPS to be in line with the previous year. They also anticipate flat transaction margin dollars.

The speaker discusses the company's innovation and product enhancements, which are expected to have minimal impact on the company's guidance for the year. The company announced cost reduction measures and plans to invest more in product engineering and platform teams. There are two factors that may impact the company's other revenue streams. The company expects free cash flow of approximately $5 billion and plans to maintain an investment-grade credit rating. In 2024, the company plans to allocate 70-80% of its free cash flow to share buybacks and is currently planning for at least $5 billion in share buybacks. The speaker concludes by handing it over to the operator for Q&A.

James Chriss explains that there are three main levers for driving transaction margin dollar growth in 2024. The first is the branded experience, which has been under-invested in and is expected to see improvement with recent innovations. The second is unbranded processing, which has been significantly invested in and now has one of the best products in the market for merchants. The third lever is the shift towards a focus on profitable growth, which is a new mindset for the organization. Chriss also emphasizes the significant changes the company has undergone, including a new executive leadership team and accelerated pace of innovation.

The company is experiencing high conversion rates and is looking to expand into new areas for growth. They are also focusing on value-added services to improve connections with merchants and consumers. In terms of transaction margin dollars, the company expects steady trends similar to last year, with Branded Checkout and improvement in PSP margin contributing to growth, while credit revenue may face some headwinds due to normalization of loss rates.

The company expects branded TPV growth to be consistent in the upcoming year, with minimal impact from new innovations. They are focused on improving the value proposition for consumers, such as rewards and a better mobile experience, to accelerate branded checkout.

The acceleration of Fastlane for merchants not only improves the unbranded opportunity but also allows for a second engagement with customers in a branded experience. These innovations are not yet incorporated into the company's transaction profit growth expectations, but they are being actively pursued and have received positive reactions from merchants. The company will wait to see execution before including them in their guidance.

The company is currently focused on innovations that will drive demand and improve the experience for merchants. They are working on various initiatives such as Fastlane, CashPass, and Advanced Offers Platform to create a better customer experience throughout the entire lifecycle. The success of these initiatives will be measured through metrics such as transaction margin.

The speaker discusses PayPal's commitment to durable, high-quality profitable growth and how it impacts the pricing strategy for Braintree. They mention investments made in the product and how it has now proven its scale with large US enterprise customers. The speaker also highlights recent innovations and how it allows PayPal to be a one-stop-shop for merchants. They mention the ability to have a price-to-value conversation and how they are shifting towards higher margin markets. Overall, the speaker emphasizes how PayPal is now able to price products based on their value and have different conversations with merchants.

The company is focused on achieving profitable growth with its product in the market and is making decisions to stop unnecessary activities. They are currently working on a transformation and execution plan to achieve this. They have room to continue reducing expenses while investing in growth and are confident in their ability to strike a balance between cost control and growth. They plan to use the savings from expense reductions to invest in product, engineering, and marketing to set the company up for future success. The company sees opportunities for continued efficiency and productivity improvements, which will provide more resources for investment in the future.

James Faucette from Morgan Stanley asks a question about the company's financial reporting and the integration of their technology systems. Jamie Miller confirms that stock-based compensation will now be included in non-GAAP earnings and that the company is working on improving their tech stack to drive innovation and better utilize data. James Chriss acknowledges that the company has not invested enough in creating a single platform, but they are now heavily investing in this area.

In paragraph 24, the speaker discusses the benefits of implementing a reporting system that provides a single view of the customer and allows for cross-selling and efficient engineering. They also mention the recent innovations made possible by investing in the platform and the potential for further improvements. In response to a question about a regulatory change in Europe, they mention working closely with Apple to provide an omnichannel solution for customers. In a question about prioritizing investments, the speaker does not specify which of the 6 initiatives will yield the quickest returns.

The focus for PayPal in the coming months is on improving the branded experience for both merchants and consumers, as well as driving adoption of their new innovations. This includes launching a new app experience and creating no-code, low-code options for developers. Additionally, the company is working on rolling out Fastlane, which will allow for a seamless guest checkout process. These efforts aim to create a network effect and improve the overall transaction process for customers.

The speaker discusses their focus on implementing new strategies to drive outcomes and generate revenue, particularly through the Fastlane experience and interest income. They also mention that the second half of the year may see a decrease in interest income due to expected rate cuts. The speaker concludes by emphasizing the company's position in the market and their efforts to set themselves up for future success.

This summary was generated with AI and may contain some inaccuracies.