PayPal Holdings, Inc. (PYPL) Earnings

Management highlights

### Overall Transformation Progress - PayPal is executing a multi-year transformation focused on diversifying growth beyond traditional checkout, improving profitability, and building long-term shareholder value. - Q2 2026 results exceeded management expectations: total company revenue grew 5% year-over-year, non-GAAP EPS was $1.38 (down 1% YoY, above guidance), total TPV hit $486 billion with 9% currency-neutral growth, and adjusted free cash flow was $1.8 billion. ### Core Strategic Changes - **Diversify beyond checkout to financial services**: Expand the addressable market by growing BNPL, credit, and other financial offerings, which are already growing at twice the rate of the overall company, and account for ~20% of current transaction margin with double-digit growth. - **Accelerate growth of high-momentum businesses**: Double down on Venmo (evolving from P2P to a full money management platform) and Braintree/PSP (expanding value-added services for enterprise merchants). - **Refocus core PayPal network on high-value consumers**: Sharpen targeting on the large, fast-growing cohort of highly engaged consumers that account for the majority of payment volume, to improve lifetime value and merchant value proposition. - **Simplify operating model**: Restructured around the three core business segments with clear accountability and reduced organizational layers to improve execution speed. - **Invest in AI and technology modernization**: Focused on measurable business outcomes to accelerate innovation, including cloud migration, platform unification, and improved data and personalization capabilities. ### Operational Updates - Cost savings initiative: On track to deliver at least $1.5 billion in gross run-rate savings over 2-3 years, with $400 million in new run-rate savings targeted by end of 2026, and a projected $120-$140 million transformation charge in H2 2026. Most savings will be reinvested into priority growth initiatives, making investments self-funded. - BNPL expansion: Launched BNPL in Canada in Q2, bringing global availability to 8 markets; Home Depot Canada launched upstream BNPL presentment. BNPL growth accelerated to 26% YoY on strong performance. - Venmo product update: Rebuilt the Venmo app to improve personalization and product discovery, with a new marketing campaign to drive adoption of high-monetization products (debit, Pay with Venmo). - PSP platform modernization: Underway to unify Braintree, PayPal Complete Payments, and HyperWallet onto a single platform, with near-term priorities of expanding interoperability, self-processing, merchant lending, and payout capabilities. - Long-term innovation: Investing in next-generation offerings including agentic payments, digital identity, PayPal Ads, and PYUSD to position for future industry growth.

Guidance

- **Full year 2026 guidance raised** from prior levels: - Total transaction margin dollars expected to be ~$15.6 billion; transaction margin dollars excluding interest on customer balances expected to be ~$14.5 billion. - Non-GAAP EPS raised to $5.38. - Online branded checkout TPV growth is now expected to be low single-digit currency-neutral for the full year, a modest upward revision from prior expectations. - Non-transaction operating expense growth expected to be 7% to 8% for the full year, higher than prior expectations due to increased strategic investments. - Adjusted free cash flow expected to be at least $6 billion, with ~$6 billion in planned share repurchases for the full year. - The headwind from branded checkout growth investments to transaction margin dollars is now expected to be modestly lower than the 3 percentage points previously forecast, mostly due to investment timing. - **Q3 2026 guidance**: - Currency-neutral revenue growth expected to be low single-digit. - Transaction margin dollars excluding interest on customer balances expected to be slightly positive to low single-digit growth. - Non-transaction operating expense expected to grow high single-digit. - Non-GAAP EPS expected to decline in the low single-digit range. - **Q4 2026 expectation**: Transaction margin dollar growth expected to be slightly positive, with branded checkout growth expected to remain low single-digit in H2 2026. Cost savings are expected to become material in Q4, benefiting full-year operating expenses. - Transformation timeline: 2026 is focused on strengthening fundamentals; growth momentum is expected to build in H2 2027 and continue through 2028; next-generation innovations (agentic payments, digital identity) are expected to become meaningful contributors to growth by 2028 and beyond.

Segment performance

1. Checkout Solutions (Core PayPal): Total payment volume (TPV) for branded experiences (including online checkout, debit, Tap2Pay) grew 6% year-over-year (accelerating from 5% in Q1 2026). Online branded checkout TPV stabilized at 2% currency-neutral growth, in line with Q1. High-growth subsets: Tap2Pay and debit card spend grew over 60% year-over-year; Buy Now, Pay Later (BNPL) grew 26% and outpaced the market, gaining share from competitors. Total transaction revenue for the segment is part of the company's overall $7.8 billion in total Q2 transaction revenue. 2. Consumer Financial Services (Venmo): Venmo delivered 14% year-over-year TPV growth, marking the seventh consecutive quarter of double-digit growth. Pay with Venmo grew 44% year-over-year. Customers using both Venmo debit and Pay with Venmo generate 9x higher average revenue per account (ARPA) than P2P-only users, and this cohort has doubled in size over the past year. Peer-to-peer and other consumer volume grew 10% overall in Q2. 3. Payment Services (including Braintree): PSP segment TPV growth accelerated to 13% year-over-year, up from 11% in Q1 and 7% in H2 2025. Braintree specifically grew TPV in the mid-teens, driven by growth in profitable front-book business, high merchant retention, and expanding existing merchant relationships. Braintree has delivered profitable growth for nine consecutive quarters. Overall, the payment services segment contributes 13% of the company's total TPV growth.

Risks & headwinds

- Forward-looking statements are subject to material risks and uncertainties, and actual results may differ materially from current projections due to changing market and business conditions. - Increased competitive intensity exists in core markets, particularly in branded checkout, which could pressure future growth. - Geopolitical and macroeconomic uncertainty, including unexpected interest rate movements, can impact results (management now assumes no additional rate cuts in 2026 after the June hold that departed from earlier market expectations). - Transformation and investment initiatives carry execution risk; while management is confident in the revised strategy, past investments have not always delivered expected results. - M&A and market speculation can create uncertainty for merchants and partners, potentially impacting willingness to engage on new product and partnership initiatives. - Unifying multiple legacy platforms and modernizing technology infrastructure carries operational integration risk, even though milestones are currently on track.

Analyst Q&A

• Q: With the $1.5 billion cost savings program, how much reinvestment will fall above the transaction profit line, and when will these investments move the needle on transaction margin growth?

  A: The first phase of cost cuts focuses on organizational simplification and removing duplication over 12-18 months. Most savings will be reinvested into growth priorities including financial services product expansion, Venmo and Braintree go-to-market, consumer network marketing, data and AI capabilities, technology modernization, and long-term innovation like agentic commerce. The majority of these investments will be self-funded by the cost savings program, with stronger operating leverage expected to materialize as the investments scale. A near-term example of this investment is an upcoming integrated consumer lending partnership with Amazon for Germany and Austria.

• Q: Have your views on synergies across PayPal, Venmo, and Braintree changed, and does M&A speculation create merchant/partner uncertainty that impacts current execution?

  A: Management remains highly confident in significant synergies across the three businesses: shared customer reach, more efficient leveraged technology investments, and shared capabilities in risk and identity that benefit all segments. While the board and management have a fiduciary duty to evaluate all potential opportunities that could maximize shareholder value, management's current focus remains entirely on executing the existing internal transformation plan, given high confidence in the long-term value this plan can create. Per company policy, management does not comment on M&A market speculation.

• Q: What explains the 26% acceleration in BNPL growth this quarter, and what is the plan to continue driving growth?

  A: The acceleration comes from broad-based execution: ongoing expansion of product offerings, expansion of geographic coverage across Europe and other regions, and growth in distribution partnerships with major retailers and platforms. A concrete example is an exclusive BNPL agreement with a leading global fashion retailer that turned volume declines into ~10% growth in Q2. Going forward, management will continue expanding the product portfolio, increasing marketing and go-to-market investment, and adding new capabilities to scale BNPL further as a core growth driver.

• Q: What makes the current transformation plan different from past strategies that failed to deliver expected results, and why should investors be confident this time?

  A: There are five key changes that differentiate this plan: 1) Clear, prioritized focus on fast-growing financial services, which is already a 20% share of transaction margin growing double-digit; 2) Explicit doubling down on already high-growth Venmo (expanding ARPA) and PSP (expanding value-added attach); 3) A new incremental focus on high-value core consumers that drive most of the segment's value, with targeted investments to improve their experience and share of wallet; 4) A simplified operating model with clearer accountability that improves execution speed; 5) Technology modernization and AI integration that accelerates innovation. All investments are self-funded by the cost savings program, with the plan targeting long-term double-digit earnings growth from diversified streams.