PayPal Holdings Inc ($PYPL) Q1 2026 Earnings Call

Good morning and welcome to PayPal's first quarter 2026 earnings conference call. My name is Sarah and I will be your conference operator today. As a reminder, this conference is being recorded. I would now like to turn the program over to your host for today's conference, Steve Winiker, PayPal's chief investor relations officer. Please go ahead.

Thanks, Sarah. Welcome to PayPal's first quarter 2026 earnings call. I'm 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 thank you to everybody for joining us this morning. I'm stepping into this role at an important moment for PayPal. I appreciate the opportunity to serve as CEO, and I'm confident we will accelerate the growth of the company while improving profitability and cash flow. That is why I'm here. At the same time, I'm also realistic that we need to make significant changes to improve the strategic and operational issues the company has faced. Today, I will share what I have observed since joining the company, how we're shaping our strategic direction, and the actions we are taking to move forward with focus and discipline. During my time on the board, I developed a good understanding of PayPal's strengths, opportunities, and areas for improvement. Over the past two months, I have listened to and learned from our customers, our team, and our investors. This has helped to deepen my view on where we are, where we need to go, and how we get there. I will begin with a few initial observations. First, our foundation is strong. The company has valuable assets in our brand, our risk and underwriting capabilities, our technology, and most importantly, our team. Our scale and global reach set us apart and are difficult to replicate. And the hard-earned trust our customers place in us every day is a critical advantage. Second, we operate in markets defined by growth and rapid change. It is during this period that leading companies find ways to differentiate themselves by innovating, delivering new and superior solutions, and driving durable growth. This is where PayPal needs to focus. Third, one of our core strengths is our two-sided network, serving both consumers and merchants. In recent years, PayPal has put more energy into the merchant side of the network. Strengthening the value we offer to the hundreds of millions of consumers who choose PayPal and Venmo is a key priority. Doing that, we increase the value of our platform for merchants and create a stronger foundation for sustainable growth. Fourth, due to years of underinvestment, we need to accelerate the modernization of our technology platform. Moving faster to become cloud native and aggressively adopting AI in our development processes will help us significantly increase developer productivity and shorten time to market. Fifth, we need to simplify how we operate, streamline decision-making, and clearly define accountability to strengthen execution. Finally, there is potential to significantly reduce the company cost structure. Simplifying the organization and accelerating the adoption of AI across the company will generate significant savings that can be reinvested in growth and used to respond to business headwinds, improving our overall financial profile over time. With this as our context, we need to recommit to the fundamentals. That includes becoming a technology company again, sharpening our focus on consumers, aligning the company around three strong businesses, and simplifying how we work with clear accountability and a stronger emphasis on execution. I expect that it will take a few months to completely define our new plan, but I think it is important to start sharing the direction we're taking and some of the actions we have underway. Let me start by sharing the framework we are using to define our strategy. We see three distinct, attractive, and in many ways complementary market opportunities where a focused investment and sharper execution can meaningfully improve our growth trajectory: checkout, consumer financial services, and payment services. Each has clear near-term levers to improve the performance of our existing assets, as well as compelling medium-term growth opportunities. And in every case, we have a strong right to win. I will take each in turn. Let me start with checkout. This is a large and growing market, where we deliver meaningful value to consumers and merchants. Within checkout, we also see strong consumer demand for flexible payment options, including buy now, pay later solutions. This is becoming an important driver of consumer acquisition, while also delivering clear benefits to merchants through higher basket sizes. The second opportunity is in consumer financial services. Consumers are increasingly turning to digital platforms to handle everyday financial activities. This is also a large market opportunity, worth more than $200 billion annually in just our top six markets, and it is growing at low double digits. What is most attractive about this market is not only its size and growth, but also the customer lifetime value opportunity we can tap into. The third opportunity is in payment processing and value-added services. The PSP space represents significant untapped value for us, driven by the continued shift to digital channels and the increasing complexity of global payments. We're aligning the organization to unlock these growth opportunities. Previously, our teams were organized primarily around the customers we serve: consumers, small businesses, and large enterprises. That structure resulted in organizational complexity with multiple dependencies and handoffs that slowed decision-making and weakened execution. Checkout, for example, cut across all customer groups and markets, creating a multi-dimensional matrix for roadmap prioritization. The changes we announced last week will organize the company into three lines of business, each with a single leader: checkout solutions and PayPal, consumer financial services and Venmo, and payment services and crypto. And importantly, we're bringing together the two sides of the network to maximize our competitive advantage. Simplifying our operating model and clarifying accountability means that each leader will own clear outcomes, and our teams will be able to focus on our most important growth priority. We're also using these changes to simplify and de-layer our organization. And we have formed a new AI transformation and simplification team that will help us work more effectively and drive our enterprise-wide AI agenda. Let me now outline how we are thinking about the path forward across each of our businesses. Checkout solutions on PayPal is primarily a checkout-focused business and is the highest priority for the company and me. It brings together our consumer and merchant ecosystems under one unified strategy. This structure will enable us to fully leverage our two-sided network and accelerate innovation across both sides of the platform. Our intent is not to chase transitory share in any given quarter, but rather to focus on segments and verticals where we can deliver differentiated value to our customers. I have also emphasized that strengthening the consumer side of the network is key to increasing the value we deliver to merchants. Driving habituation through the adoption of our financial services offerings is an important step toward enhancing the consumer value proposition and reinforcing the power of our two-sided network. And our PayPal Plus loyalty program, which we introduced in the UK and will expand to additional markets, is another important step. Over the medium to long term, we have a number of compelling innovative initiatives underway. We will take a disciplined approach to prioritization, focusing resources on areas with the greatest potential to drive durable growth and shareholder value. Within this portfolio, we will be highly selective as we evaluate our broad set of initiatives, including digital wallet interoperability, biometric functionality, and additional programs under consideration. Within consumer financial services and Venmo, we have been making good progress in the last few years and have built a strong portfolio of related products. But awareness and adoption remain well below their full potential. Our focus is on becoming more central to our customers' financial lives. And our goal is to enable consumers to send, spend, save, invest, and borrow seamlessly. Venmo will be a key component of our growth plans moving forward, supported by its strong brand and younger demographic. We are in a strong position to expand in this space, deepen engagement, and increase customer lifetime value. Payment services and crypto unifies our processing and platform capabilities into a single scalable offering for merchants. We will bring together the company's unbranded processing capabilities, including Braintree, and value-added services, such as fraud management, authorization optimization, and global payment infrastructure. They are designed to support businesses of all sizes with flexible, high-performance payment solutions. We are also well positioned to capture and monetize this growth. Stablecoin is also part of this, enabling faster, lower-cost transactions. We have made good progress with PYUSD, which became the largest federally regulated stablecoin in December. And we recently expanded its availability to 70 markets globally. At the same time, we have much more opportunity to scale our offerings and accelerate growth in this space. Across the company, we need to modernize our technology platform to enable greater speed and interoperability across our offerings. As I said earlier, leveraging AI more extensively in our development processes will significantly help us with these efforts. Supporting our growth plans is the opportunity to realize cost savings. First, we will remove duplication and layers from our organizational structure. Second, we will accelerate our AI adoption and automation across our operations. Combined, the savings will be significant. We expect to see at least $1.5 billion of gross run rate savings over the next two to three years. Jamie will discuss more on this point later in the call. Let me touch briefly on some highlights from the quarter before Jamie takes you through our results in more detail. Our first quarter results show an improvement in branded checkout. Branded checkout TPV growth was 2% on a currency neutral basis, up from 1% last quarter. We continue to see strength in key parts of the business, with Venmo and PSP delivering mid-teens TPV growth. Transaction margin dollars, excluding interest on customer balances, grew 3% with contributions from credit, Venmo, and Braintree. Non-GAAP earnings per share grew 1%. We also continue to generate robust free cash flow, giving us ample room to invest and return capital to shareholders through buybacks and our dividend. On the operational side, our team accomplished a lot in the first quarter, from securing apps on key merchants to enabling interoperability for peer-to-peer payments between PayPal and Venmo. To close, I'm confident in our ability to put this company on a more durable path to long-term growth and shareholder value creation. We have a strong foundation, and we are now organized to move with greater urgency. We have a well-defined framework, and we will continue to define our strategy and prioritize our plan in line with it. I look forward to sharing more progress as we move ahead. And finally, I want to thank our teams for their continued focus and execution, and our customers and shareholders for their trust. I will now turn it over to Jamie.

Before we open the lines for Q&A, I'd like to ask everyone to limit themselves to one question so we can get to as many of your fellow analysts as possible. Sarah, please open the line.

Thank you. At this time I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Harshita Rawat with Bernstein. Your line is open.

Hi, good morning. I want to ask about branded checkout. Enrique, Jamie, can you maybe talk about the market dynamics in Europe? And also over time, what can we expect to see as execution improves and kind of the realistic growth versus e-commerce we should expect? Thank you.

Yes, I think in Europe we have an opportunity to improve execution by improving our focus in the countries. During the last eight weeks I have been twice in the UK, once in Germany to understand in depth what is the situation and to work with the team to see what improvements we need to make. And as Jamie was saying, there is a combination of macro effects but also local competition. But we have enough tools in our site to be able to compete and to be able to grow. And this is what we are going to be doing. Overall, answering your other question about branded checkout, we are taking a lot of actions to change the trajectory of the business. Of course, we need to continue with the investments we started a quarter ago to improve placement, to improve selection. And we have specially focused on the top 50 customers. We are starting to see progress there. We also need to continue to improve the experience of our customers so they get a better experience when they check out with PayPal. And we have other opportunities that we started to mention in the prepared remarks that I think in the future are going to be very meaningful. We have been more focused on the merchant side of the network than on the consumer side and we need to rebalance that focus and rebalance that investment. For example, the loyalty program which has launched in the UK is going to be an element of that. There are other things that we need to do in that space. There are also specific verticals, high value verticals, where we can have a more differentiated value proposition, especially if we combine with financial services. And this combined with an improvement in execution that by really understanding what our priorities are and simplifying how we make decisions, we think the combination of all that will have a significant impact in the business going forward.

Your next question comes from Timothy Chiodo with UBS. Your line is open.

Great, thank you. I want to see if we can talk a little bit more about the $1.5 billion of gross run rate cost savings that you outlined today. And Jamie, I appreciate that you mentioned over the coming months you'll be giving more detail around the cadence and reporting the progress there. But one area of the expense base that often comes up in investor discussions is the customer support line item. It's roughly $1.7 billion or so and I fully appreciate and I think investors do as well that there's many countries, there's lots of compliance, there's lots of support, there's people answering the phone in local language. There's a lot of complexity there, but I was hoping you could maybe bring to life a little bit more of some of the tasks or roles or some of the activities within that bucket that might be more applicable to this cost savings initiative. And in general, any other broader thoughts around kind of areas of low hanging fruit that you see for the $1.5 billion. Thanks a lot.

And I think the changes that AI will enable us to do are going to be very significant. This is why we created a group last week reporting to me that is going to be in charge of driving function by function, process by process, this AI transformation. And this is not about adopting AI as a technology, where we have done many pilots in the company and we have seen what is possible. It's really about understanding how can we redesign the key processes. Once the redesign is done, adopt AI, and this is what we have seen that really will drive significant savings. But not only savings, it will help us to move faster, and it will help us to bring and to deliver a better customer experience. The two key areas where we see the biggest opportunity in the short term, one is technology development, and as I mentioned before, this is going to really help us to accelerate some of the improvements and modernization we need to do in our platform. And the second is customer support. As you were saying, Tim, this is a large cost for us today, and with AI, we believe we can both reduce cost, but also improve the experience that we will provide to customers. And the fact that we have multiple languages that we need to support, multiple businesses, just highlights the opportunity of really reducing the cost by automating and driving it and doing it in an even better way for our customers.

Your next question comes from James Faucette with Morgan Stanley. Your line is open.

Thank you very much. I wanted to follow up on that question and not only how we should think about the investment and what the other side of it, capital return and how you're going to decide how to apportion savings to one or the other. And in particular, what are the proof points that you're going to be looking at, whether it be ongoing engagement, growth in customers. Just help us think through the KPIs and how you're going to need to make sure that you're allocating capital most efficiently. I know you have big ambitions for both, but you want there is I think important this morning.

Yes, specifically, this is a great question, and you will see us doing much more work and reviewing that with all of you in the coming quarters. What we have defined so far is the strategic framework that we see for the company. We have outlined that we see three big growth opportunities, but we think we can both grow revenue and operating profit, and we are aligning the company and the strategies of the company to make that happen. As we do that, we will identify what are the best opportunities, opportunities that will drive the best return, and also we are going to be very rigorous, I would even say ruthless, in the prioritization we are going to apply. Because the company today has multiple attractive initiatives, we have also several more small businesses, and in the coming quarters we need to decide in which ones we double down and we increase investment to increase our ability to execute and our chances to be successful, and in which ones we are going to divest, stop, or do something different. And this is the process that between now and the next quarter we will be doing, and as we do that, we also will identify what are the key KPIs per business, so you can track the progress that we are making. We are just starting what we call the transformation process. This is going to take some time, so it's not something that immediately will happen, but the combination of the assets that we have, the ability that we have to invest, and the rigor we are going to apply make us confident that we will be able to really improve the performance of the company over time.

Your next question comes from Darren Peller with Wolfe Research. Your line is open.

Hey, thanks, guys. Enrique, can you just walk through your thought process on your review of your assets in the company in the sense of which assets you actually absolutely feel like you must keep as part of the go-forward entity. If there are assets you've identified that you would consider selling, where do you stand on Venmo? Is that potentially something that we should consider that the company would consider wanting to sell for the right price? And then your thought process on synergies or dis-synergies of keeping assets together, whether it's Venmo with the rest of the business or Braintree with the rest of the business. If you could just walk through your thought process on that, that'd be great. Thank you.

Sure. Thank you. So, let me start by saying that our number one priority, my number one priority, is to maximize shareholder value. And at this point, I believe that the best approach is to invest in our three core businesses, PayPal, Venmo, and Braintree, to drive profitable growth. Because in each of them, we see the opportunity of making it happen. To do that, as we explained before, we're going to be simplifying the priorities for each of them, identifying what are the core areas where we need to invest. At the same time, we need to modernize the technology platform that will be helping the three of them. And we need to simplify how we work and drive cost reductions to drive these investments. I think what is important is that we believe that there are significant synergies across the three businesses that make them stronger together. For example, we see customer synergies in driving cross-selling and helping each business to penetrate and to grow with different customers. We also see synergies in the technology and offering space. And as we develop some of the financial services options that we have been discussing before, they will be benefiting, for example, PayPal and Venmo. And we also see strong synergies in key capabilities like risk management and identity. So, at this point our play is to grow profitably the three businesses because this is what we think will create the maximum value for shareholders. On top of these three businesses, I mentioned before there are many other initiatives in the company that we're going to be rigorously prioritizing to make sure that we leave those in the plan where we see we have the highest opportunities to success and that we use these to fund those activities that we will stay focused on.

Your next question comes from Sanjay Sakhrani with KBW. Your line is open.

Thank you. Good morning. Enrique, thank you for all your commentary. Obviously, you've had a very unique window as the new CEO having been on the board. I'm just wondering if you could just drill down specifically on how you intend to do things differently from the previous administrations to affect the change. And then Jamie, just one question because I'm getting a lot of these questions on the trendline that you saw that you mentioned trending at the low end of the range and some of the choppiness. I guess if the higher fuel prices persist, do you feel like there's risk to the second half relative to what you've incorporated in the second quarter? Thank you.

Sure, let me start with the first part of your question and then Jamie will take the second part. I think what we're going to do starts from the development and the analysis that we have done on where the company is today, what is working and what ideas need to be changed. From a strength perspective, I would say that the company has very unique and high quality assets. The combination of the scale that we have, the technology that we have, some of the key capabilities around risk management, underwriting, the value of the brands and the global presence are very unique assets that are difficult to replicate. At the same time, we operate in a market with high growth and we have very relevant presence in this market. But we also have seen that there are some areas where we need to make some changes. We need to accelerate the modernization of our technology stack, so we can continue to deliver compelling solutions to our customers. We need to rebalance the focus we have in our two-sided network between merchants and consumers. During the last years, we have paid much more attention to merchants and we need to rebalance that and increase our investment in consumers. We also need to simplify how the company works and reduce the complexities that the current model brings. And on top of that, we clearly have an opportunity to reduce our cost structure and this is what we're doing. So, based on that, we have built a transformation plan that we are going to be executing. And the plan starts by identifying what are the highest opportunities in the three markets where we operate and investing significantly behind them and reviewing and aligning the priorities towards that. Second, as we identify these priorities, they are going to be different for each of the market opportunities. On the PayPal side, it's by continuing to grow and improve the performance of the checkout business. And I mentioned before the combination of continuing some of the work that we have done until now by also rebalancing the focus on consumer, combining with some of the financial services that have shown us that we can improve the value proposition, and identifying the vertical categories where we can offer a more differentiated solution, this will help us to grow. In the case of Venmo, it's about growing our attach rate to financial services and improving our ARPU. And in the case of our processing business, it's all about maintaining the growth that we have and continuing to add value-added services. Third point is really the process to simplify the priorities and defining what areas we're going to focus, what areas we're going to reduce our focus, which I mentioned before we will be doing in the coming quarters. Fourth is about accelerating the process to modernize our technology stack module by module to make sure that in the coming quarters we really address some of the gaps that we have identified from a technology perspective. Fifth is to complete the reorganization of the company that we have started, simplifying how we work and aligning the priorities to the segments that we have identified. And finally is to complete the execution of the cost program that we have announced today. So, it's a very aggressive transformation plan. We think that by executing that we will be able to improve significantly the performance of the company and we have started the process now as we have been mentioning on the call today.

Your next question comes from Jason Kupferberg with Wells Fargo. Your line is open.

Thank you, guys. Enrique, I wanted to talk about just current product strategy in checkout. I mean, you guys have the fully optimized button now. Wondering if you are planning on any big changes there. Do you just feel like there's room to improve execution of the rollout of the current product? And if we can get an update on the progress of the rollout, that would be great. And we'd just love your take on how long it might take to actually fully roll out that fully optimized version of the new checkout button, because it seems like that's key to ultimately getting some structural reacceleration in branded volume. Thanks.

Thank you. In the short term, it's all about continuing the execution of the plans that we've had until now. And we have continued to make progress using the same metric we reported in the last couple of quarters. Today, we have 45% of the non-vaulted customers already experiencing the new simplified version. So, we have continued to make progress quarter over quarter, and the plan is to continue that in the coming quarters. But it's not only about that, it's also what we have learned. This is one element of the many that we need to do. When we combine our new checkout process with financial services and BNPL, we see also significant improvement and significant acceleration of growth. When we see better marketing and more customers are going to get attracted to use our button, we see also improvement. So, we need to continue to build end-to-end plans to make sure that we improve across the board, and this is what you're going to see us doing. And this is why execution is going to be so critical for us. It's not only about what we bring to market, it's about how do we maximize the value from it by having all the different functions and groups of the company focused on it.

Your next question comes from Tingjin Huang with JP Morgan. Your line is open.

Good morning. Thank you. I'll ask about modernizing the tech platform and becoming a tech company again. Does this include platform consolidation? Specifically, I'm asking because modernizing the tech stack brings with it obviously a lot of risks, and I know you appreciate that. Enrique, we know where you're coming from. So, what's your assessment on the risk of modernizing, why it hasn't been done already, and how integrated or distinct are the technology stacks across the three businesses? If you can detail that as well, that'd be great. Thank you.

Thank you. So, the process we have started to modernize the tech platform module by module, and as we do that, we drive integration or complete integration in some cases across the three businesses. As you said, all these changes have some risk, but on the other side, we have a very competent team, and this is a process that has already started. I think one of the key differences will be that we are going to invest in making that happen, and this is why the cost structural savings that we announced today are going to be so critical. They will be helping us to make these investments possible because we think it's critical for us to do that for the company to continue to succeed and for the company to continue to grow.

Your next question comes from Dan Perlin with RBC Capital Markets. Your line is open.

Thanks. I wanted to just kind of turn back a minute to the commentary around the consumer side in multiple parts of the prepared remarks and even through answering some questions. It sounds like there was a deficiency relative to the merchant side of the network to being focused on this consumer side. And I'm wondering, as you were on your listening tour, really talking with merchants, do you feel like they were telling you that they didn't have the conviction that maybe you had that level of engagement with the consumer and therefore you feel like you need to make bigger investments there, or is there another angle to that? Thank you.

Thank you. I think it's a combination of what I heard from merchants but also what I saw happening in the countries and what I saw happening on the front line. And I think it's not so much that we will focus less on merchants. It's about how do we improve the value proposition we offer to consumers and how we improve how we communicate that and how we make it more visible. And I saw that because if I think about what has happened during the last few quarters, we have launched a lot of great innovation to market but we haven't had enough effort, enough investment in the countries to make it real. And we have moved to launch the next version before really maximizing the value that we got from what we were launching. And let me use an example. In Germany a few months ago, we launched a fantastic solution leveraging NFC. We launched the solution, it had great initial reception, and then we didn't invest enough for it to be adopted broadly by consumers. And by consumers adopting us, the impact on merchants would have been very positive, but we just didn't have the effort, the focus, the team, the investment to make it happen. So, this is an example of the type of things you will see us doing, and this is what we mean by rebalancing the focus we put on the two-sided network because if consumers perceive a stronger value proposition, they will transact with PayPal when they buy something from merchants. Hey Sarah, we have time for one last question.

Thank you. Our last question will come from Bryan Keane with Citi. Your line is open.

Good morning, guys, and thanks for fitting it in. Enrique, when you think about the merchant specifically in your conversations, do you think how aggressive will you guys be in sunsetting platforms, enforcing them onto the new technology in order to help reduce friction? That's question one. And then the second part of that is what about, a lot of investors are asking about the price. Is the price too high? Can you lower price for PayPal in order to drive faster branded volumes? Thanks.

Yes, so in the last two months I have had many, many conversations with merchants, and one of the key things I have learned is with all of them we have opportunities to improve our solution and to complete our solution addressing specific needs. Whether this is a merchant in the travel space that needs help in cross-border selling and cross-border activities, or a merchant in the retail side that needs help with customers that buy and return and that we can help to reduce the returns because of the data that we have. We have a lot of opportunities to improve the value of our product and do it in a way that we can replicate it across multiple merchants. So the opportunity is clearly there and again in every conversation I have seen it. To do that we need to complete the modernization of our technology platform as we have been saying, and to do that merchants will have to move to the new platforms and we will do that in a way that we minimize the work and the effort that it will take from them whenever possible. But to continue to improve the solution we will have to drive and move to the new platforms. But I think that the key message is really the opportunity that we see, the opportunity that merchants are telling us we have, and the fact that by doing that we will have an opportunity to also offer additional services that will help us from a margin perspective and to compensate potential price pressure that we will have in the more commoditized business. The answer is about adding these incremental value-added services, which is what we are going to be doing during the coming quarters.

Do you have any final thoughts? Well, first of all, thank you everybody for your questions. As we have discussed today, we have both strong assets, a clear opportunity, and a path forward that is grounded in improving our execution. Our focus now is to deliver, and I really look forward to continue to update all of you in the coming quarters, especially as we report our second quarter results in late July. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.