PayPal Holdings, Inc.

Good morning and welcome to PayPal's fourth quarter and full year 2025 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 Winokur, PayPal's Chief Investor Relations Officer. Please go ahead.

Thanks, Sarah. Welcome to PayPal's fourth quarter and full year 2025 earnings call. 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, Jamie.

Thank you, Steve. Good morning, everyone, and thank you for joining the call. Before we turn to our full year and fourth quarter, I want to address the leadership announcement we made earlier this morning. The Board has appointed Enrique Lórez, who was most recently our Board Chair, as the next President and CEO of PayPal, effective March 1st, to accelerate execution and bring greater discipline to how we implement our strategic priorities as we enter our next phase of growth. I want to thank Alex Chris for his leadership and his many contributions to the company. It has been a pleasure working with him, and we wish him the very best. At the same time, we recognize as a company that our execution has not been what it needs to be. We have not moved fast enough or with the level of focus required, and we are taking immediate steps to address that reality. The board's appointment of Enrique reflects a clear commitment to strengthening performance. He is a seasoned chief executive who brings deep experience driving customer-centric innovation and disciplined execution, simplifying complex businesses and leading large-scale transformations. We are fully aligned on the path ahead. During the brief transition period through early March, as Enrique steps away from his role at HP, I will serve as interim CEO and Steve will partner with me leading our finance function to ensure continuity and maintaining momentum. Effective immediately, board member David Dorman will take on the position of board chair. With that context, let's turn to our full year and fourth quarter 2025 performance. PayPal delivered solid 2025 performance across multiple dimensions, and I'm confident about our path forward. Last February, we held an investor day outlining our transformation strategy. One year later, there are elements working very well, but there are also areas pacing below our expectations, primarily within branded checkout, which I will spend much of my time discussing today. Let me address the areas performing well. In 2025, Venmo revenue grew approximately 20% to $1.7 billion, excluding interest income. Total active accounts surpassed 100 million, accompanied by 14% growth in ARPA for our monthly actives. We've turned around our enterprise payment business, delivering seven consecutive quarters of profitable growth and a return to double-digit volume growth in the fourth quarter. These two businesses were once small contributors to profitability. In 2025, they drove nearly half of our 6% transaction margin dollar growth. In buy now, pay later, we delivered over 40 billion in TPV in 2025, growing more than 20% year over year. Additionally, we've made progress building new long-term growth drivers, omni-channel, adjunct to commerce, crypto, and wallet interoperability. Where we haven't made the same progress is in online branded checkout. We've reimagined a product that had been stagnant and under invested in for years, creating a new value proposition for merchants and consumers. But we were too optimistic about how quickly we could drive change and customer adoption across a massive global user base. The results are not yet where we expected them or want them to be. Let me update you on where we are, what is working, and the steps we're taking to get back on track. For the past few years, we have delivered consistent mid-single digit TPV growth. However, in the fourth quarter, online branded checkout TPV grew 1% on a currency neutral basis, down from 5% in the third quarter. The four-point deceleration was more than we expected and was concentrated in three main areas, each contributing roughly a point or so to the slowdown. First, U.S. retail weakness. We saw pressure across our retail merchant portfolio, particularly among lower and middle income consumers. While part of this can be attributed to macro factors and a K-shaped economy, it's also clear that we need to do more to win with key merchants, particularly during high volume shopping periods. Second, international headwinds, particularly in Germany, which is one of our largest markets. Our German growth has moderated due to macroeconomic softness normalization of our longstanding market leadership position, and competition from alternative payment methods. Third, deceleration in several high-growth verticals, specifically in travel, ticketing, crypto, and gaming, categories that had strong growth in the fourth quarter of 24 and continuing through much of 25. Cutting across all of these, we had operational and deployment issues that amplified the pressure. To date, our delivery process has started with building a better product and expecting merchants to adopt at scale because of conversion benefits. The reality is our merchants, especially the largest ones, have many competing priorities and require much more hands-on integration support than we anticipated, which has slowed our progress. Additionally, the combination of biometric adoption and competitive presentment have proven critical to branded checkout performance. So while challenges in the macro environment are real, we haven't executed as well as we need to, and our product deployment in the second half of the year was slower than we planned. Our analysis of our merchant base, competitive dynamics, and where we are seeing the strongest traction has sharpened our view of resource allocation for 2026. This work in branded checkout has brought three priorities into clear focus, experience, presentment, and selection. These are the areas where we see the greatest opportunity to restore momentum. We know that consumers engage more deeply and frequently when they have a frictionless experience. They choose us more often when our products are featured upstream at the point of purchase, and they habituate when rewarded through loyalty, marketing, and other programs. On experience, our focus needs to be on both ensuring a frictionless consumer experience through biometric and passkey adoption, and that merchants have upgraded to our target experiences. On presentment, we need competitive placement, including upstream buy now, pay later messaging and second buttons. And on selection, we must deliver loyalty benefits using rewards and co-marketing agreements with compelling consumer incentives. On experience, we've created a great product experience that performs well across desktop and mobile. When a consumer vaults PayPal as their default payment method, it's seamless. No password or authentication is required. The wallet typically has multiple funding sources ready, and we deliver 95% or greater conversion on average, which is second to none and a foundational strength we are building upon. we need to make vaulting available with more merchants and take friction out of the initial signup and one-time checkout flow. For non-vaulted transactions, we're continuing to scale our redesigned pay sheet experience globally, now covering more than 30% of global checkout transactions. Fully optimized cohorts show nearly one point conversion improvement though adoption across our backbook remains incomplete with the target experience implemented on only a subset of our global transactions. 2026 will be about continuing to scale with strategic merchants and partners at the same time that we drive biometric enrollments. As discussed before, biometric authentication amplifies the impact of our patient redesign and makes vaulted signup easier, driving two to five points of conversion improvement in testing with some of our largest and most complex merchants. On presentment, we're making good progress, including adding upstream BNPL messaging at more major merchants in the fourth quarter. When PayPal is positioned above competitors and the value prop is amplified with either co-marketing or pay later messaging, we see more than twice the selection rate compared to when we're positioned below. On selection, over the past two years, we've built a more compelling value proposition for consumers. That includes launching new products like our debit card and expanding options such as buy now, pay later. repositioning PayPal as an obvious choice for everyday purchases, whether paying now or over time. The result is a more engaged and healthier consumer base. Power users, which are consumer accounts that transact more than 100 times per year, grew 5% year over year. PayPal mobile app use among online branded checkout users has increased from approximately 50% in January 2023 to more than 60% now, and we will drive that even higher by year end. Consumers with recent app use are about 40% more likely to select PayPal during checkout the following week, underscoring the value of app engagement in shaping checkout preference. This approach delivers when fully deployed. When we look at Cyber5 performance across multiple merchants, including in retail, tech, and entertainment, for those with our latest checkout experience, strong presentment, upstream BNPL messaging, and co-branded marketing with attractive offers, PayPal performed well. On average, those merchants delivered very attractive double-digit branded TPV growth, significantly outpacing their local markets. That gives us confidence that we have the right playbook It's just not deployed in enough of the right places. Over the past several months, we've realigned our checkout teams with full ownership and improved operating rhythms to speed decision-making and execution. Two themes will shape our efforts in 2026, focus and investment. This is one area where Enrique will really help. His track record of relentless, disciplined execution and performance improvement in complex business environments makes him ideally suited for this challenge. First, a relentless focus on the highest impact merchants. To date, we've been optimizing for every merchant, and that approach has slowed our ability to move quickly on what matters most. We're changing our approach to focus on strategic merchants, representing nearly 25% of our branded checkout volume today, but could be much larger. In January, we formed dedicated teams to implement improvements across experience, presentment, and selection for these merchants. Second, focus on implementing experience and biometrics together, not sequentially. In too many cases, we were deploying our redesigned checkout without biometric enablement, which does not deliver the full conversion lift we know we can provide. That's changing. We're now deploying experience and biometrics together as a package more consistently. When we integrate a merchant onto our latest experience, we will simultaneously run biometric adoption campaigns targeting their consumer base. We made good progress in 2025, but there is more work to be done. About 36% of our consumers are now what we would consider checkout ready, which means they have biometric authentication in our app or with a device passkey. This is a 15 percentage point improvement relative to the prior year, and our goal is to bring closer to half of our consumers to checkout ready status by the end of 2026. Third is a focus on presentment. It is just as critical as experience. As I mentioned before, when we secure competitive placement on a merchant site, we perform significantly better. It is early days in bringing BMPL messaging onto product pages, now visible to less than 15% of our traffic, but the data is convincing. When our buy now, pay later offerings are presented upstream and with a second payment button, we see more than a 10% lift in branded checkout volume. We don't yet have enough of these high impact placements in market, which was amplified during the holiday shopping season. And that's front and center as we focus on branded checkout execution. In many cases, we're tying our economics directly to performance so merchants share in the upside. Fourth, a focus on giving consumers a reason to come back. Our checkout improvements help with conversion, but we can do more to drive repeat usage by combining rewards, buy no pay later, and app-led engagement to make PayPal the obvious choice for consumers time after time. PayPal Plus, our rewards program launching in Europe and in the US in 26, enables consumers to earn and redeem rewards at checkout creating the consumer flywheel we've been working to build. We're seeing early but still encouraging results from the UK launch late last year. In December, branded checkout TPV rose by mid-single digits year over year for UK users enrolled in PayPal Plus, and their overall PayPal TPV increased year over year compared to non-enrolled users. This was achieved almost entirely organically, before activating marketing, which speaks to the opportunity ahead. In parallel, we're launching a brand new app this year, which will be a destination for buy now, pay later management, rewards tracking through PayPal Plus, and personalized offers, all designed to drive app engagement, which leads to a better checkout experience. From an investment perspective for Branded Checkout, we're striking calculated deals with strategic merchants, that create value for both sides. Our approach helps them tackle their greatest needs, whether that's improving conversion, lowering payment costs, acquiring new customers, or co-developing solutions, while simultaneously modernizing PayPal's experience and strengthening our presentment across their channels. These are important investments to make When more flagship merchants are live with full experience, benefits cascade. We accelerate learning, refine our go-to-market, and unlock the brand halo effect from being optimized at scale on merchants consumers use most. Overall, we're focused on execution as we move through 2026 as our redesigned experiences scale, biometric adoption increases, presentment improves, and our rewards program and app drive the flywheel. We expect these initiatives to deliver improving results daily, weekly, monthly, and build over time as they reach scale and produce measurable impact. I'll now briefly cover the progress on our other growth drivers where we are seeing strong success, scaling Omni, growing Venmo, driving PSP profitability, and scaling our next-gen growth sectors. Despite online branded checkout challenges, branded experiences TPV grew 4% in the fourth quarter. We're live with debit or tap-to-pay in the U.S., Germany, and in the U.K. with positive initial results, Starting with the U.S., where the PayPal debit card was launched over a year ago, in the fourth quarter, TPV growth accelerated to over 50%, and MAAs grew by over 35%. We're happy with this performance and learning from and scaling what worked in the U.S. to Germany and the U.K., where we now have more than 700,000 debit card MAAs combined. This includes unique reward offers, marketing investment, in-app prompts, and making it easy to add the cards to mobile wallets. We're pleased with the initial progress of our Omni initiative and see a clear path to extending that success as we move through 2026. 2025 was a breakthrough year for Venmo, evolving from peer-to-peer payments into a monetized commerce platform. We reached over 100 million active accounts and the progress is showing in our results. Venmo TPV grew 13% in the fourth quarter, and monthly active accounts reached 67 million, up 7% year over year. Venmo debit card TPV was up over 50%, and MAAs grew 50%. Pay with Venmo TPV was up 32%, and MAAs are up 26%. Venmo revenue grew approximately 20% year over year to $1.7 billion in 2025. More importantly, revenue composition has shifted as more consumers are using Venmo for everyday commerce. Over the past two years, pay with Venmo and Venmo debit card revenue has doubled. This mixed shift is important to our overall transformation. and positions Venmo for stronger profitability as we continue to grow. Turning to our PSP business, in the fourth quarter, we continue to build on positive momentum in our PSP business. Within enterprise payments, thanks to both progress on price to value and value-added services, we meaningfully expanded margins year over year, roughly doubling our net processing yield and significantly improving profitability. At the beginning of 2024, we had several value-added services but didn't consistently charge for them. We exited 2025 with 16 services that merchants are happy to pay for because they're designed to improve authorization performance or reduce costs. Value-added services adoption continued to scale through the year, and in the fourth quarter, we added incremental capabilities, including flex factor and authorization enhancement delivered through our open architecture partner ecosystem, as well as Visa's pre-dispute resolution service through Verify, which will help to reduce merchant costs. We took our first omnichannel enterprise merchant live through Verifone, expanding to in-store payments where 80% of payments occur, qualifying us for RFPs requiring both online and in-store capabilities. Going forward, because of our relationship with Verifone, we can compete for those opportunities and grow our share of both online and in-store volume. This is the realization of the vision we presented at Investor Day last year, and we expect to add new merchants, and expand volumes with our existing ones as a result. Let me quickly share some of our latest developments in agentic commerce. Our vision is to create a universally trusted catalog that AI agents can access, discover, and transact with safely and securely. Through our StoreSync offering, we are already connecting early adopters like Abercrombie & Fitch, Fabletics, PacSun, and Wayfair with agentic chat platforms to allow consumers to discover, evaluate, and purchase items within the chat. We went live with agentic purchasing through perplexity ahead of Thanksgiving, and we are now also live on Microsoft Copilot. We are helping merchants connect with customers through new channels and remove friction from the checkout process. StoreSync is enabled through a partnership with Symbio, which we have agreed to acquire to bring this technology in-house. Agentech won't materially impact 2026 growth, but as AI-powered shopping scales, our aim is to become the default payment option. This is only the beginning, and we are collaborating closely with the major AI platforms as we build Agentech commerce capabilities together. Before passing to Steve, let me address the Investor Day outlook provided a year ago. The environment has proven more demanding than we anticipated, presenting both challenges and opportunities. E-commerce growth has been challenging in key verticals and markets, competitive intensity has increased, and merchant adoption has been more complicated to implement than we anticipated, and our execution is not yet where it needs to be. While we're addressing those challenges, other parts of the business are delivering. Venmo is on track to exceed $2 billion in revenue ahead of plan. Our enterprise payments business returned to double-digit volume growth in the fourth quarter. And buy now, pay later continues to grow rapidly. And entirely new channels like agentic commerce have emerged faster than anyone expected a year ago. For branded checkout, our focus is on narrowing the gap with the market over time. Following our fourth quarter performance, we need to prove that out in coming quarters and years. There are multiple ways for us to deliver profitable growth over the long term, and 2025 was a great example of that. But given everything I've outlined, we are no longer committing to the specific outlook for 2027 we laid out at Investor Day last year. For these reasons, we think it's prudent for now to provide financial guidance one year at a time. And Steve will speak in more detail about how we're thinking about 2026 as a starting point. The strategy I outlined today focuses on three fundamentals, experience, presentment, and selection. And these critical changes to our go-to-market approach will lay the groundwork for a stronger, more competitive online branded checkout business over time. In closing, while we're not satisfied with our online branded checkout performance today, we are confident in the plan to stabilize and strengthen it. Importantly, we are executing with multiple competitive advantages. Our scale, our trusted brand, deep consumer and merchant relationships, and diversified growth drivers give us resilience and flexibility moving forward. As we continue transforming into a commerce platform, our focus remains clear. Drive innovation that scales, deepen engagement on both sides of our network, strengthen and unify our core infrastructure, and deliver sustainable, profitable growth. As Enrique steps into the CEO role, he will bring additional operational focus and discipline to priorities underway. And together with the right assets, strategy, and team in place, we believe PayPal is well positioned for 2026 and beyond. Steve, over to you.