These “snapshots” function as brief 30,000 ft. overviews of respective quarters. I will publish the detailed “reviews” for both this week.

Max subs – as I said in the earnings preview article, this was always going to be a bad quarter. I need to read everything before I comment. If I had to guess, this was Mr. Market getting too excited about Brian Niccol fixing a gigantic mess overnight. As the preview explicitly said, I was hopeful for a negative share price reaction so that I could build out the stake at lower multiples. That may be happening. I’ve been consistently adamant that Niccol will fix Starbucks (just like Chipotle) and that it will take more time than many want it to. Patience is required. I cannot make any final decisions until I read the entire report, but I think there’s a good chance that the accumulating will keep happening. I’ll keep you posted in real-time as always.

Results:

Guidance & Valuation:

No guidance was offered in the initial investor materials.

Starbucks trades for 28x forward earnings and likely closer to 35x following this report. EPS is expected to contract by 13% this year and estimates will fall more after this report. EPS is expected to grow by 23% in 2026 and by 21% in 2027.

Balance Sheet:

Results:

Q2 Guidance & Valuation:

Spotify trades for 46x forward FCF. That is by far the best metric for this firm considering the payroll tax noise on the income statement. FCF is expected to grow by 30% Y/Y this year and by 26% Y/Y next year. FCF estimates likely will modestly rise following this report.

Balance Sheet:

PayPal provides branded omni-channel checkout and financial services to a massive base of consumers and merchants. It also provides non-branded payment processing through Braintree, payouts-as-a-service through Hyperwallet, identifiable guest checkout through Fastlane and it owns Venmo. To read up on everything there is to know about PayPal, my deep dive can be found here. Aside from financials (which I update every quarter in these reviews), most of that information is still relevant and mainly current. Some is now dated, so for a full review of their recent investor day, click here.

Volume Growth by bucket:

Non-transaction operating expenses (OpEx) rose 2% Y/Y via growth investments. This was offset by productivity gains and other cost cuts.

PayPal reiterated all annual guidance, including:

All of this guidance was slightly better than consensus estimates. Q2 guidance was also slightly better than consensus estimates for everything but revenue. Low-single-digit FXN revenue growth compares to 3% Y/Y GAAP growth estimates. They did not provide GAAP revenue growth guidance for Q2. Q2 growth will continue to be impacted by Braintree contract negotiations that shaved 5 points off of Q1 growth. The impact will be similar in Q2 and wane throughout the rest of the year, before growth is expected to accelerate in 2026. At the same time, this is already helping profit growth, as it sheds negative lifetime value contracts. Finally, they’re on track to deliver around 5% Y/Y branded checkout growth in 2025.

Leadership explicitly said the first half of the year is going better than expected. Out of immense caution due to wild geopolitical uncertainty, it refrained from raising guidance for the full year. They left room for 2-3 points of demand deterioration in annual guidance, despite not seeing any of that play out yet. I think that’s the right decision, even if it meant a less fun stock price reaction for an hour or two. That’s irrelevant in the grand scheme of things. This bakes in an effective margin for safety to de-risk annual guidance and set themselves up for either outperformance, or to weather a more severe economic downturn without lowering targets.

The company remains confident in the accelerated growth expectations it laid out at its investor day. While it has only been two months since that event, it has been an extremely eventful two months for the global economy, so this was good to hear.

PayPal trades for 13x forward earnings. Estimates call for 8% EPS growth this year and 11% growth next year. Estimates should be mostly flat following this report.

Macro:

All of PayPal’s hesitance pertaining to the macro backdrop is precautionary. Again… it’s not seeing much consumer or merchant weakness in results. This could be because of demand pull-forwards from tariffs, but its full-year guidance reflects a normalizing of that pull-forward even though it’s not certain that it will come. Consumer spending has “proven resilient,” as PayPal continues to closely watch an economic backdrop that remains stable. It thinks its push to create the most rewarding shopping experiences is helping. PayPal’s best-in-class rewards program, augmented by its massive base of partners and a newfound ability to connect and “stack” perks, will be increasingly valuable if the economy worsens. It’s nurturing the deal-hunter in all of us.

Priority One – Win Checkout:

PayPal continues to work furiously on bringing more of its U.S. merchants onto its latest and greatest checkout flow. Under the old team, we got used to these implementations being painfully slow. It was to a point where they’d wrap up the last integration when it was already time to move everyone to a new one. That process has played out for nearly two decades and has created an ~adventurous~ web of disparate, siloed, clunky checkout products and inconsistent consumer experiences. That takes time to fix.

It is crystal clear that this team is capable of moving much faster. In just one quarter, PayPal has jumped from 20% of its largest U.S. merchants on the new checkout flow to 45%. It will keep ramping from there, with a near-future EU expansion expected to take hold even more quickly. They’re finally moving faster than a snail’s pace. As more merchants and consumers interact with the new flow, the preliminary conversion boosts have been maintained and the checkout experience (especially on mobile) is now on par with the field. I don’t think you can call it better than Shopify… but you don’t need to when you have a ubiquitously trusted brand and industry-leading merchant adoption. “As good as” works just fine.

PayPal cited ramping branded checkout growth heading into 2025 on its Q4 call. That momentum has carried into Q2 and is a big reason why it now expects the 1st half of 2025 to outperform original guidance. It just didn’t want to bake in too much optimism amid geopolitical chaos. Sounded like it otherwise would have raised this number. Overall branded experiences (which includes PayPal and Venmo for online and offline) growth accelerated to 8% Y/Y ex-Leap Day vs. 6% growth for 2024 as a whole. Good momentum.

“This [new checkout implementation pace] shows we can execute… It’s still early days, but we are very proud of this progress.”

CEO Alex Chriss

Venmo Monetization Inflection:

One of clearest signs of Alex Chriss being night and day better than Dan Schulman can be seen within Venmo. This brand has arguably boasted the largest product value to financial value gap in the United States. They have a massive base of young, affluent, loyal users who live on that app. Myself included. But? They’ve given us very, very little to do with our funds there. That’s changing. This, to me, is like WhatsApp on a smaller scale a few years ago before it started trying to monetize for Meta.

Ramping merchant adoption for Venmo checkout is playing out exactly as expected. This quarter, Pay with Venmo TPV rose by more than 50% Y/Y and monthly checkout actives rose by 30% Y/Y. The checkout option is enjoying solid market share with Domino’s, Instacart and TikTok Shop and leadership expects more “demographic-relevant merchants” to join this year.

And while Venmo wasn’t the only source of debit growth strength, it was a driving factor behind the firm adding two million new debit card users and TPV rising by 60% Y/Y. Specifically, Venmo debit card users rose by 40% Y/Y to move from 4% of total monthly actives to 6%. It’s almost like all of Venmo’s users really wanted to lean on it for more financial services. Thank you, Alex Chriss.

PayPal Everywhere:

As a reminder, late last year, PayPal launched a new omni-channel go-to-market campaign in “PayPal Everywhere.” PayPal Anywhere extends PayPal’s already compelling online rewards program to offline settings. Now, customers can select a category to receive 5% cash-back and can combine these discounts with more savings from in-app promotions. That’s what I meant by “stacking rewards” above.

This quarter, leadership disclosed that the omni-channel shift in focus is yielding a 5.5%+ lift to transactions per debit user vs. non-users. Debit card user revenue is also 2x higher than its overall base.

That’s the central product pillar for this shift, along with omni-channel buy now pay later (BNPL). And speaking of BNPL, supporting the presentation of this payment format was one of the major goals for its updated checkout flow. As leadership has personally told me in the past, “GenZ is allergic to credit cards.” While this closely resembles a credit card, that generation (for whatever reason) prefers BNPL. Making it a more central piece of checkout led to 20% Y/Y growth in BNPL volume and 18% Y/Y growth monthly actives. As this scales, the aforementioned 33% uplift to spend from BNPL users has been maintained.

It continues to see popular spend categories for PayPal Everywhere include groceries, gas and ride-sharing, which bodes very well for TPA growth and customer retention. It’s building a base of power users, and that’s creating an uplift to both online and offline translation volume.

Europe:

PayPal is “taking market share” across most of its important EU markets like Germany. It’s excited to expand the PayPal Everywhere campaign to that country, and thinks it can drive great incremental volume just like it did in the USA. The uplift could be even more pronounced in Germany specifically, considering PayPal is the clear #1 brand there.

In the UK, it thinks its new app will be far more competitive than the old one, and it’s optimistic about momentum there. The company just secured a positive regulatory ruling, allowing it to use biometrics as two-factor authentication, which should mean a better overall checkout experience.

Braintree/PSP:

Braintree launched its optimized debit routing product with Wayfair and Upwork, as well as Fraud Protection Advanced with Regal Cinemas. It’s services like these that will be increasingly paramount to Braintree and its private-label business turning into an actual profit driver. For now, it’s a profit growth driver simply because they’re cutting cash burn. Looking ahead, it can absolutely become a sustainable source of real, margin-accretive growth beyond shedding the irrational business. That’s the plan. They offered us an anonymous case study with a “long-time Braintree merchant.” That client adding services like these boosted its transaction margin from that relationship by 20 points Y/Y. This should be a cliché going forward.

While it’s somewhat frustrating that Braintree contract cutting is ongoing, that’s been well communicated to shareholders. Nobody should be surprised. They cannot simply unilaterally end existing contracts on a whim without pushback. It takes time for these to be renegotiated or to expire.

On the small and medium business (SMB) side of things, 50% of its processing is now on PayPal Complete Payments Platform (PPCP). This is its modern stack for SMBs. It makes pushing small merchants to PayPal’s modern checkout flow, Pay with Venmo and Fastlane more seamless.

Leveraging the Data in its Unmatched Two-Sided Network:

PayPal debuted a new model context protocol (MCP) server to allow businesses to openly tap into needed data sources and GenAI tools. With this MCP, clients can personalize promotions, product recommendations, checkout pages and more. This should create wonderful opportunities for merchants to lean on PayPal for higher conversion rates, more lucrative advertising placements and more value. Value breeds retention.

On advertising, PayPal is opening up PayPal ads to offsite placements, allowing ecosystem participants to use PayPal’s data and ad engine outside of its own services. As a reminder, PayPal doesn't really need to directly monetize ads… and that’s not its core focus. Instead, it wants to help merchants create more business, which will mean more transaction volume and more PayPal success. 

Crypto:

Really good quarter, despite the lackluster share price reaction. They’re doing all of the right things and they’re doing them much quicker than the old team could. Venmo has turned a corner and Braintree is a couple quarters away from doing the same thing. PayPal branded experiences growth is accelerating as omni-channel takes hold and its new checkout experience works as intended. 

By leaving the annual guide as is, I think they’ve created a likely scenario for beating and raising throughout the year. Either the economy greatly sours and their guidance has already baked that in… or… it doesn’t and hello upside. That risk/reward in this highly chaotic backdrop, supported by very little exposure to Chinese exports, is uniquely favorable. I have taken advantage of it (as Max readers saw in the send earlier today). I’m happy with the quarter and incrementally more confident in the name than I was 24 hours ago. This performance gave me everything I wanted.