PayPal provides branded omnichannel 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), most of that information is still relevant and mostly current.

While continued customer balance helped transaction margin dollar growth, that was not the main benefit here. That matters a lot, considering rates are falling and the net interest income growth tailwind is going away. Branded checkout volume, Venmo and profitable Braintree growth were all more structural growth drivers of this all-important metric for the quarter.

For Q1, PayPal guided to 0%-3% revenue growth, which missed 4% growth estimates. This is disappointing, but more context is needed. As a reminder, PayPal is actively renegotiating Braintree contracts to accept lower volume in exchange for more profit and hopefully software add-ons too. This is leading to a full 5-point reduction to full-year revenue growth estimates. The impact for Q1 was called especially “heavy,” which to me explains the miss.  Conversely, this move will add 1 point to transaction margin dollar growth for the year. Revenue growth is expected to materially reaccelerate for Braintree and the overall company as we move beyond these contract negotiations. This is why 5% transaction margin dollar growth estimates actually slightly beat estimates. Finally for Q1, low single-digit non-transaction operating expense (OpEx) guidance enabled a $1.16 EPS guide, which beat $1.13 estimates.

PayPal is still not offering formal annual revenue guidance, but we got a lot of other good color. It expects stable mid-single digit branded checkout growth in 2025, which missed some analyst targets hoping for modest acceleration. This guidance was offered on the call. At the midpoint, it expects 4.5% transaction margin dollar growth. This is ahead of estimates ranging from 3.5%-4.0%. This beat is despite an expectation of rising transaction losses as it accelerates credit originations (more later). The beat is also despite net interest income flipping from a tailwind to a $150 million headwind in 2025. Without this item, guidance calls for at least 5% Y/Y growth. FCF guidance missed by 4.5%. Note that it expects about $250 million in Y/Y CapEx growth to support business scaling. It also expects cash taxes to flip from a profit growth tailwind to a headwind in 2025. Lastly, it expects $6 billion in buybacks.

Mr. Market reacted poorly to the branded checkout guidance and largely ignored outperforming transaction margin and EPS guidance offered. While we never like misses, the language surrounding full-year numbers was encouraging and points to leadership being as conservative with this outlook as they have been in the past:

“We were pretty prudent in the way we looked at our forward guidance. We want to see results before we tell you they’re coming.”

CEO Alex Chriss

“I think we prudently planned here.”

CFO Jamie Miller

I think the company is gearing up for an easy year of consistent beats and raises. I want to see outperforming branded checkout growth and an acceleration; that’s what I expect. It is required for me to stick around in this position. That is what will tell me PayPal is not ceding branded checkout market share and can deliver durable long-term growth.

Miller gave me more confidence on this being overly conservative during the Q&A. While the company expects consistent branded checkout growth Y/Y, it also entertained the possibility for “some acceleration with our initiatives on top of that.” This “acceleration” isn’t part of guidance.

PayPal trades for about 16× 2025 EPS guidance. EPS currently expected to grow 7% Y/Y to $4.90, but those estimates should rise to its $5.03 target. EPS is currently expected to grow by 12% in 2026.

Progress:

The theme of the call was 2024 marking a significant year of progress in plugging innovation gaps and righting this troubled ship. It modernized its mobile checkout flow and improved product discovery across both PayPal and Venmo. It pushed to better monetize Venmo, with 30% debit card and 20% checkout user growth in Q4. These card and checkout users generate 4x and 3x the revenue vs. non-users, respectively and it still has more than 90% of the base to cross-sell to. Specifically, Debit TPV rose 40% Y/Y and Pay with Venmo TPV rose 50% Y/Y. This platform is expected to meaningfully step up in terms of transaction margin dollar growth contribution in 2025.

It sought to “price-to-value” on Braintree rather than endlessly undercutting the competition and prioritized value-added services to drive differentiation. It debuted a streamlined guest checkout product in Fastlane and a new ads platform, with initial ramps for both products now beginning. It was a very busy year for PayPal as it needed to be. The company was lost under old leadership. 

It launched a new omnichannel go-to-market campaign in “PayPal Anywhere” while seeing spend “habituation” form around day-to-day categories like groceries and gas. As a reminder, PayPal Anywhere extends PayPal’s already compelling online rewards program to offline settings. Now, customers can select a category to receive 5% cashback and can stack these discounts with more savings from in-app promotions. Transactions per user here are 2x that of non-users. That’s one of many pieces contributing to its base of power users (100+ transactions per year) growing by 9% Y/Y.  PayPal Anywhere also helped it generate 1.5 million new PayPal debit card users and nearly 100% Y/Y debit interchange volume growth. These specific customers early on are delivering 5x transaction volume and 2x revenue per account vs. branded checkout customers. PayPal Anywhere will expand to Europe this year with NFC capabilities planned in Germany.

More generally speaking, it generated positive transaction margin dollar growth in every quarter this year and saw Braintree positively contribute starting in Q2. USA branded checkout volume growth accelerated through 2024 to “exit the year at a high point.” This was attributed to product innovation, product discovery and marketing all helping.

2025 Plans — Branded PayPal Checkout:

Under the established new team, the top 2025 priority will remain branded checkout. It now thinks its mobile checkout experience is best-in-class, to pair with its already best-in-class desktop checkout. I’m sure some competitors would disagree with that sentiment, but the point is that the mobile checkout, which has been a weak spot for PayPal, now looks a lot more similar to other flows. That’s really all PayPal needs, thanks to its unmatched brand awareness and trust, as well as its leading merchant adoption. Today, 25% of merchants are on its latest checkout flow and the 100 bps lift to conversion (as well as the 40% latency reduction) observed with preliminary merchants has been maintained. They want to push that 25% adoption rate much closer to 100% in 2025.

In other checkout news, the company plans to use its revamped flows and improved app interface to support more buy now pay later (BNPL) growth. In 2024, that product saw just over 20% Y/Y volume growth, and the runway supports more brisk expansion in the years ahead. As a reminder, BNPL customers spend 30% more through PayPal vs. non-users. 

Next for checkout, scaling Fastlane will remain a major priority, as 2025 will be a year of nurturing, scaling and deploying all of the work it did last year. The product signed NBC Universal, Roku and StockX to its merchant roster this quarter to cross 2,000 total. It expects an “adoption inflection” as its go-to-market partnerships with Fiserv, Adyen and others begin to take hold. 75% of Fastlane users either had no PayPal account or were not an active user. This is greatly expanding its top of funnel and bolstering conversion rates by “double-digit” percentages, which should mean more customers and happier customers who stick around for longer. This dynamic should translate into a larger material financial tailwind as this product expands in 2025.

While customers were hesitant to implement brand new checkout flows like this one during the holidays, that hesitancy has shifted to eagerness. Now, it’s up to PayPal to shift from “conversation to implementation.” It will take a “number of quarters for them to scale this across the merchant base.” Fastlane is still coming and still should be a great financial driver down the road. But? Patience will be required.

2025 Plans — Braintree & More:

Outside of branded PayPal checkout, Braintree will continue to renegotiate contracts with large customers and accept lower revenue in exchange for more transaction margin dollars. This process is ongoing, and will reduce 2025 revenue growth by the aforementioned 5 points. It will also add a full point to transaction margin dollar growth. Price-hike conversations remain very productive and are now shifting to how PayPal can become more of a strategic partner in growth, customer resource management, payouts and more. Value-added services will be a vital piece of Braintree differentiating within white-label processing and generating enough margin to make this a compelling growth story. It plans to continue adding more services like its FX product this quarter, which Meta is already using. 

It also plans to keep leaning into its revamped marketing playbook, and aims to announce many new partnerships in its drive to be the “open payments platform.” It plans to bring its efficiency-minded work from 2024 into the new year, with guidance calling for just low single-digit non-transaction OpEx growth. A lot of this spend control will come from a modest acceleration in AI investments to create optimally engaging user experiences, handle more customer inquiries, personalize shopping journeys with customer data, more intelligently route payments, more precisely uncover fraud and automate back office processes. Its PayPal chatbot is already cutting manual customer service workload for the firm.

For 2025 small and medium business (SMB) plans, the return of credit growth will be a central theme. While PayPal delivered outperforming volume for the quarter, large enterprise and platforms were the highlights, not SMB. It wants to turn this into a much larger, faster-growing business. Credit is one way to do that. PayPal pulled back on business originations over the last few quarters following some weak repayment performance. Now, it’s ready to lean back in, which should represent a compelling merchant win-win if it’s able to effectively underwrite. Specifically, its working capital product delivers a 36% average uplift to merchant volume with its business loan product delivering a 16% boost. Like with Braintree, it wants to become more of an SMB partner than a payments vendor. Credit is a good way to build loyalty, stickiness and to push towards that partner status. This will be a 2025 growth tailwind. In other related news, it also now has 45% of its SMB customers on its largest checkout platform for that segment – called PayPal Complete Payments Platform (PPCP).

2025 Plans – Venmo:

On Venmo, it expects more of the same. It’s confident that it can build on 4% active account growth despite already having a large base of 64 million monthly active users. At the same time, monetizing the existing base of users will remain the top mission. It will build on upgraded user search and payment scheduling to boost engagement. It will then look to capitalize on this engagement via monetization growth through debit and checkout traction. Along these lines, Instacart, MoonPay and JetBlu all added checkout availability during the quarter. The playbook here is both “proven” but also “early.”

This was a very noisy quarter without much product news. I expect all of that product news will come in its Investor Day in a few weeks. I get why the guidance color offered on the call wasn’t loved by analysts, but the Braintree headwind is temporary in terms of Q1 revenue and language made it clear that branded checkout targets were conservative. Furthermore, profit guidance was quite good, which I think is more important to focus on as it voluntarily abandons material portions of its revenue base.

For this actual quarter, we got more solid evidence of a fundamental turnaround. Stable branded checkout, accelerating Venmo monetization and profitable growth and a Braintree business that actually contributes to its bottom line. Ads and Fastlane are still not ready to have a large impact on this business, but I suspect that impact will ramp throughout 2025 and contribute to their ability to surpass easy targets. Again, that’s what I require for me to stick around as a shareholder beyond 2025. The foundation for a recovery has been laid and I expect that progress to merely build throughout 2025. PayPal is now in much better hands and much better shape. I added 8% to my already large stake this afternoon via a small deposit.