PayPal (PYPL) Q3 2026 Earnings Call Transcript

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DATE

Tue, Oct. 27, 2026

CALL PARTICIPANTS

• Chief Investor Relations Officer - Steve Winoker
• CEO - Enrique Lores
• Chief Financial and Operating Officer - Jamie Miller

TAKEAWAYS

• Net Revenues -- $8.6 billion, rising 2% due to growth in Braintree and Venmo alongside favorable foreign exchange rates.
• Non-GAAP EPS -- $1.45, an 8% increase resulting from higher transaction margins and lower than forecast operating expenses.
• Transaction Margin Dollars -- $4.0 billion, increasing 2% driven by contributions from financial services, Venmo, and payment services.
• Transaction Margin Dollars (ex-interest) -- $3.7 billion, a 3% increase after excluding $289 million in interest earned on customer balances.
• Total Payment Volume -- $487.1 billion, representing 6% growth as payment transactions rose 7% to 6.8 billion.
• Adjusted Free Cash Flow -- $2.0 billion, excluding a $616 million net timing impact from buy now, pay later receivables.
• Active Accounts -- 440 million, growing 0.6% year over year and adding 1.6 million users sequentially.
• Venmo Debit Card Usage -- 6.7 million monthly active accounts, growing more than 55% as the company added a record 1.6 million first-time users in the quarter.
• Pay with Venmo TPV -- 43% growth, outpacing the broader market as management expands merchant acceptance into categories like travel and tuition.
• Braintree TPV -- 10% growth, as management prioritizes profitable growth over transaction volume.
• Value-Added Services Attach -- 6%, rising from 5% a year ago as the company focuses on selling premium services like risk management and payouts.
• Cost Savings Goal -- $1.5 billion gross run-rate target, with management reporting more than $700 million in savings exiting the fourth quarter.
• Headcount Reduction -- More than 2,000 positions, as part of an organizational simplification that removed three management layers across most areas of the company.
• Share Repurchases -- $1.5 billion, part of a $6.0 billion return of capital to stockholders over the trailing 12 months.
• Full-Year TM$ Guidance -- $15.7 billion, raised from previous forecasts to reflect year-to-date performance.
• Full-Year Non-GAAP EPS Guidance -- $5.60, representing an increase from the previous estimate of $5.38.
• Branded Checkout TPV -- 1% to 2% growth, remaining stable for four consecutive quarters despite regional headwinds.
• EU De Minimis Tax Impact -- 70 basis point headwind, following the removal of tax exemptions which management expects to persist through the fourth quarter.
• Non-Transaction Operating Expenses -- 1% growth, reflecting management's efforts to rightsize procurement spend and increase spans of control.
• Cash and Liquidity -- $15.1 billion, providing flexibility for selective acquisitions and continued capital returns.
• Cloud Migration -- 7.5 billion customer records, transferred to cloud infrastructure to modernize the technology foundation.
• AI Productivity -- 24 million contacts, resolved year to date by AI chat agents operating in six languages across 190 countries.
• 2027 Outlook -- Targeting non-GAAP EPS growth similar to 2026, as the company plans to reinvest cost savings into transaction margin and operating expenses.

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RISKS

• Miller stated, "The removal of the EU de minimis tax exemption impacted select merchants and created about 70 basis points of headwind in total," referring to the negative impact on branded checkout growth.
• Miller noted that the U.K. market "continues to be challenging" despite consistency throughout the year.

SUMMARY

PayPal Holdings, Inc. (NASDAQ:PYPL) reported third-quarter results that exceeded management's prior expectations for transaction margins and operating expenses. The company is executing a multiyear transformation focused on diversifying its revenue streams through financial services, including credit and debit products, while modernizing its underlying technology architecture. Management raised full-year guidance for transaction margin dollars and earnings per share, citing progress in cost reduction efforts and the scaling of the Venmo platform. Strategic shifts involve a consumer-led approach that prioritizes monthly active accounts and average revenue per account among high-value users.

• Lores noted that financial services already represent more than 20% of transaction margin dollars in 2026 and are growing at double-digit rates.
• The company migrated 7.5 billion customer records to cloud infrastructure this quarter to enable faster data-driven innovation.
• Lores stated, "We are collaborating with Meta and other AI companies to integrate PayPal into AI for personal agents and bring our trusted value proposition to agentic commerce."
• Management identified a fourfold to fivefold opportunity to increase average revenue per account for Venmo based on industry benchmarks.
• A new modular risk platform utilizing real-time data and artificial intelligence has reduced credit decision times by approximately 50% in Canada, Italy, and Spain.
• The Venmo debit card recorded its highest number of new users activating the product within 30 days of joining the platform.

INDUSTRY GLOSSARY

• Agentic Commerce: A form of digital commerce where artificial intelligence agents act as intermediaries to perform transactions on behalf of consumers or merchants.
• ARPA: Average Revenue Per Account, a metric measuring the financial value generated by an individual user over a specific period.
• De Minimis: A tax exemption threshold below which certain imported goods are not subject to duties or taxes.
• FXN: Foreign Exchange Neutral, a method of reporting financial results that excludes the impact of currency fluctuations.
• PSP: Payment Service Provider, the segment of the business providing unbranded processing services for merchants.
• TM$: Transaction Margin Dollars, net revenues less transaction expenses and transaction and credit losses.
• TPV: Total Payment Volume, the total dollar value of transactions successfully completed on the payments platform.

Full Conference Call Transcript

Operator: Good morning, and welcome to PayPal's third quarter 2026 earnings conference call. My name is Alexandra, 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 Winoker, PayPal's Chief Investor Relations Officer. Please go ahead.

Steve Winoker: Thanks, Alexandra. Welcome to PayPal's third quarter 2026 earnings call. I am 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.

Enrique Lores: Thank you, Steve, and good morning. Today, I will discuss our third quarter progress, our multiple growth engines across PayPal, and how our work on cost, technology, and AI is helping us move faster and deliver for our customers. We are building on PayPal's unique strengths, the trust in our brands, our global scale, and the power of our two-sided network while expanding beyond checkout into financial services. This is an increasingly important part of our value proposition and a larger driver of our growth. Financial services expand our total addressable market, deepen customer relationships, increase lifetime value, and allow us to become a more relevant financial partner in consumers' everyday lives.

Over the past several months, we have moved quickly to simplify PayPal, clarify accountability across our three businesses, and improve our cost structure and productivity. We now have greater clarity on where our biggest opportunities are and how we will capture them. This quarter, we are beginning to see our strategy translate into financial results. We delivered a solid quarter with transaction margin dollars growing approximately 2% and non-GAAP earnings per share growing 8%. We also delivered $2 billion of adjusted free cash flow and returned over $1.6 billion through buybacks and dividends. Our key growth areas continue to perform well. We saw strong momentum across financial services, including buy now, pay later, credit, and debit.

Venmo and Braintree each deliver double-digit TPV growth and are making important contributions to transaction margin dollar growth. Branded checkout TPV growth has remained relatively stable in the 1%-2% range for four quarters, despite various headwinds. While there is more work to do, we are encouraged by the improvement relative to the market, continued momentum in the U.S., and strength in BNPL and Pay with Venmo. These results show that our financial performance is increasingly coming from multiple parts of the business. Last quarter, I outlined five changes we are making to build a stronger, more diversified PayPal.

We have made good progress, and today each of our businesses has a clear plan for how it will contribute to durable, profitable growth. First, financial services are becoming a much more important part of our business. They already represent more than 20% of transaction margin dollars in 2026 and are growing double-digits. For example, we continue to see good momentum in Pay Later with broader distribution this quarter through leading merchants like Amazon in Germany and Austria, American Eagle, Aerie, and Dick's Sporting Goods. The momentum extends beyond Pay Later, with strong growth across consumer offerings like credit, debit, and tap to pay, as well as merchant lending. Second, we continue to build momentum in Venmo and PSP.

We are building on the strength of the Venmo brand to broaden adoption of financial services, deepen customer relationships, and increase ARPA. The Venmo debit card reached 6.7 million monthly active accounts, up more than 55%, with a record 1.6 million first-time users in the third quarter. We also relaunched the Venmo credit card with a differentiated value proposition that rewards customers for splitting purchases with friends. In PSP, we are strengthening our position with large enterprises and leading commerce partners through unified processing and a broader portfolio of premium value added services, such as risk as a service, payouts, and merchant lending. PSP volume grew 8%, while value added services attached increased to 6% from 5% a year ago.

Third, we remain convinced that a consumer led approach is the right catalyst for durable, profitable growth. We have done significant work to understand who our highest value consumers are, what they need from PayPal, and how we can deepen our relationships with them and become more relevant in their everyday lives. Transaction margin dollar growth is our North Star. To drive that growth, we are placing greater emphasis on monthly active accounts and ARPA among these consumers. That means increasing adoption of financial services and improving retention, while also making PayPal easier to find and use at the merchants where these consumers shop.

Over time, our opportunity is to serve more of their financial needs with checkout increasingly just one part of our broader relationship. This consumer led approach also informs how we work with merchants. As you can see on slide five, across many of our largest U.S. merchants, we are improving the checkout experience, strengthening presentment, and partnering on consumer marketing to drive PayPal selection. Where we have implemented multiple elements of this playbook, we are beginning to see improvement in our checkout performance. We are scaling this approach merchant by merchant and country by country. Fourth, we are changing how we operate to drive better execution. We have clearer accountability, faster decision making, and simpler ways of working.

We have reduced headcount by more than 2,000 and removed three organizational layers across most areas of the company. We are also using AI and automation to drive productivity. For example, our AI chat agents now support customer service across 190 countries and six languages and have resolved more than 24 million contacts year-to-date. Actions like these are creating capacity to reinvest in our highest return opportunities. We are on track to achieve our target of at least $1.5 billion in gross run-rate cost savings over two to three years, including more than $700 million exiting the fourth quarter. Fifth, we are modernizing our technology and leveraging AI to innovate faster and at scale for our customers.

We are making solid progress. This quarter, we migrated 7.5 billion customer records to cloud infrastructure. Our new modular risk platform is using real-time data and AI to cut credit decision times nearly in half in Canada, Italy, and Spain. Venmo has started processing select payments on PayPal rails, and Venmo authentication now runs entirely on PayPal's identity platform. These are important steps toward a more unified technology foundation. We completed the global rollout of our new PayPal mobile app, built on modern architecture that will enable faster data driven innovation.

We are building for what comes next, collaborating with Meta and other AI companies to integrate PayPal into AI for personal agents and bring our trusted value proposition to agentic commerce. We are still early in these changes. This is a multi-year transformation and there is much more work to do, but the progress we are seeing reinforces our conviction in the strategy. As I look further ahead, I'm increasingly confident in PayPal's earnings growth potential. Over time, we believe the changes I have described can drive sustainable total company transaction margin dollar growth in the mid-single-digit range. Combined with operating leverage and disciplined capital allocation, including share repurchases, this should enable us to deliver solid double-digit EPS growth.

Importantly, we are building the business to make that growth durable. The key is a more diversified contribution across the business. We expect financial services, Venmo, and payment services to contribute a significantly greater share of transaction margin dollar growth over time, with each growing double-digits. While we expect branded checkout TPV to improve, this algorithm does not require it to return fully to historical growth rates. The increasing contribution from the rest of the business can drive total company transaction margin dollar growth in the mid-single-digit range. We also have a significant cost opportunity. The at least $1.5 billion in savings we have identified gives us the capacity to both reinvest and drive operating leverage over time.

PayPal remains a strong cash-generating business, giving us the flexibility to invest where we see the greatest potential while continuing to return capital to shareholders. Getting there will require investment. Our U.S. playbook is showing encouraging early results, and in 2027, we plan to scale what is working across more merchants in the U.S. and internationally. We plan to invest further in both transaction margin dollars and operating expenses. We are targeting 2027 non-GAAP EPS growth similar to this year as we position the business for faster, more durable growth over time. What gives me confidence is that many of the changes we are making are structural.

We have a clear strategy, a simpler operating model, and we are improving execution, and we have started to see the results. Thank you to the PayPal team for your hard work and continued focus. Jamie, over to you.

Jamie Miller: Thanks, Enrique. Let me start with the financial performance in the quarter. At a high level, transaction margin dollars came in above our expectations while operating expenses were below our forecast, resulting in non-GAAP EPS above our guidance. One point I would highlight is the tangible progress we are seeing from our transformation. That is showing up not only in the cost structure, but also in technology modernization and in the growth areas Enrique discussed, including financial services and Venmo. Importantly, the savings are creating capacity to self-fund more of our growth investments, such as improving the consumer experience, strengthening merchant presentment, and building and scaling our financial services products.

As we learn what is working, we are being deliberate about where we invest more and where we pull back. With that context, turning to the next slide, let me give you some additional color across the business. Starting with branded checkout, TPV growth remained relatively stable, with continued improvement in the U.S. for the third consecutive quarter and stabilization in Germany. As we communicated in September, the removal of the EU de minimis tax exemption impacted select merchants and created about 70 basis points of headwind in total.

In U.S. branded checkout, we are seeing encouraging evidence that the work on experience, presentment, and selection focused largely on our high-value consumers and the merchants where they shop is having an impact. Over the last four quarters, we have seen a significant improvement in relative share of checkout at the cohorts of merchants where we have implemented our full playbook. We also maintain strong momentum in Pay Later and Pay with Venmo, which outpaced the market, growing 25% and 43% respectively. We are still early, but what we are learning is increasing our confidence in the playbook and helping us be more targeted about where we invest in 2027.

On Venmo, TPV sustained double-digit growth for our eighth consecutive quarter. More importantly, engagement and monetization continue to deepen, with ARPA also growing double-digits, driven by strong adoption of our monetized products. We are also seeing newer cohorts ramp their product usage faster with a record number of new users activating the Venmo debit card within their first 30 days. Monthly active accounts using both the debit card and Pay with Venmo nearly doubled year-over-year, building on similarly robust growth in this cohort last year. At the same time, we are also broadening the places where consumers can use Pay with Venmo, from travel and college tuition to prediction markets, while maintaining strong retention across our established merchant base.

That combination of greater utility, deeper product adoption, and higher engagement is the model we are building toward with Venmo. In PSP, our focus is on profitable growth, not simply volume. Braintree's TPV grew 10%, supported by profitable front book wins, high retention, and expansion with existing merchants. We are also driving higher attachment of value-added services to our processing relationships, which we expect to support margin expansion over time. Third quarter revenue grew 2% on a spot basis and 1% currency neutral, with growth in Braintree and Venmo growth as well as FX favorability contributing to performance, offset in part by higher contra revenue investments made in the quarter and the de minimis headwinds mentioned earlier.

We benefited from a lower transaction expense rate due largely to mix and partner incentives, lower transaction loss reflecting our team's ongoing work to improve and strengthen onboarding, fraud prevention, and risk management capabilities, and lower credit loss driven by a reserve release related to expected credit externalization and supported by disciplined underwriting. Transaction margin dollars grew 2%, or 3% excluding interest on customer balances. What is important is that we are increasingly seeing contribution from multiple areas of the portfolio while continuing to fund both transaction margin and OpEx investments required to strengthen branded checkout and grow financial services, Venmo monetization, and PSP value-added services attached. That is the more diversified growth model we are building.

Moving down the P&L on operating expenses, we are beginning to see tangible benefits from the operating rigor we have put in place and faster progress on the transformation, including increasing spans of control, reducing management roles by more than a quarter, and rightsizing procurement spend. Non-transaction operating expenses grew just 1% in the quarter and helped drive non-GAAP operating income growth of 3%. That said, I would not simply annualize the third quarter expense performance. We intend to remain disciplined on costs while investing where we are seeing results, in places such as financial services, product growth, consumer lifecycle marketing, and specialized sales teams.

The combination of stronger transaction margin performance and lower operating expenses resulted in non-GAAP earnings per share growth of 8% to $1.45 above our guidance. Our cash generation remains a strategic advantage. Adjusted free cash flow, which excludes the timing impact from the origination and sale of Pay Later receivables, was $2 billion. We completed $1.5 billion in share repurchases, bringing the trailing 12-month total to $6 billion. More broadly, our strong liquidity and cash generation give us the flexibility to invest in the business without sacrificing our ability to return significant capital to shareholders. That is particularly important as we look toward 2027 and selectively increase investment behind the opportunities where we are building the greatest conviction.

Turning to guidance. For the fourth quarter and the full-year 2026, our year-to-date performance demonstrates continued progress across PayPal, even as we execute significant organizational change with increasing clarity and confidence in the growth plans for each of our three businesses. With that as a backdrop, we are raising guidance for the full-year. We now expect transaction margin dollars to increase to approximately $15.7 billion, or $14.6 billion excluding interest on customer balances, mid-single-digit growth in non-transaction operating expenses, and non-GAAP EPS to increase to approximately $5.60. Our guidance now includes at least $6.5 billion of adjusted free cash flow and continues to incorporate approximately $6 billion in share repurchases.

For online branded checkout, we continue to expect low-single-digit TPV growth on a currency neutral basis for the full year, in line with our prior expectations. This assumes that headwinds in Europe, including the impact from the removal of the EU de minimis tax exemption, continue to persist and result in similar 1%-2% online branded growth throughout the fourth quarter. We remain on track to achieve at least $1.5 billion in gross run-rate cost savings over the next two to three years and are increasing our expectations exiting the fourth quarter to a run-rate of more than $700 million.

As we've shared, we intend to reinvest a significant portion of these savings into our highest priority growth initiatives while improving operating leverage over time. For the fourth quarter, we expect low-double-digit revenue growth on a currency neutral basis, slightly positive growth in transaction margin dollars, TM dollars excluding interest on customer balance to be slightly positive, and flat to low-single-digit growth in non-transaction operating expenses and non-GAAP EPS of approximately $1.43. In summary, we're seeing encouraging signs that the changes we're making are translating into better performance across the business.

We have more work ahead of us, but we're operating with greater clarity and discipline, and we're building a stronger foundation for more durable growth and stronger financial performance over time. I'd like to wrap up by thanking the PayPal team for everything they've accomplished this quarter. With that, Steve, let's go to Q&A.

Steve Winoker: 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. Alexandra, please open the line.

Operator: At this time, I would like to remind everyone, in order to ask a question, please 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 the line of Andrew Schmidt of KeyBanc Capital Markets. Your line is now open. Please go ahead.

Andrew Schmidt: Hi, Enrique. Hi, Jamie. Thank you for taking the question this morning. Maybe just start a little bit higher level. Given your prior comments about strategic alternatives, you and the board obviously see more value than whatever offers were on the table. Could you just talk about what's driving your view of intrinsic value? Then, of course, the confidence in achieving that. That'd be helpful. Thank you so much.

Enrique Lores: Sure, Andrew. Thank you. Thank you for the question. Let me share that we have strong conviction in our ability to execute the plan that we have outlined in our prepared remarks and to achieve sustainable double-digit EPS growth in the midterm. This will be driven by, first, sustainable mid-single-digit transaction margin growth driven by Venmo, processing, and more modestly by branded checkout, all supported by the growth of financial services that we have highlighted how critical we think that part of the business is. We expect also to see operating leverage as we drive the cost reduction program.

Of course, we will continue to utilize our strong free cash flow to drive share buybacks and in some cases, selective M&A that will help us accelerate our plan. As you said, the Board and the management team have a clear objective to maximize shareholder value, and we have been, and we will be open to analyze objectively any option that is presented to us, and we will always choose the alternative that will create more shareholder value. At this point, that alternative is to execute our plan, and the team is fully focused on driving the progress that we have outlined in the call.

Andrew Schmidt: Thank you very much.

Enrique Lores: Thank you.

Operator: Your next question comes from the line of Dan Dolev with Mizuho. Your line is open. Please go ahead.

Dan Dolev: Hey, guys. Hey, Enrique. Hey, Jamie. Really nice work here on the OpEx and the guide raise. Congratulations. I wanted to talk about Venmo. It keeps growing, and it looks really strong, I think, in the double-digits. How can we make this a bigger part of the portfolio? And obviously, the usual question on monetization and great work again. Thanks.

Enrique Lores: Sure. Thank you. I will take the question. Our goal, as I briefly mentioned in the prepared remarks, is to make Venmo increasingly central to our customers' everyday financial lives. We are doing that by building from the strength that we see today in the business and expanding into financial services. The growth that we see today is driven by three things, new experiences, and for example, this quarter we launched the ability for our customers to do P2P transfer by scanning and splitting receipts, which is having very well reception by continuing to invest in financial services that help us to monetize better our customers.

Just to mention, only 23% of our customers are using today some of the financial services we have today. This quarter, we saw very strong growth of the debit card with more than 60% growth year-on-year. And finally, we are seeing also very good progress on Pay with Venmo. Pay with Venmo TPV grew more than 40% this quarter. So the growth in the future will be driven by continuing to drive these areas, and we expect to continue to see double-digit TPV growth for Venmo in the coming years.

What is very exciting for us is when we look at ARPA, that is going to become one of the key metrics of the business going forward, and we benchmark ourselves with other companies in our space. We have a 4x to 5x opportunity to increase ARPA, which gives us both the conviction about the opportunity and shows us where we need to invest and where we need to grow. So we expect Venmo to continue to grow, and the results this quarter just show the potential that this business continues to have.

Dan Dolev: Great job again. Thanks.

Steve Winoker: Thanks Dan.

Operator: Your next question comes from the line of Tien-Tsin Huang with JPMorgan. Your line is now open. Please go ahead.

Tien-Tsin Huang: Thank you. Good morning. There was good color here on financial services. I was hoping maybe you can update us on the product roadmap here for financial services. How do you see financial services adding to transaction margin dollars in the near-term or even the midterm? Is the bias still to stay balance sheet light?

Enrique Lores: Yeah, so let me start and then maybe Jamie wants to complement some of the comments. Yes, we continue to see financial services as a key driver of future transaction margin dollar growth. This is why we highlighted it during the call. This is true for all segments. It is true for consumers and merchants, but also for the three businesses, both for Braintree, for Venmo, and for PayPal itself. Within financial services, we include things like Pay Later, debit and credit. Today, and in the future, these businesses or these products offer attractive economics. They open a larger TAM and help us to complement our value proposition to customers.

In fact, as I was mentioning before, ARPA is going to become a key metric for us going forward, and we see that when consumers use financial services, their ARPA is between 2x and 5x bigger than for those consumers that don't. You are going to see us continue to invest in this space. For example, with Pay Later, we are going to be extending the portfolio of offerings that we have, both in terms of products and also in terms of geography to continue to complement our offering in that space. We will be offering cards that will have the flexibility of Pay Later, so we can extend the value proposition from online to stores.

You will see us expanding the portfolio of different credit offerings that we have. Again, a very important business for us where we see a lot of momentum and a lot of demand from our customers to offer.

Jamie Miller: Yeah, I just chime in on the funding question. We have had a balance sheet light strategy towards credit funding over the last couple of years. What I'd say about the next few years is we'll continue to take a balanced approach between on-balance sheet and off-balance sheet growth. We have a lot of flexibility in our funding sources, and we've demonstrated that through the European Buy Now Pay Later, the U.S. revolving credit partnership we have, the U.S. Pay in 4 funding program that we have underway that we started last year. I think what underpins that, which is really important, is that we've got really strong credit underwriting and very attractive paper.

While we'll continue to use the balanced approach with both on and off, in some cases retain the economics, in some cases share those, I think what's important is we have the flexibility going forward to manage that and navigate that depending on what we're doing.

Tien-Tsin Huang: That's clear. Thank you.

Steve Winoker: Thanks, Tien-Tsin.

Enrique Lores: Thank you, Tien-Tsin.

Operator: Your next question comes from the line of Timothy Chiodo with UBS. Your line is now open. Please go ahead.

Timothy Chiodo: Great. Thank you for taking the question. I want to touch on the comments you made around collaborating with Meta and some of the other AI agents. I know from prior discussions, some of the advantages that PayPal might have would relate to the transaction history that you bring to the table, and then also the fact that PayPal does provide both consumer and merchant protections. I was hoping you could expand upon those or maybe other reasons why PayPal may be well-positioned for agentic commerce.

Enrique Lores: Yes. I'll take that one. We really see agentic commerce as a great opportunity for the company. We really are making this a priority for us, both in terms of the internal work that we do and in terms of partnering with other companies such as Meta. The key advantage that we have is really driven by our core value proposition to consumers and merchants. When PayPal started, the key value proposition was around trust and security. This was needed in e-commerce. This will be even more needed, more in agentic commerce. And what we are doing is translating that value proposition into the new world.

If you think about consumer agents that will be buying from agents, from merchants, both will have to validate that this is a real consumer that can pay, this is a real merchant that have the product, and that is the value that we see PayPal playing going forward. It is really all about trust and about the security that we will be providing both to merchants and to consumers. This is why we are working with all the key leaders in this space on the for personal agents to make sure that consumers can transact using PayPal and using us as kind of the key vehicle to make sure that these transactions are real.

We look at this as just the beginning, because what is true for commerce will be expanded to other types of the portfolio of activities that we provide to customers, like peer-to-peer transfers. All this is part of the value proposition we bring to customers, and this is why we are so excited about the opportunity that AI brings to PayPal.

Timothy Chiodo: Thank you.

Steve Winoker: Thanks, Tim.

Enrique Lores: Thank you.

Operator: Your next question comes from the line of Harshita Rawat with Bernstein. Your line is now open. Please go ahead.

Harshita Rawat: Hi. Good morning. Can you maybe expand upon the market dynamics in Europe? You have the de minimis drags and competitive pressures in certain markets, but then you are also investing in the consumer value proposition, things like Pay Later. So what is your confidence level with respect to improving branded growth in Europe? Jamie, what is the expectations on the de minimis for the fourth quarter? I know you said headwinds persist, but I just wanted to kind of double-check that. Thank you.

Jamie Miller: Sure. Maybe I will start with the last part of that first. Our expectation on the EU de minimis tariff impacts is that they will persist into the fourth quarter. When that happened in the U.S. last year, it tended to dissipate within a few months, actually. This, we are still seeing the impacts from the tariff policy change into October, and we do expect that to last through the fourth quarter. If I pull back and really look at the market dynamics in Europe, maybe I will talk through that, and Enrique, maybe you want to talk about the investment side of it.

The core European markets outside of de minimis really are, I would say, relatively consistent this year and to a degree, stabilizing and in some cases, improving. You look at Germany, for example, that has been stable all year for us. I would say as we are moving through the third quarter, I would call it slightly improving. We launched Pay Later in Germany and Austria over the last couple of months, and that is off with Amazon, and that is off to a really nice start. The U.K. continues to be challenging, but it has been consistent this year. Italy and France are stable and good growers. I think what is important is exactly your question, though.

We have spent a lot of time in the last six months with Enrique focusing on our country-to-country approach and really strengthening our consumer teams in Europe and are now actively positioning to take the playbook that we talked about on the call with merchants into Europe next year. All of this is really important to our continued transition in branded checkout. But Enrique, you may want to comment a little bit more on the investment side of it.

Enrique Lores: Yes. I think what we have done in Europe is really to invest to create the right local infrastructure, especially to manage our consumer business. We did not have local teams that understood the local trends, that were able to create the right programs and activities to drive consumer demand. This is what we have been building during the last three, four months, and we are starting to see the results. As Jamie mentioned, our relative performance in Europe has improved. This does not mean that we do not have room for improvement, which we do, and we will continue to do, but we are positive about the progress that we have seen.

Especially as we see the progress that we have made in the U.S., and we highlighted in the call the progress that we have made with some of our key merchants. Applying that same playbook in Europe will help us to drive growth and to continue to improve the performance in those countries.

Harshita Rawat: Thank you.

Operator: Your next question comes from the line of Bryan Keane with Citi. Your line is now open. Please go ahead.

Bryan Keane: Hi. Good morning. Thanks for taking the question. I just also wanted to follow up on international. It looks like the TPV is relatively flat, the growth on FX neutral. But the revenue growth slipped to -4% growth on an FX neutral basis. Sounds like there is a lot of stability in Germany and Italy and some of the European markets. What is driving, I guess, international down further? Is there Asia markets that are weakening? And then how long will it take to get back to normalized positive growth in international as we get into next year? Thanks.

Jamie Miller: Yeah. The TPV side of things, we saw some translation, minor impacts there. But when you start to look at revenue, and in particular international, that is where you are seeing the impact of the EU tariffs and branded checkout. And you have to remember that the number I gave you on impact from the tariffs, which is 70 basis points to branded checkout, that is a global number. It is not the international specific number. So that number is bigger when you start to apply it just to international revenue. But that is really the primary difference there.

And then when you start to look at international going into next year, we have been encouraged by some of the growth that we have seen, and I mentioned before across Germany, Italy, France, and a few other parts of Europe. But I think more importantly, the playbook that we started rolling out really over a year ago around not only experience, presentment, and selection, but also around Pay Later and really reaching into the consumer and greater penetration.

While we started that in the U.S., that is moving to Europe, and you're seeing some of that with the actions we've talked about with expansion of the Pay Later portfolio across Europe and across other places, and with respect to increasing levels of penetration around the merchant playbook as well.

Bryan Keane: Thank you.

Steve Winoker: Thanks, Bryan.

Operator: Your next question comes from the line of Andrew Bauch with BMO Capital Markets. Your line is now open. Please go ahead.

Andrew Bauch: Hey, thanks for taking the question. I just wanted to hone in on the 2027 transaction margin dollar algorithm. I know you outlined the eventual path to mid-single-digits growth, but you also said that 2027 was going to be an investment year. I guess, what should we expect for the TM dollar growth to look like in 2027 specifically? What are the biggest bridges between the 2% growth you are at today and the mid-single-digit target?

Jamie Miller: Okay. Let's first talk about the mid-single-digit point of view, it is really around our medium-term. So it is an over time point of view. If I start with that, as Enrique talked about before, we expect stronger transaction margin dollars growth over the next coming years, a more balanced composition with Venmo, PSP, and financial services increasing growth over time. I think importantly, it does not require branded checkout to get back to historical growth levels to really see that mid-single-digit growth. When I look to 2027, I think what I would say first is it is a little too early for us to give 2027 guidance. We will do that at our next call in February.

But you have seen from us this year nice performance across multiple areas. So we have seen branded checkout stabilization. We have seen Venmo. We have seen processing growth. We do expect further transaction margin dollar and OpEx investment in 2027. But if I level up, what we are really targeting as a profile is similar non-GAAP earnings per share growth next year as what we are guiding to this year. So that is probably how I would talk about it, and 2027 being relatively consistent with how we have operated in 2026. We are making good progress. Our focus is on building momentum and looking at 2028 and beyond as well.

Enrique Lores: Let me emphasize these last two comments. We think we have an opportunity to continue to invest in the areas where we are seeing progress, whether it is transaction margin and OpEx. This is what we are planning to do in 2027. We think it will be critical to drive stronger growth in 2028 and beyond. Despite of that, we expect and we are targeting to grow EPS at the same rate as we will this year.

Andrew Bauch: Great. Thank you, and good work on OpEx.

Jamie Miller: Thank you.

Enrique Lores: Thank you.

Operator: Your next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open. Please go ahead.

Sanjay Sakhrani: Thank you. Good morning. I guess when I look at slide five and those cohorts that seemingly are headed in the right direction, when we look at the difference between the first one and the last one, there seems to be a bifurcation between when you apply to a direct merchant versus a marketplace. I am just curious, what are the nuances? Because it seems like a lot of the technologies are implemented there. So I am just curious, is it because the marketplace has other options for payment and that merchant doesn't? I am just curious, as we think about the opportunity ahead and how you implement these changes, where are the opportunities most significant?

Then just a quick follow-up, Jamie. Just as we think about the comparisons this year versus next year, it seems like the comps are much easier next year. So shouldn't we expect a little bit of an acceleration in TMD growth because the comps are easier? Or maybe you could just explain how we should think about it. Thank you.

Enrique Lores: Mm-hmm. So let me take the first part of the question on North America. When we look at our playbook, the playbook has different elements. One element is to improve the experience and to get the merchants to use the latest checkout pages. Another element is to integrate in the offer, Pay Later, and some of the other financial services. Another element is to build co-marketing activities with the merchant. What you see in the graph, and we don't have exactly the same formula applied to every merchant. It depends on specific conditions of the merchant and what are the economic situation and the interest that we work with.

This is what is driving the variation across the different customers that you have in the chart. We thought it was important to share this chart because it shows the trend. Yes, there are differences between certain merchants, but the important thing is how the overall TPV growth is growing and how we are also starting to grow our relative share in these accounts. We have great examples of the progress that we are making. We don't specifically mention them in the call, but for example, with one of the leader U.S. sports entertainment platforms, where we drove and we renewed our partnership at the beginning of the year, we're seeing more than 40% growth in the last six months.

With Venmo as well growing more than 50%. With one of the leading U.S. omnichannel retailers, we expanded our Pay Later offering to them, and growth of BNPL grew from 7% to 20%, with significant growth of monthly active users. We have many examples where we see that the impact of the playbook that we have implemented is really starting to gain traction. Again, this is why we think continuing the investment and continuing the work is going to be so critical for us going forward.

Jamie Miller: Sanjay, when you look at, in particular, fourth quarter and 2027, I would just echo what Enrique is saying. We are really encouraged by the results we are seeing, but it is early, and we have got more work to do. One of the things I would mention is that in the U.S. in particular, we saw nice sequential growth over the past few quarters in U.S. branded checkout TPV growth. So we are seeing good signs, but we also do not want to get ahead of ourselves. We are underwriting these investments generally in branded checkout to about a two- to three-year time horizon. On the largest merchants, it really is more like three years.

So it is going to take some time for these to come through. As we have said before, we are beginning that process in Europe, and we are excited to see where it goes and go from there.

Steve Winoker: Thanks, Sanjay.

Operator: Your next question comes from the line of Darrin Peller with Wolfe Research. Your line is now open. Please go ahead.

Darrin Peller: Thanks, guys. Just a quick two-part on investments in general. First, for Enrique on M&A. Just if you can give us an update again, you touched on it earlier, but your appetite for M&A in terms of size, timing, and type, what you're seeing. Then really, Jamie, when we think about the investments you're talking about for next year, again, you came in strong, better at about 1% growth, I think a little below what we had thought for OpEx expectations. But how should we think about margins for next year in terms of what you're building into that similar EPS profile?

Enrique Lores: So let me start on the M&A side. I want to start by saying that our plan is to maintain our approach to significantly return capital to shareholders through share buybacks and dividend. But that over time, we believe that M&A should also play a role in value creation. Any M&A action that we will do will have to go through what I call three filters. Filter number one is strategy. It will have to support the strategies that we have outlined. For example, to drive growth of financial services or accelerate the growth of Venmo or of processing. That's really aligned to the strategy that we have explained.

Second, it needs to have a strong financial case and a strong financial return. Given that share buybacks, that we believe that our share is undervalued, the minimum value, of course, will have to provide more value than just buying shares compared to versus the model that we have. Third, and very important, we need to also have a very strong operational plan. We'll have to have the conviction and the plan that we'll know how to integrate the company and how to extract the value that the financial case will bring. So these are the three filters that we will apply in any case.

We will remain very disciplined, but within that, with M&A, we can accelerate the plan that we have been discussing today.

Jamie Miller: Great. Then Darrin, with respect to 2027 investment, I guess what I'd say is we've had nice performance in the third quarter, and it was much better than we expected, and we expect to have a good profile on this in the fourth quarter as well. But I would not run rate the second half OpEx across 2027. While we're off to a really strong start, we are ramping investment along the lines of a lot of the things that Enrique and I have talked about here, the product build, go-to-market build, marketing, and other things like that.

I think one of the things you're going to see is it's hard to fully synchronize the pace of the cost out with the pace of the investment, and you are going to see some mismatch across the quarters. But overall, if I look at the 2027 profile, when you look at transaction margin, when you look at OpEx, when you look at EPS, like I said before, we expect a roughly consistent profile and we'll unpack that and get into more specifics on the call in February.

Darrin Peller: Thank you.

Steve Winoker: Thanks, Darrin.

Operator: Your next question comes from the line of Dan Perlin with RBC Capital Markets. Your line is now open. Please go ahead.

Dan Perlin: Thanks. Good morning. I wanted to just hit on PSP for a second. It sounds like part of that strategy is to continue to drive higher attach rates for value-added services. I guess the first part is just what does that sales motion look like as we sit here today, and how do you have to invest in that going forward, or are you kind of where you want and just need to push it harder? Then I thought I heard you say the percentage of that was high-single-digits, so if there's any clarification on that would be great. Thank you.

Enrique Lores: Mm-hmm. Let me take the first part. In PSP, what we need to do and where we see the biggest opportunity is from one side to continue to drive growth or what I would call the basic processing capabilities. We have been making very good progress and making it profitable during the last few quarters, but also to improve attach of value-added services. Services like payouts or risk as a service or invoicing. These are all great services that provide a lot of value to our customers, and either we have not been able to attach them properly, or we have not been able to monetize them properly during the last quarters.

That's going to be a key priority for us going forward. We are investing not only in the products themselves, but especially in a specialized sales force that will be driving attach, that will have as their unique goal to improve attach and to sell value-added services. I want to acknowledge that we have started to make progress. We grew our attach from 5% to 6%, so year-on-year, 1 point, but we have much more room for improvement, and this is where we're going to be focused.

Dan Perlin: Thank you.

Steve Winoker: Thanks, Dan. Hey, Alexandra, we have time for one last question. Can we just put one more in, please?

Operator: You got it. Your last question comes from the line of Jason Kupferberg, Wells Fargo. Your line is now open. Please go ahead.

Jason Kupferberg: Good morning, guys. Thanks. Nice to see some of the broad-based stabilization, obviously pockets of improvement in the business. I did want to come back to the topic of branded growth. I know we're talking about Q4 being in this kind of steady 1%-2% range, and you are assuming that the EU tariff headwinds continue. But you did also talk about some U.S. momentum. Just curious why Q4 wouldn't potentially accelerate. I know you've got a material easier compare, and maybe if you can just quantify some of the U.S. acceleration in recent quarters, that would be great. Thanks.

Jamie Miller: Sure. The short answer on the fourth quarter is that we expect the EU tariff headwind to continue, and we're really planning for consistency. If I unpack that a little bit, the forecast is really based on our view of historical performance and our view of the market. The holiday season is more heavily retail, but we have a really good and strong depth in services, travel, and some of the other verticals, and we've got really good growth rates in areas that we're deep. But the EU de minimis, we assume that continues to impact us.

As I mentioned before, Europe has been consistent this year, but it's an area we're watching with some of the macro overlay and the EU de minimis that I mentioned. We are really encouraged by the U.S. merchant playbook work we have done, and we do believe that we are entering the holiday season in a better position than we were last year at this time. It is all still very early, and we have got more work to do ahead. I would just say that as we take it all in, that is what is leading us to the guide around the 1%-2% for fourth quarter.

Jason Kupferberg: Thanks.

Steve Winoker: Enrique, any final thoughts?

Enrique Lores: Yes. I want to close by first acknowledging the progress that we have made so far. Last quarter, we outlined five key priorities for the company, and we are making progress in all of them. We have talked about the progress we have made in financial services that are growing double-digits, and especially around areas like BNPL, is showing really our ability to expand and to grow in this area. Second, we have talked about the progress we are making with Venmo and PSP. Significant growth both on revenue and transaction margin, and great plans to continue to drive that going forward. Around branded checkout, the business has stabilized.

We have a clear view of what is the playbook that we need to apply to continue to drive growth and especially centered around high-value customers. We see what we need to do, and we are going to continue to do that in the coming quarters. Finally, both around cost and simplification and embracing AI, we have made tangible progress as the results show. So good progress made in Q3 that shows that we are in the right direction. More works too, but thank you to the PayPal team, and also thank you to all of you for participating with us today.

Operator: Thank you. [crosstalk] This concludes today's conference. Thank you for participating. You may now disconnect.

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