PayPal wants to be everywhere

Hey!

PayPal reported its fourth quarter and full-year 2024 results this week. Braintree payment volume growth decelerated to 2% YoY (from 29% YoY a year ago). International payment volume growth decelerated to 7% YoY (from 17% YoY a year ago). The company guided for unimpressive 4-5% YoY gross profit and 6-10% non-GAAP EPS growth in 2025.

So what’s next? A payments company needs payment volume growth to grow earnings. The answer: PayPal has almost 230 million monthly active users…and they want to do more for them. PayPal wants to lend to consumers and small businesses. They want to issue debit cards. And I believe they will try to scale their in-store payment acceptance business.

PayPal will hold an Investor Day later this month. I expect Investor Day to clarify PayPal's core focus moving forward. While PayPal has plenty of growth opportunities, they cannot pursue them all. We have already seen a lack of focus before, and it didn’t end well.

Jevgenijs

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Last May I wrote about the reasons to be bullish on PayPal. The reasons were: a) Braintree's volume growth matched Stripe and Adyen, b) international was delivering double-digit growth, and c) it looked like branded checkout volume started accelerating.

PayPal just reported its Q4 2024 results. Braintree volume growth decelerated to 2% YoY, down from 29% YoY in Q4 2023. The company’s new management prioritized “profitable growth”. It turned out that Braintree cannot grow if it needs to grow profitably. Branded volume growth remained flat throughout the year.

International payment volume and revenue decelerated to 7% YoY, down from 17% YoY and 12% respectively a year ago. If the reason for the deceleration in Braintree’s growth is the focus on profitability, then deceleration in international markets is unclear and hardly discussed on the company’s earnings calls. U.S. volume decelerated too.

As a result, PayPal guided for 4-5% YoY gross profit and 6-10% non-GAAP EPS growth in 2025. No much. Global Payments is expected to grow earnings faster, but trades at about half PayPal’s P/E multiple.

So what’s next? If you are a payments company, how do you grow earnings if your payment volume doesn’t grow that much? Of course, there is Fastlane, PayPal’s accelerated checkout solution, that will probably help with reigniting growth. PayPal also stroke Fastlane distribution partnerships with Adyen, Fiserv, and Global Payments.

Hyperwallet, PayPal’s payout business, seems to be growing nicely too. As I understand, Hyperwallet is the key driver behind the growth in “Other merchant services” volumes, which accelerated from 12% YoY in Q4 2023 to 27% YoY in Q4 2024.

Fastlane and Hyperwallet will help with growth, but I don’t think those two products can fundamentally change PayPal’s growth trajectory.

Later this month, PayPal will hold an Investor Day (February 25, 2025) and we will learn more about the company’s plans going forward. However, the company’s management already gave us a preview during the earnings call. PayPal wants to be more than just an online and P2P payments company. And that’s how they plan to reignite growth.

But let’s go back to my bullish thesis on PayPal from last year. There was one more reason to be optimistic about PayPal’s future. PayPal’s users were not leaving. And they still aren’t. Thus, In December 2024, PayPal services were used by 229 million users (“monthly actives”) across the globe, up 2% from 223 million a year ago.

64 million of those monthly active users are Venmo customers. That’s more than Block’s Cash App had at the end of Q3 2024 (57 million). Block has not yet reported its Q4 2024 numbers, but I am sure, they will report fewer than 64 million actives.

…and now PayPal wants to do more for these customers than just process their online and P2P payments. During the earnings call, Alex Chriss, the company’s CEO, highlighted 2025 priorities.

These priorities are: scale branded checkout (including “PayPal” and “Pay with Venmo”), improve monetization of PayPal and Venmo through debit cards, and accelerate growth in the SMB segment.

Improving the branded checkout experience is a no-brainer (but will have a marginal impact on growth), and scaling “Pay with Venmo” is a logical ambition. Branded checkout is the bread and butter of PayPal, so why not expand it into Venmo?

However, what’s more interesting is that PayPal wants to be a lender for both, consumers and small businesses. I mean they have been a lender for a while, but they scaled origination volume down in 2023 and now want to get back to growth.

Alex Chriss spoke a lot through 2024 about improving PayPal’s branded checkout experience on mobile. These improvements included “better presentment of PayPal’s branded marks and solutions like Buy Now, Pay Later.”

In 2024, PayPal originated $33 billion in BNPL loans, up 21% compared to 2023. They also extended their forward flow partnership with KKR and now have more capacity to originate longer-duration loans. PayPal is still bigger than Affirm (Affirm originated $31.2 billion), but is growing slower (Affirm grew originations by 34% YoY). Can they accelerate growth?

Interestingly, the bigger contribution to consumer loan portfolio growth came from Japan. In 2021, PayPal acquired a Japanese BNPL lender, Paidy. PayPal’s management didn’t talk much about Paidy in 2024, but, perhaps, this will change in 2025.

PayPal also wants to lend more to its merchants. Thus, in 2024, PayPal’s merchant loan portfolio increased 23% YoY to $1.5 billion. The growth came from “PayPal Working Capital portfolio, primarily from the U.S., Germany and the U.K., as well as PayPal Business Loans in the U.S.”

PayPal also wants to issue more debit cards to PayPal and Venmo users to capture in-store payments. Thus, in September last year, the company launched “PayPal Everywhere”, a “rich rewards and stackable cashback offers” program that its customers can benefit from by spending both online and offline.

In Q4 2024, PayPal issued 1.5 million debit cards, which is not a bad start. Next year, PayPal plans to bring PayPal Everywhere to “several European markets”.

On the Venmo side, debit card penetration is in single digits. Meanwhile, 24 million of Cash App's 57 million monthly active users have a Cash App Card. Cash App Card is also the largest contributor to Cash App’s gross profit. So, in theory, the opportunity to scale Venmo debit cards is there.

Let’s also not forget that PayPal has a credit card program in partnership with Synchrony. From the comments in the form 10-K, they have scaled the program down in 2024. Should we expect PayPal to resurrect this program? Perhaps, with a new partner?

Finally, PayPal owns Zettle, a Square and Clover competitor. They brought the company to the United States in 2021, but haven’t mentioned much about it since. If PayPal wants to expand beyond online payments (be “Everywhere”), why not expand into in-store payment acceptance? Shopify and Stripe are doing that.

So, in summary, PayPal needs to find growth. They will try to expand beyond online and P2P payments and have many opportunities to do that. However, we have already seen this company pursuing many opportunities at the same time, and it didn’t end well.

Alex Chriss called 2024 “a transition year to narrow our focus”. Based on what the company shared so far, they are about to lose this focus again. The new management haven’t cut a single business or product. They temporarily put some ambitions on hold, such as merchant lending, but are now preparing to revisit them.

Hopefully, Investor Day will clarify which battles they choose to fight. They cannot win them all. I am definitely looking forward to this event!

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Cover image source: PayPal

Disclaimer: Information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions.