PayPal Second Quarter 2022 Buyside Call — Morgan Stanley (August 3, 2022)

Summary

Transcript of a Morgan Stanley Second Quarter 2022 Buyside Call dated August 3, 2022, with PayPal Chief Executive Officer Dan Schulman and Gabrielle Rabinovitch, hosted by James Faucette. Schulman says PayPal assumes inflation stays high, the dollar strengthens and consumer confidence stays low, and he lowers his view of U.S. e-commerce growth for the year from about 10% to around 8%. He puts the eBay pressure on revenue growth at about 100 basis points this quarter against 600 basis points in Q1 and 400 basis points in Q2, and says unbranded volumes grew about 43%. He describes $900 million of cost savings this year and at least $1.3 billion next year, and Rabinovitch says transaction expense should settle in the high-eighties basis point range.

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Second Quarter 2022 Buyside Call | August 3, 2022


CORPORATE PARTICIPANTS


Dan Schulman, President and Chief Executive Officer

Gabrielle Rabinovitch, Senior Vice President, Corporate Finance and Investor Relations



CONFERENCE CALL HOST

James Faucette, Morgan Stanley



PRESENTATION


James Faucette

Hello, everybody. This is James Faucette, head of payments research at Morgan Stanley. Thanks to all of
you for joining us today. We're going to be going to be talking with PayPal CEO, Dan Schulman, and
Gabrielle Rabinovitch, head of IR and newly appointed treasurer.

We'll go ahead and kind of kick off, not a lot of other preamble things to do. Dan, I'll start with you. Kind
of in our view, the two key parts of the PayPal growth algorithm are underlying e-commerce growth and
then PayPal's growth relative to that e-commerce growth. So maybe I'll let you start, and can you touch
on how you're thinking about those two pieces right now, and any other high level things you want to
make sure we start with?

Dan Schulman
Thanks, James and thanks everyone for joining us this morning. I'd first start out just publicly thanking
Gabz for all she's done in the last several months since John left. She has done an incredible job stepping
in, we did not lose a beat. Maybe we gained some beats actually and her promotion and additional
responsibilities are so well deserved. I just want to thank you and congratulate you as well. I had to start
off that way. James, on your question on how we're thinking about eCommerce growth and our
performance relative to that, we're trying to, like all of you, parse out a number of different data points
and the macroeconomic geopolitical environment around us is not making that any easier.



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We were first trying to figure out as you went from a pre pandemic to post pandemic world, how would
that shake out? The second we emerged from that, we went into a very difficult macroeconomic and
geopolitical environment and we are assuming things don't get better. We are assuming that inflation
remains high, that there continues to be a strengthening dollar and FX pressure, that consumer
confidence will stay where it is at a low level, that there's an increased chance of recession - maybe even
a likely version of that in Europe and we'll see here in the US how that plays out with all the Fed is doing
in terms of trying to tamp down inflation. We saw early on because we have a very wide base of
customers that low income consumers were pulling back on their spend, were clearly moving from
discretionary much more non-discretionary and from goods to services.

We're not assuming that changes as we look forward and we'll talk more about our assumptions as we
look into next year and our cost structure. I also believe China with the zero COVID policy and supply
chain issues is going to be some time before we see that recover. If you look at all of that and you look
at e-commerce rates, initially we were thinking e-commerce growth was going to be about 10% for the
year here in the US. Our view is it's lowered from there to maybe around 8% or so. There's been some
recent reports out that have looked at the year more in a 5%-7% range for e-commerce growth. I think it
might be a little bit better than that. I think it will clearly accelerate in the back half of the year just
because you're lapping big stimulus payments in the first half.

There's some unique things to PayPal in that we're also lapping eBay. We've been talking about eBay
forever and probably everybody's sick and tired of it, but it's predominantly in our rear view mirror.
We've got another 100 basis points of pressure [on revenue growth] this quarter. That dissipates as we
go into the fourth quarter. That headwind is versus 600 basis points in Q1 and 400 basis points in Q2. So
we pretty consistently are growing faster than the pace of eCommerce and we are taking share,
probably increasingly so in this last quarter on both the branded and unbranded side. If you look at
eCommerce growth in the US, we think it was basically flat. If you take out travel, eCommerce growth
probably was negative. Our branded checkout ex-eBay, ex-P2P, ex-Venmo volumes grew in single digits,
so we think we took a good amount of share on branded side. Our unbranded volumes [which are
primarily comprised of Braintree] grew in the quarter about 43%, but if you look at our three-year CAGR
we're pretty consistent at about 50% growth. We're clearly growing faster than our peers.

We're putting a lot of investment into checkout, into our wallets and into the Braintree platform to
accelerate growth. I really do think there is an opportunity for PayPal right now, because many of our
competitors are pulling back. Clearly nobody is buying placement anymore for checkout. There is a flight
to quality in the market. We are seeing that with merchants and nobody's giving away parts of their
company to get placement either. This is a time where we can gain share. We got to execute, go and do
it, but the market conditions are right for that.




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James Faucette

And that makes a lot of sense to us. Dan, you alluded to and talked a little bit about kind of that
investment. And one of the headlines yesterday was obviously the expense savings and your plan to
save around $900 million in cost this year. And when that's annualized and we add in some other
initiatives, that's maybe $1.3 billion next year. But you're going to be reinvesting that and it seemed like
the indication is that we'd still have like, kind of a gradual overall expansion of margins. Can you talk a
little bit about where the cost savings are coming from? How did you identify those and maybe
particularly for this audience, we've gotten a lot of questions on what portion of the expense savings
were already worked into the outlook and maybe you can clarify really what we should take as
incremental on the cost savings perspective?

Dan Schulman

I'll start and then Gabz will no doubt fill in. The first thing I want to say is make no mistake, we are
investing in the business. We intend to improve our competitive positioning and our value proposition,
and we intend to continue to take share and that will take investment. We have narrowed our focus in
terms of our investment to checkout, digital wallets and Braintree, where we have high conviction in the
impact of those investments in terms of what they will do vis-a-vis competitors and how our merchants
and consumers will respond to that. That's number one. [These initiatives have all been underway for
some time.] That is really important.

Second on the costs, we're going to be aggressive in reducing our cost structure and being as efficient as
possible. Our scale allows for us to do that now. A big part of those cost cuts is our ability to leverage the
$1.4 trillion of TPV that we expect to flow through our platform this year. The amount of leverage we
have now to reduce unit costs and our transaction expenses is pretty significant. That's already
happened. We're not talking about are we going to go do that. We've done that. We've signed all of
those deals and that will flow through our expenses this year and next year and the year after, and
continue on, so that's a big part of this, leveraging our scale.

On the other side of this, we grew our [non-GAAP] operating expenses quite a bit over the last couple of
years. We've put on a lot of headcount. We don't need incremental headcount. Other companies are
laying off headcount. We are down from the beginning of the year to where we are now on headcount,
both on full-time employees as well as contingent workers which are what we use in our servicing center
because our product's gotten better, we have less calls coming in. We need less people therefore, and
we can be a lot more efficient and a lot more productive. That $900 million [of cost savings] is all in this
year. The $1.3 billion [of cost savings], we said at least that and we are sharpening our pencils to look for
more next year. I do want to say this, the $1.3 billion [of cost savings expected in FY’23] and our keen
focus on driving out even more costs is reflective of our plan for a difficult economic environment over
the rest of this year and into next year as well. I think this is the prudent way of doing things. I think we
need to have a cost structure that reflects that and at the same time allows us to expand our operating
margin and enables us to grow our [non-GAAP] earnings per share double digits, mid-teens [over time,



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in different operating environments]. No matter what, we want to put in place the cost structure to
make sure that that happens.

Things could get better, and that would be great, and we could have just a super year next year if all of
that came in. But we need to plan for a recessionary environment, a cost structure that reflects that,
make sure we're rebalancing our investments in these high impact, high conviction growth areas and
just do that in a responsible way. As we think about our cost structure we are planning for a difficult
environment next year and making sure that we're ready to not only address that, have the right
resources in place, the right investments in place, but make sure that we have the right return to our
shareholders as well. We can do all those things as we do that. Anything to that?

Gabrielle Rabinovitch

No, I don't have anything. But James, if there are line item questions or details around certain areas of
the cost savings, please, maybe this would be a good time to spend more time there before we move on
to another topic.

James Faucette

Sure, Gabrielle, and that's actually what I wanted to do. I actually wanted to ask specifically yesterday
you outlined that transaction expense would be roughly half the cost savings, but how should we think
about the trajectory of that expense rate relative to what we saw in Q2? Should we expect even though
what you're paying on a like for like basis those costs are coming down, the mix could impact that? How
should we be modeling that out so we're not taken by surprise there?

Gabrielle Rabinovitch

Yeah, sure. For the full year I'd expect it [Transaction Expense] to come in a little lower than the 90 basis
points in the second quarter, and that's in part a result of what Dan talked about in terms of benefits
we're getting from scale with our network partners. That also is in consideration of the continued strong
volume mix that we're seeing from Braintree. Those two pieces have a balancing out effect to a certain
extent and should take [Transaction Expense] down a little lower [for FY’22 vs. Q2’22]. I'd expect to see
us actualize the year, maybe a point or two lower than where we were in the second quarter
[Transaction Expense was 90bps as a % of TPV in Q2’22]. What we're doing with the networks and
benefiting from our scale really does help offset some of the inflation that we see as a result of Braintree
mix. So we're balancing that out. As we think about the trajectory into next year a lot of that is based
upon where we see volume growth coming from. But again, we'd expect to kind of see [Transaction
Expense] stabilize in that high-eighties [basis point] range for the full year. And that's what I would
expect to see at least over the next few quarters.

James Faucette




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Got it. And what would you expect in terms of any mix changes or other things that we should be aware
of that can move that around? Or do you feel like that that component is also stabilizing?

Gabrielle Rabinovitch

We're seeing some stabilization. What we're contemplating in the back half of the year is, Dan
mentioned we're expecting to continue to see sluggish e-Commerce growth and the consumer broadly
impacted by some of the trends we're seeing in the [macro]environment. That is contemplated by what
we're thinking about from a TE [Transaction Expense] rate standpoint, in terms of the mix of volume
relative to other things. I think it's probably too early to call 2023 right now. Obviously, we’re still
working on how we think about the year playing out. We’ll have to see how we finish up 2022 both in
terms of back to school and holiday, as well as just the overall macro environment. But I think given the
different benefits we get from scale, as well as what we see from a volume mix on Braintree, that high
eighties [basis points Transaction Expense] probably make sense to us.

Dan Schulman

Just one other thing I'd add to that, James. If we look at the shape of our revenue growth coming right
now, as we said yesterday, the quarter went 7%, 10%, 12% in terms of [monthly revenue growth] FXN.
July [preliminary FXN revenue growth] was 14% plus. But one of the encouraging things we saw, not
unsurprisingly, we kind of expected, but it's encouraging to see it anyway, is that the PayPal branded
checkout piece is now beginning to grow quite positively. We'll see how that continues as we go through
the year, but we're encouraged by what we're seeing in terms of growth rates. Obviously Braintree is
also doing well and we are figuring that into our mix, but the branded checkout is beginning to pick up
as well.

James Faucette

Got it. And then I guess as a follow-up question on the other parts of expenses, it sounded like you were
maybe going to find ways that you can improve the efficiencies of things like sales and marketing, et
cetera. But a key question is like, where does that savings come from? And if you're looking to take
share, how can you do both, right? Like, find more efficiencies or even pull back on sales and marketing
versus take share.

Dan Schulman

It's a little like saying you want to run a four minute mile, should you do it at 180 pounds or 165? You
know what I mean? You should just be in better shape around these things. For us, it's about
reallocation. If you think about the shift in our strategy which is all about focusing on engagement
retention, increasing ARPA [Average Revenue Per Active], driving transactions for actives, monthly active
users, that kind of thing. A lot of our marketing dollars can be used way more effectively or are not
needed to drive the engagement that we're going to get out of our products, so we can be much more
efficient in our marketing. Clearly there's no question about it. If we look at the new cohort of June


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[20]22 Net New Actives versus the June [20]21 cohort, which is much more organic coming in and not
marketing driven, that first month CLV [Customer Lifetime Value] is two times that of a year ago.

Just focusing in on the things that we know drives value, NNAs [Net New Active Accounts], we don't
have a top of the funnel issue. We have a churn issue because we're at 430 million active accounts right
now. As we focus on engagement, driving TPA [Transactions per Active Account], driving ARPA and the
use of more services clearly also decreases churn. I talked about this I think yesterday, our digital wallet
users are seeing a 33% reduction in churn. That's going to start to play out in the NNA lines as well. Just
because we're focused on engagement and ARPA and doing things in a very efficient way, doesn't mean
that the franchise doesn't continue to grow. In fact, I'd argue exactly the opposite.

James Faucette

No, that makes sense to me. Let's turn quickly to Braintree, obviously growing quite well. Can you help
parse out the pieces of that growth? How much is coming from new wins versus underlying volume
growth, and can you remind us of the mix of that underlying Braintree merchant base and how it
compares to your branded PayPal merchant base?

Dan Schulman

We have a blue-chip customer base inside Braintree from Instacart to DoorDash to Spotify to Uber to
Airbnb to Lyft to Wayfair. These leading app providers all use Braintree and we are deepening our
relationship with them. We are gaining more volume. Our authorization rates are amongst the best, our
loss rates are the lowest, our reliability is very high and the experience is fully native. It's integrated
across our tech stack. It's the best presentation that we could possibly have of both PayPal and Venmo
and our other services. It's really quite seamless for the most part with one-click checkout. It enables
those merchants access to new geographies, multiple currencies, different alternative payment
methods, wallets, cards. We're increasingly playing in a payment orchestration role as well.

Most of these big accounts have to have multiple PSPs [Payment Service Providers], just for backup. We
can do things like smart routing, real time ledgers. There's a lot of things that our value proposition has
that's very attractive. But the sales pipeline right now is what I'm most enthused about to tell you the
truth. It's big accounts. They are meaningful. It's big volumes. What I like about it is when we go into
these accounts, it just deepens our relationship. We typically pair it, especially for marketplaces, with
payouts that's our Hyperwallet acquisition really linking a pay in from a customer to a payout to a driver,
to a gig economy worker. That's increasingly playing out as well.

The pipeline is strong [and] the base remains pretty constant. We're putting investment into it. I think
we can start to move down market with Braintree. We're seeing increasing wins in Europe, in Latin
America, Brazil where we have higher margins in those geographies as well as we do in payouts in other
value added services. We're just going to keep pushing on Braintree. It is clearly resonating. There is this
flight to quality right now and there are a couple of quality players in the market, and we're clearly one
of the leaders in that.


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James Faucette

Got it. When you look at the that growth and it sounds like you have a lot of new customer
opportunities and things that you're doing and maybe even opportunity to improve the economics of
Braintree, how much of that is contributing to the growth you're seeing now versus how much of it is of
the growth today is coming basically from your key customers, their own growth and in some cases even
a rebound in their activities post pandemic, if you will.

Dan Schulman

That's a good question. I'm not sure. I know the exact answer to that. We have big players who are
giving us more [business]. That's probably driving most of the growth. But the pipeline going forward is a
meaningful one. We have a big base growing TPV [Total Payment Volume] at 43% in Q2’22, so there's a
lot coming from the base and the deepening of the relationships there. And we'll just keep adding to it.

Gabrielle Rabinovitch

From time to time in a quarter, we'll have a new merchant start giving us a lot more volume that can
lead to chunkier growth or more episodic increases in growth. That said, from the depths of the
pandemic to today we've seen a nice recovery in travel and event volumes that we would've expected
to see. We started to see that come through in last year's Q2. Q2 of 2021 is when we really started to
see some of that travel and event volume return, and those merchants continue to grow nicely
alongside some of these newer merchants that come to us, or the merchants that are giving us more
volumes in different regions or extending volume to us in a broader way.

James Faucette

Right. Is there any aspect of Braintree that's at all cannibalistic to the broader business, or does it tend
to be, does that growth in Braintree tend to be almost entirely incremental?

Gabrielle Rabinovitch

No. Actually, in many instances, we think about it as somewhat synergistic with the core checkout.
When we can show a merchant that we can really advance them from a processing standpoint, reduce
their loss rates increase their authorization rates, really help them unlock more commerce that actually
can lead us to better presentment overall for our core checkout buttons. We really think about how that
broadens the way we can work with merchants. Sometimes we lead first with a button, other times we
lead first with Braintree and then come in with a more fulsome branded checkout experience. In the
case of Uber and others, pay with Venmo, pay with PayPal are very important funding instruments that
we see on those platforms. Obviously, one of the benefits we get from Braintree is we get to see all
funding instrument mix. It allows us to have very good insight into how our buttons are taking share,
how they're doing, how that grows over time and what we can do to help further advance ourselves.


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James Faucette

So, on that point of buttons, is that I think that there's, this is at least in my mind, and in our
conversations with investors has been a key point of consternation of is PayPal getting the right button
placement, presentment and opportunities generally. and I know that both you Gabrielle and you Dan
have talked about like efforts to improve [] where PayPal is and in that purchase flow, et cetera, where
are we today and what kinds of changes in improvements should we expect in coming year and in
periods?

Dan Schulman

There are two different aspects to this. One is how do we continually improve the performance of our
checkout? How do we reduce the number of clicks, reduce the number of scrolls, make sure that we're
fully native into the apps that we don't have a pop out coming out, how do we make that easy for our
very large base of customers, many on legacy technology, to have the latest integrations with us. The
other is where are we in the presentment flows on all pages of our merchants. Those are the two
different things and we are working them as two separate projects. I talked a lot about what we're doing
in terms of trying to modernize our checkout and all the opportunities that we have and we're making
good progress.

It's a lot of work and it takes time. We are experimenting with our mobile SDK [Software Developer Kit],
which is a lightweight integration for our small to mid size merchants to be able to move into a fully
native checkout, no pop out and that will be rolling out. We're working on a more sophisticated piece of
that for our large enterprise merchants that we’ll introduce later in the year, worst case the beginning of
next year, to enable a much more friction-free, password-less, one-click checkout. When somebody
vaults [their financial instrument] once, it's vaulted across our network. It's a huge advantage given the
size of our network and the amount of vaulted instruments that we have. But there is just the
painstaking work of going merchant by merchant.

And we track this. We use an outside firm to look at every single payment flow in a merchant in our top
100, then our top 200 merchants and we work with each of them to try and optimize that placement.
We've got to convince the merchant that we could do better, that they could have better conversion if
[our placement] went up here and we've seen some progress on that. Walmart is a good example of
that where we used to be three clicks down. Now we're on most of their flows right on their first page.
That's just hand to hand combat, merchant by merchant. Our sales force reads out on that to me every
single month. It is part of their compensation structure as well. We'll make progress on that. Some of it
is a legacy tech stack that makes it very difficult to change that. We have to have a heavier lift and some
of it is easier. We're working on both of them. We've got distinct efforts and we'll continue to make
progress on it. We've got a big base and a lot of work to do there.




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James Faucette

Yep. So, let's turn to, and we have limited time. We can keep going for hours on all of this, but I want to
talk a little bit about BNPL [Buy Now, Pay Later] and credit more generally. Like obviously being able to
offer that provides incremental reason for people to use PayPal as a checkout mechanism, et cetera. At
the same time, I think there's at least some concern around where loan losses could be and where they
should be. So, and I think there was some mention yesterday of looking at potentially some credit
externalization. So can you talk through a little bit about what, how you're thinking about credit
generally including BNPL and where does it make sense to try to externalize or find partners to take on
that credit offering?

Gabrielle Rabinovitch

I'll start. And then if Dan has additional comments. You're right. Credit is an important part of what we
offer our customers. It's important on the consumer side, it's important on the merchant side. It helps
drive some of our TPV and it provides a lot of advantages in terms of how we think about the overall
benefits of our platform. At the same time, having credit on our balance sheet is actually not something
that we necessarily need. Obviously, we've elected to fund certain credit experiences on balance sheet.
We've also done a fair amount off balance sheet. I think the US consumer revolve portfolio being sold
[to] Synchrony several years ago is a really good example of running that business in a more efficient
way.

That said, we have very much optimized our credit decisioning, our underwriting programs, and we feel
very good about our ability to manage losses even if we were to continue to keep the existing book on
our balance sheet and run it exactly the way we have. You saw in the second quarter our charge off rate
was about 4.2%. We continue to see very strong performance overall. If we look at the health of the
portfolio today versus pre pandemic, duration has come in very nicely. We're running the book in a
much more diversified way, but also in a much more appropriate way in terms of duration. We feel good
overall about the risk profile. At the same time, Buy Now, Pay Later has continued to grow very
aggressively and we're very excited about the growth. The more funds that get allocated to fund Buy
Now, Pay Later from the standpoint of free cash flow allocation, means we have less to use for things
like acquisitions, other organic investments and capital return.

When we look at the balance of what we can do and how attractive that diversified portfolio is, we think
there's more we can do in terms of working with partners to help us externalize some of that credit. If
we were to do it with something like Buy Now, Pay Later given the duration in the book, you're probably
looking at something where it would be a forward book relationship. I would not expect to see an
upfront cash benefit to us from selling a back book. Given the short-term duration you'd really be talking
about a forward flow type of arrangement. For us, some of the priorities would be making sure we're
working with partners that are long term and want to work with us for many years to come and see the
value in that diversified book.




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In addition, we want to get deconsolidation and be sure that we were no longer provisioning. That said,
similar to what we've done with Synchrony, we feel very good about continuing to help on the
underwriting and servicing side. There's a lot we can do. we want to be really thoughtful about it. As we
said yesterday, we are looking more aggressively at this. I'd expect more to come there, and that would
be specific on Buy Now, Pay Later. There are obviously other parts of the book as well, whether it's UK
Revolve or some of our merchant lending portfolio that over time we may also elect to look at other
structures for financing. Those would be slightly different from Buy Now, Pay Later, given the
characteristics of that credit.

Dan Schulman

On Buy Now, Pay Later, 90% of the people coming in we know. This is the advantage of scale. We know
their payment histories. We know their credit history which allows us to have the highest approval rates
we think in the industry and amongst if not the lowest loss rates in the industry. The other thing that
we've done is we have a great value proposition around Buy Now, Pay Later. No late fees for consumers,
no incremental fees for merchants. We make our money on the halo, through our discount rate with
merchants. We can figure out where the profit pools of the industry are around these different services.
Here we elect to have a very strong value proposition and make money through our merchant
relationships.

We can tighten up [extending credit] easily, it doesn't affect revenues. I like where we are on the BNPL
space. It goes more into product pages and upstream, that enables us to take share because it often
doesn't even reach the checkout page where other buttons might be. We want to go after other Buy
Now, Pay Later players who have upstream presentment and replace them with our BNPL services. It's a
great competitive weapon for us, but it's one that we control and we feel really good about where we
stand with that and vis-a-vis others.

James Faucette

So, let me ask a quick strategic question before we finish up with capital allocation and kind of forward
thinking, but at what point does it make sense just to have or at least approach third party BNPL
providers and just make them an additional funding option within the digital wallet and maybe relieve
yourself of the underwriting and credit responsibility? PayPal already has a huge lead in acceptance and
awareness. And frankly, it doesn't seem like BNPL providers can scale that fast enough to really reach
what they aspire to. So is there opportunity to work with some of these players or does that seem still
further off?

Gabrielle Rabinovitch

I don't know that is something that we'd be prioritizing today. The overall growth in our portfolio has
just been fantastic, with $5 billion of TPV from Buy Now, Pay Later in the second quarter. We scaled that
organically across seven geographies. We have Paidy as well. We have a lot that we're doing there.
We've continued to extend the program with introducing longer term, up to two year durations both in


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Germany and the US. The value proposition for our customers is very strong. When you look across the
competitive set, frankly, a lot of those players have transaction fees associated. They have late fees.
They're not as consumer friendly as what we can offer our customers. Plus, when we think about some
of the advantages we have on risk decisioning, the reason why our loss rates are so low is because these
are our customers and they're coming to us and we have a lot of history on them. I'm not sure that
adding another branded Buy Now, Pay Later option would be beneficial to us in terms of how we think
about serving our customers. We really think this no late fee, no interest is the right approach for our
customers. It helps us accomplish what we're trying to do.

James Faucette

Yep. Makes sense. So capital allocation. Obviously one of the big headlines was the announcement of
$15 billion of new repurchase authorization, which when we combine that with your existing one brings
you to nearly $18 billion, just shy of that. How should we think about propensity to buyback shares
versus doing M&A and what M&A has been proposed that makes sense or doesn't make sense to you
right now?

Gabrielle Rabinovitch

We announced a new [share repurchase] authorization yesterday. We've taken a more aggressive
approach to capital return and share repurchase over the past 12 months. What we've messaged is that
we'd expect that to continue at least to the end of the year. We feel like given our valuation, given our
perspective on what we expect our business to deliver in the coming years, that this is an opportune
time to continue to be in the market for capital return. Through the back half [of FY’22], I'd expect call it
another $2 billion of share repurchase to occur. Early next year we'll have another investor day and we'll
come back to the market with an outlook for how we think about capital allocation over the call it the
next medium term.

We also mentioned in our earnings release yesterday that we're doing a full review of all capital return
alternatives, so we'll come back to the market with that too. M&A's been an important part of capital
allocation for us over our history. We've generated about $26 billion in free cash flow since separation,
approximately 50% of that has been allocated towards acquisition and [strategic] investment. You've
seen what some of our acquisitions have been able to do in terms of broadening our capabilities and
really strengthening the platform. Dan talked about Braintree and the assets that sit underneath
Braintree, including Hyperwallet, which have really changed the way that we can serve our merchant
partners. Acquisitions will continue to be an important part of how we think about capital allocation and
maybe Dan wants to talk a little bit more about that.

Dan Schulman

That's exactly right. We're going to continue to be aggressive. I think this is a real opportunity to return
capital to shareholders. But we still have $15 to $16 billion of cash, cash like and investments on the
balance sheet. We need about $6 billion of that for operating and regulatory purposes. But we still have


                                                     11
                                                          Second Quarter 2022 Buyside Call | August 3, 2022


plenty of firepower to look at M&A. A lot of the valuations in the private market have come crashing
down to earth. I think some of them still have more room to fall. We're going to be quite selective., As
we mentioned it's got to be right down the middle of the fairway for us, really complimentary with our
skills and capabilities if we do an acquisition. We're looking at them always. We would go after what
makes sense. We have plenty of firepower to go and do that. I would say there have been some rumors
on this Pinterest thing, and I just want to say, there's no substance to those rumors whatsoever. People
should take that off of your radar screens if they were on it in the in the first place. We look at the full
range of capital allocation, the ways we might return it to shareholders, the quantum and then investing
in the business and then looking at M&A.

James Faucette

Makes sense. Well, I guess, to wrap up here, I mean, I've gotten this question in various forms today and
especially today, but even leading up to yesterday's report of what needs to happen for PayPal to kind of
get back into being considered a "growth company," and sounds like between improving probably
normalization of eCommerce, the share gains that you're seeing with PayPal branded checkout, the fast
growth of Braintree and prospects for margin expansion that as we go into future periods, is that getting
back to that growth algorithm that yields EPS in the teens, at least makes sense to me. I mean, is that
fair to characterize it that way? And what are the things that need to happen for that to really happen to
really come to pass?

Dan Schulman

I think you did a good characterization of it, James. Part of it is been appropriately prudent with our
revenue guidance. If you look at where we are exiting July at 14% plus [revenue] growth, it's just a proof
point. We're saying in the fourth quarter we [expect] 14% revenue growth. We are not anticipating
strong back to school or strong holiday. We're trying to be appropriately conservative and make sure
like we did for most of our history, that we're able to grow with operating margin leverage going
forward.

Those are the things we're focused on. We just got to keep executing on that. Keep reading out. Every
quarter will be another proof point for us. Hopefully people saw in Q2 all of the things that we have in
place, as well as all of the organizational things that we're doing too like bringing in Blake Jorgensen,
CFO and Archie Deskus our CIO from Intel, she's making a huge difference. The search for the new CPO
[Chief Product Officer] will be a real addition to the team as well, and so we got a lot of things going on.
We're managing them carefully, conservatively and prudently, but we are really focused on executing
right now.

James Faucette

That's great. Well, we've run a couple minutes over allotted time here, but anything to add to wrap up,
Dan or Gabrielle?



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                                                         Second Quarter 2022 Buyside Call | August 3, 2022


Dan Schulman
I don't think so. James, thank you for leading us through this and thanks everybody for your time again.

James Faucette

That's great. Well, thanks to everybody. And any follow ups, just feel free obviously to reach out here to
us here at Morgan Stanley. And I am sure that Gabrielle and her team will be chatting with many of you
during the course of the coming quarter. Have a good day.




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