PayPal Reports First Quarter 2019 Results

Global technology platform and digital payments leader PayPal Holdings,
Inc. (NASDAQ: PYPL) today announced first quarter results for the period
ended March 31, 2019.

“We had a great start to the year, with strong growth in revenue, net
new active accounts and engagement across our platform. We launched new
strategic relationships with some of the world’s largest marketplaces
and platforms including Instagram and MercadoLibre. We now have
277 million customer accounts, including 22 million merchant accounts
and over 40 million active Venmo accounts. We are confident in the 2019
targets we outlined last quarter as we continue to leverage our wide
range of unique assets in our global digital payments platform,” said
Dan Schulman, President and CEO of PayPal.

Financial highlights for first quarter 2019

• Revenue of $4.13 billion; growing 12% on both a spot and foreign
  currency-neutral (FX-neutral or FXN) basis
  • The completion of the sale of the U.S. consumer credit receivables
    portfolio to Synchrony in July 2018 negatively affected revenue
    growth by approximately seven percentage points.
• GAAP operating margin of 12.5% with non-GAAP operating margin of 22.6%.
• GAAP EPS of $0.56, increasing 34%; non-GAAP EPS of $0.78, increasing
  37%.
  • Includes $0.08 benefit related to PayPal’s strategic investment in
    MercadoLibre (NASDAQ: MELI).
• Repurchased 7.7 million shares of common stock, returning $750 million
  to stockholders.

Operating highlights for first quarter 2019

• 9.3 million net new active accounts, versus an increase of 8.1 million
  in Q1 2018, up 15%.
• 2.8 billion payment transactions, up 28%.
• $161 billion in total payment volume (TPV), up 22%, or 25% on an
  FX-neutral basis.
• 37.9 payment transactions per active account on a trailing twelve
  months basis, up 9%.

PayPal’s key business drivers

• Merchant Services volume grew 29% on an FX-neutral basis.
• eBay Marketplaces volume declined 4% on an FX-neutral basis versus
  growth of 6% in Q1 2018, representing 9.7% of TPV for the quarter
  versus 12.7% a year ago.
• Person-to-Person (P2P) volume grew 41% to $42 billion, representing
  26% of TPV.
• Venmo processed $21 billion of TPV in the first quarter, growing 73%.

PayPal’s partnerships and strategic investments

During the first quarter, PayPal announced a partnership with Instagram.
Payments related to Instagram’s new checkout experience for shopping
will be processed in partnership with PayPal.

As part of PayPal’s partnership with JPMorgan Chase, the consumer
rollout of Instant Transfer to bank was announced, giving PayPal’s
customers more ways to instantly access their money.

In addition, PayPal made a $750 million strategic investment in
MercadoLibre, an e-commerce and payments leader in Latin America. In
conjunction, PayPal and MercadoLibre announced plans to enter into a
commercial agreement establishing initiatives to strengthen both
companies’ networks.

Cash, Cash Equivalents and Investments – PayPal’s cash, cash
equivalents and investments totaled $9.5 billion as of March 31, 2019.

Short-Term Borrowings – PayPal’s notes payable totaled $2.0
billion as of March 31, 2019.

2019 Financial Guidance

Full year 2019 revenue and earnings guidance

• PayPal expects revenue to grow 16 – 17% at current spot rates and 16 –
  17% on an FX-neutral basis, to a range of $17.850 – $18.100 billion.
  As previously disclosed, full year 2019 revenue growth guidance
  includes an expected decline of approximately 3.5 percentage points
  for full year 2019 related to the sale of U.S. consumer credit
  receivables to Synchrony.
• PayPal expects GAAP earnings per diluted share in the range of $1.97 –
  $2.05 and non-GAAP earnings per diluted share in the range of $2.94 –
  $3.01. EPS guidance for full year 2019 includes $0.08 of unrealized
  gains from PayPal’s strategic investment in MercadoLibre recognized in
  Q1 2019 and an approximate $0.01 of expected net unrealized gains
  related to PayPal’s strategic investment portfolio in Q2 2019.
• Estimated non-GAAP amounts above for the twelve months ending December
  31, 2019, reflect adjustments of approximately $1.30 – $1.40 billion,
  primarily representing estimated stock-based compensation expense and
  related payroll taxes in the range of $1.05 – $1.11 billion.
• Estimated GAAP and non-GAAP results include approximately 1.5 points
  of revenue growth and $0.08 to $0.10 of dilution from the acquisitions
  that closed in 2018.

Second quarter 2019 revenue and earnings guidance

• PayPal expects revenue to grow 11 – 13% at current spot rates and 12 –
  13% on an FX-neutral basis, to a range of $4.30 – $4.34 billion. As
  previously disclosed, Q2 2019 revenue growth guidance includes an
  expected decline of approximately 7 percentage points for the quarter
  related to the sale of U.S. consumer credit receivables to Synchrony.
• PayPal expects GAAP earnings per diluted share in the range of $0.50 –
  $0.52 and non-GAAP earnings per diluted share in the range of $0.68 –
  $0.70. EPS guidance for second quarter 2019 includes an approximate
  $0.01 of expected net unrealized gains related to PayPal’s strategic
  investment portfolio in Q2 2019.
• Estimated non-GAAP amounts above for the three months ending June 30,
  2019, reflect adjustments of approximately $300 – $330 million,
  primarily representing estimated stock-based compensation expense and
  related payroll taxes in the range of $250 – $265 million.
• Estimated GAAP and non-GAAP results include approximately 1.5 points
  of revenue growth and approximately $0.02 – $0.03 of dilution from the
  acquisitions that closed in 2018.

Please see “Non-GAAP Financial Measures” and “Non-GAAP Measures of
Financial Performance” for important additional information.

Quarterly conference call and webcast

PayPal Holdings, Inc. will host a conference call to discuss first
quarter 2019 results at 2:00 p.m. Pacific Time today. A live webcast of
the conference call, together with a slide presentation that includes
supplemental financial information and reconciliations of certain
non-GAAP measures to their most directly comparable GAAP measures, can
be accessed through the company’s Investor Relations website at https://investor.paypal-corp.com.
In addition, an archive of the webcast will be accessible for 90 days
through the same link.

PayPal Holdings, Inc. uses its Investor Relations website (https://investor.paypal-corp.com),
its PayPal Stories Blog (https://www.paypal.com/stories/us),
Twitter handles (@PayPal and @PayPalNews), LinkedIn page (https://www.linkedin.com/company/paypal),
Facebook page (https://www.facebook.com/PayPalUSA/),
YouTube channel (https://www.youtube.com/paypal),
Dan Schulman’s LinkedIn profile (https://www.linkedin.com/in/dan-schulman/),
John Rainey’s LinkedIn profile (www.linkedin.com/in/john-rainey-pypl),
Bill Ready’s LinkedIn profile (https://www.linkedin.com/in/williamready/)
and Dan Schulman’s Facebook page (https://www.facebook.com/DanSchulmanPayPal/)
as a means of disclosing information about the company and for complying
with its disclosure obligations under Regulation FD. The information
that is posted through these channels may be deemed
material. Accordingly, investors should monitor these channels in
addition to PayPal’s press releases, SEC filings, public conference
calls and webcasts.

About PayPal

Fueled by a fundamental belief that having access to financial services
creates opportunity, PayPal Holdings, Inc. (NASDAQ: PYPL) is committed
to democratizing financial services and empowering people and businesses
to join and thrive in the global economy. Our open digital payments
platform gives PayPal’s 277 million active account holders the
confidence to connect and transact in new and powerful ways, whether
they are online, on a mobile device, in an app, or in person. Through a
combination of technological innovation and strategic partnerships,
PayPal creates better ways to manage and move money, and offers choice
and flexibility when sending payments, paying or getting paid. Available
in more than 200 markets around the world, the PayPal platform,
including Braintree, Venmo, Xoom and iZettle, enables consumers and
merchants to receive money in more than 100 currencies, withdraw funds
in 56 currencies and hold balances in their PayPal accounts in 25
currencies. For more information on PayPal, visit https://www.paypal.com/about.
For PayPal Holdings, Inc. financial information, visit https://investor.paypal-corp.com.

Presentation

All growth rates represent year-over-year comparisons, except as
otherwise noted. FX-neutral results are calculated by translating the
current period local currency results by the prior period exchange rate.
FX-neutral growth rates are calculated by comparing the current period
FX-neutral results with the prior period results, excluding the impact
from hedging activities. All amounts in tables are presented in U.S.
dollars, rounded to the nearest millions, except as otherwise noted. As
a result, certain amounts and rates may not sum or recalculate using the
rounded dollar amounts provided.

Non-GAAP financial measures

This press release includes financial measures defined as “non-GAAP
financial measures” by the Securities and Exchange Commission (SEC)
including: non-GAAP revenues, non-GAAP net income, non-GAAP earnings per
diluted share, non-GAAP operating income, non-GAAP operating margin,
non-GAAP effective tax rate, free cash flow and adjusted free cash flow.
For an explanation of the foregoing non-GAAP measures, please see
“Non-GAAP Measures of Financial Performance” included in this press
release. These measures may be different from non-GAAP financial
measures used by other companies. The presentation of this financial
information, which is not prepared under any comprehensive set of
accounting rules or principles, is not intended to be considered in
isolation of, or as a substitute for, the financial information prepared
and presented in accordance with generally accepted accounting
principles (GAAP). For a reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures, see
“Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP
Net Revenues to Non-GAAP Net Revenues,” “Reconciliation of
GAAP Operating Margin to Non-GAAP Operating Margin,” “Reconciliation of
GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP
Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate,”
and “Reconciliation of Operating Cash Flow to Free Cash Flow and
Adjusted Free Cash Flow.”

Forward-looking statements

This press release contains forward-looking statements relating to,
among other things, the future results of operations, financial
condition, expectations and plans of PayPal Holdings, Inc. and its
consolidated subsidiaries that reflect PayPal’s current projections and
forecasts. Forward-looking statements can be identified by words such as
“may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,”
“believe,” “estimate,” “intend,” “strategy,” “future,” “opportunity,”
“plan,” “project,” “forecast” and other similar expressions.
Forward-looking statements include, but are not limited to, statements
regarding projected financial results for the second quarter and full
year 2019, impact and timing of acquisitions, and projected future
growth of PayPal’s businesses. Forward-looking statements are based upon
various estimates and assumptions, as well as information known to
PayPal as of the date of this press release, and are inherently subject
to numerous risks and uncertainties. Accordingly, actual results could
differ materially from those predicted or implied by forward-looking
statements. Factors that could cause or contribute to such differences
include, but are not limited to: the effect of political, business,
economic, market and trade conditions, including any regional or general
economic downturn or crisis and any conditions that affect payments or
e-commerce growth; fluctuations in foreign currency exchange rates; the
competitive, regulatory, payment card association-related and other
risks specific to the PayPal, PayPal Credit, Braintree, Venmo, Xoom,
iZettle, and other products, especially as PayPal continues to expand
geographically and introduce new products and as new laws and
regulations related to payments and financial services come into effect;
the impact of PayPal’s customer choice initiatives, including on its
funding mix and transaction expense; PayPal’s ability to successfully
compete in an increasingly competitive environment for its businesses,
products and services, including competition for consumers and merchants
and the increasing importance of mobile payments and mobile commerce;
the outcome of legal and regulatory proceedings and PayPal’s need and
ability to manage regulatory, tax and litigation risks as its products
and services are offered in more jurisdictions and applicable laws
become more restrictive; changes to PayPal’s capital allocation or
management of operating cash; uncertainty surrounding the implementation
and impact of the United Kingdom’s formal notification of its intent to
withdraw from the European Union; cyberattacks and security
vulnerabilities in PayPal products and services that could disrupt
business, reduce revenue, increase costs, harm us competitively, or lead
to liability; the effect of management changes and business initiatives;
any changes PayPal may make to its product offerings; the effect of any
natural disasters or other business interruptions on PayPal or PayPal’s
customers; PayPal’s ability to timely upgrade and develop its technology
systems, infrastructure and customer service capabilities at reasonable
cost; PayPal’s ability to maintain the stability, security and
performance of its Payment Platform while adding new products and
features in a timely fashion; the risk that PayPal may not realize the
expected benefits of the sale of U.S. consumer credit receivables to
Synchrony Financial; risks that planned acquisitions will not be
completed on contemplated terms, or at all, and that any businesses
PayPal may acquire may not perform in accordance with its expectations;
the timing and possible outcome of the UK Competition and Markets
Authority’s review and investigation of the acquisition of iZettle; and
PayPal’s ability to profitably integrate, manage and grow businesses
that have been acquired or may be acquired in the future. The
forward-looking statements in this release do not include the potential
impact of any acquisitions or divestitures that may be announced and/or
completed after the date hereof.

More information about factors that could adversely affect PayPal’s
results of operations, financial condition and prospects or that could
cause actual results to differ from those expressed or implied in
forward-looking statements is included under the captions “Risk Factors”
and “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in PayPal’s most recent annual report on Form
10-K and its subsequent quarterly reports on Form 10-Q, copies of which
may be obtained by visiting PayPal’s Investor Relations website at https://investor.paypal-corp.com
or the SEC’s website at www.sec.gov.
All information in this release speaks as of April 24, 2019. For the
reasons discussed above, you should not place undue reliance on the
forward-looking statements in this press release. PayPal assumes no
obligation to update such forward-looking statements.

Copyright © 1999-2019 PayPal. All rights reserved. Other company and
product names may be trademarks of their respective owners.

PayPal Holdings, Inc.
Unaudited Summary of Consolidated
Net Revenues

We earn revenue from the following types of transactions:

• Transaction revenues: Net transaction fees charged to merchants
  and consumers on a transaction basis primarily based on the volume of
  activity, or Total Payment Volume (“TPV”), completed on our Payments
  Platform, including our PayPal, PayPal Credit, Venmo, Braintree, Xoom,
  and iZettle products.
• Other value added services: Net revenues derived primarily from
  revenue earned through partnerships, subscription fees, gateway fees,
  and other services we provide to our merchants and customers. We also
  earn revenues from interest and fees earned primarily on our PayPal
  credit portfolio of loans receivable, gain on sale of participation
  interest in certain loans and advances and interest earned on certain
  PayPal customer account balances.

PayPal Holdings, Inc.
Non-GAAP Measures of Financial
Performance

To supplement the company’s condensed consolidated financial statements
presented in accordance with generally accepted accounting principles,
or GAAP, the company uses non-GAAP measures of certain components of
financial performance. These non-GAAP measures include non-GAAP
revenues, non-GAAP net income, non-GAAP net income per diluted share,
non-GAAP operating income, non-GAAP operating margin, non-GAAP effective
tax rate, free cash flow and adjusted free cash flow.

These non-GAAP measures are not in accordance with, or an alternative
to, measures prepared in accordance with GAAP and may be different from
non-GAAP measures used by other companies. In addition, these non-GAAP
measures are not based on any comprehensive set of accounting rules or
principles. Non-GAAP measures have limitations in that they do not
reflect all of the amounts associated with the company’s results of
operations as determined in accordance with GAAP. These measures should
only be used to evaluate the company’s results of operations in
conjunction with the corresponding GAAP measures.

Reconciliation to the most directly comparable GAAP measure of all
non-GAAP measures included in this press release can be found in the
tables included in this press release.

These non-GAAP measures are provided to enhance investors’ overall
understanding of the company’s current financial performance and its
prospects for the future. Specifically, the company believes the
non-GAAP measures provide useful information to both management and
investors by excluding certain expenses, gains and losses, as the case
may be, that may not be indicative of its core operating results and
business outlook. In addition, because the company has historically
reported certain non-GAAP results to investors, the company believes
that the inclusion of non-GAAP measures provides consistency in the
company’s financial reporting.

For its internal budgeting process, and as discussed further below, the
company’s management uses financial measures that do not include
stock-based compensation expense, employer payroll taxes on stock-based
compensation, amortization or impairment of acquired intangible assets,
impairment of goodwill, restructuring-related charges, certain other
gains, losses, benefits or charges that are not indicative of the
company’s core operating results and the income taxes associated with
the foregoing. In addition to the corresponding GAAP measures, the
company’s management also uses the foregoing non-GAAP measures in
reviewing the financial results of the company.

The company excludes the following items from non-GAAP net income,
non-GAAP net income per diluted share, non-GAAP operating income,
non-GAAP operating margin and non-GAAP effective tax rate:

Stock-based compensation expense and related employer payroll taxes.
This consists of expenses for equity awards under our equity incentive
plans. We exclude stock-based compensation expense from our non-GAAP
measures primarily because they are non-cash expenses. The related
employer payroll taxes are dependent on our stock price and the timing
and size of exercises and vesting of equity awards, over which
management has limited to no control, and as such management does not
believe it correlates to the operation of our business.

Amortization or impairment of acquired intangible assets, impairment
of goodwill, and transaction expenses from the acquisition or disposal
of a business. We incur amortization or impairment of acquired
intangible assets and goodwill in connection with acquisitions and may
incur significant gains or losses or transactional expenses from the
acquisition or disposal of a business and therefore exclude these
amounts from our non-GAAP measures. We exclude these items because
management does not believe they are reflective of our ongoing operating
results.

Restructuring. These consist of expenses for employee severance
and other exit and disposal costs. The company excludes significant
restructuring charges primarily because management does not believe they
are reflective of ongoing operating results.

Certain other significant gains, losses, benefits, or charges that
are not indicative of the company’s core operating results. These
are significant gains, losses, benefits, or charges during a period that
are the result of isolated events or transactions which have not
occurred frequently in the past and are not expected to occur regularly
in the future. The company excludes these amounts from its non-GAAP
results because management does not believe they are indicative of its
current or ongoing operating results.

Tax effect of non-GAAP adjustments. This adjustment is made to
present stock-based compensation and the other amounts described above
on an after-tax basis consistent with the presentation of non-GAAP net
income.

The company also uses free cash flow, a non-GAAP measure. Free cash flow
represents operating cash flows less purchases of property and
equipment. The company considers free cash flow to be a liquidity
measure that provides useful information to management and investors
about the amount of cash generated by the business after the purchases
of property, buildings, and equipment, which can then be used to, among
other things, invest in the company’s business, make strategic
acquisitions, and repurchase stock. A limitation of the utility of free
cash flow as a measure of financial performance is that it does not
represent the total increase or decrease in the company’s cash balance
for the period.

In addition to the non-GAAP measures discussed above, the company also
analyzes certain measures, including net revenues and operating
expenses, on an FX-neutral basis to better measure the comparability of
operating results between periods. The company believes that changes in
foreign currency exchange rates are not indicative of the company’s
operations and evaluating growth in net revenues and operating expenses
on an FX-neutral basis provides an additional meaningful and comparable
assessment of these measures to both management and investors.
FX-neutral results are calculated by translating the current period’s
local currency results with the prior period’s exchange rate. FX-neutral
growth rates are calculated by comparing the current period’s FX-neutral
results by the prior period’s results, excluding the impact from hedging
activities.

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