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PayPal (PYPL +8%) is starting to find many pals in the market following its impressive beat-and-raise in Q2. The payment processing giant exceeded top and bottom-line estimates, projected Q3 EPS above consensus, which fueled its increased FY24 EPS outlook, and raised its repurchase program guidance by $1.0 bln. This performance reflects early success from PYPL's transformation, prioritizing high-quality, profitable growth. While the investments connected to this transformation still have a way to go and are expected to result in lower volume and revenue growth as PYPL moves through the back half of 2024, the numbers these actions have produced thus far are encouraging.

• During the quarter, total payment volume (TPV) jumped by 11% yr/yr, supporting a 9% increase in currency-neutral revenue growth to $7.88 bln. Transaction margin dollars, i.e., PYPL's payment processing profitability, expanded by 8%, marking the company's best performance since 2021. This healthy development led to PYPL's double-digit earnings beat, reversing a rare miss last quarter.
• PYPL has plenty to juggle, from improving its branded checkout, bolstering its small and medium-sized business (SMB) offerings, and enticing more users to its Venmo platform. However, the company noticed early wins across these focus areas during the quarter.
  • Management mentioned that branded checkout grew profitability in Q2 after ramping several tech innovations to its checkout flows. For instance, PYPL launched a redesigned payment page, which drove a conversion lift of 75-110 bps.
  • PayPal Complete Payments Platform, or PPCP, a service PYPL launched last year to bring its Braintree business, which caters toward larger organizations to SMBs, has been progressing nicely. SMB volume on PPCP maintained its positive trend in Q2, resulting in a 40% climb thus far through 1H24.
  • Venmo's TPV climbed by 8% yr/yr, with monthly active users inching 5% higher to nearly 62 mln. Digging deeper, Venmo Debit Card and Pay With Venmo grew monthly actives by around 30%.
• Competition has been a thorn in PYPL's side for some time as big tech firms like Alphabet (GOOG) and Apple (AAPL) bolster their payment offerings. However, PYPL commented that despite the multiple entrants into its market, it has not seen any degradation in its share over the past four years. Management added that payment buttons, whether they move from PayPal to Apple Pay, are not material to its business.

With momentum behind it, PYPL anticipates solid numbers next quarter, targeting EPS growth in the high single digits and revenue growth in the mid-single digits. Additionally, PYPL hiked its FY24 earnings forecast, projecting low to mid-teens growth yr/yr. Thus far, PYPL's transition year is advancing rather well. CEO Alex Chriss, who has been steering the ship since just September, has made the right moves to reinvigorate PYPL. While turbulence during a transition year is expected, especially since it coincides with a relatively weak macroeconomic environment, hindering online spending and overall transactions across merchants, PYPL's progress thus far, despite the economic backdrop, is inspiring and could be the start of a much more meaningful comeback.