Gabrielle Rabinovitch - Head, IR Dan Schulman - President and CEO John Rainey - Chief Financial Officer Bill Ready - Chief Operating Officer

Dan Perlin - RBC Capital Markets Lisa Ellis - Bernstein Ashwin Shirvaikar - Citi Tien-tsin Huang - JP Morgan Paul Condra - Credit Suisse Darrin Pellar - Barclays Bryan Keane - Deutsche Bank

Good day, ladies and gentlemen. And welcome to PayPal’s Second Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today’s conference, Ms. Gabrielle Rabinovitch, Head of Investor Relations. Please go ahead.

Thank you, Sherry. Good afternoon and thank you for joining us. Welcome to PayPal Holdings’ earnings conference call for the second quarter of 2017. Joining me today on the call are Dan Schulman, our President and CEO; John Rainey, our Chief Financial Officer; and Bill Ready, our Chief Operating Officer. We’re providing a slide presentation to accompany our commentary. This conference call is also being broadcast on the Internet and both the presentation and call are available through the Investor Relations section of our website. We will discuss some non-GAAP measures and talking about our company’s performance. In discussing certain historical year-over-year comparisons, we have chosen to present non-GAAP pro forma measures because we believe that these measures provide investors a consistent basis for reviewing the Company’s performance across different periods. You can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. Please note that as reflected in the reconciliation our GAAP net income and non-GAAP net income in the press release is included in our 8-K filed earlier this afternoon, GAAP diluted net income per share for the six months ended June 30, 2016 was $0.56. In addition, management will make forward-looking statements that are based on our current expectations, forecasts and assumptions, and involve risks and uncertainties. These statements include our guidance for the third quarter and full year 2017. Our actual results may differ materially from those discussed on this call. You can find more information about risks, uncertainties and other factors that could affect our operating results in our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q filed with the SEC and available on the Investor Relations section of our website. You should not rely on any forward-looking statements. All information in this presentation is as of today’s date, July 26, 2017. We disclaim any obligation to update the information. With that, let me turn the call over to Dan.

Thank you, Gabrielle. And thanks everyone for joining us today. I’m pleased to say that PayPal delivered another strong quarter of financial results, achieving new milestones for the Company on multiple fronts. PayPal generated 3.136 billion in revenue, the first time we've exceeded 3 billion in a single quarter and representing 20% of FX-neutral growth, nearly a 110 basis point acceleration from the first quarter and 70 basis points from a year ago. We've exceeded our guidance and delivered $0.46 of non-GAAP earnings per diluted share, up 27% year-over-year. Our non-GAAP operating margin grew by a 110 basis point year-over-year to 21%. We generated 747 million in free cash flow, up 51% from a year ago. Perhaps more importantly we had strong performance across our customer metrics. We gained 6.5 million net new active accounts, the largest organic quarterly gain in the past three years and up over 80% from a year ago. We ended the quarter with 210 million active accounts including 17 million merchant accounts, growing our base at 12% year-over-year. Given our first half results, we now anticipate our net new active additions will exceed 25 million for 2017. Engagement once again increased growing 10% year-over-year, our customers now transact 32.3 times per year, up from 29.4 times a year ago, and 31.7 last quarter. Our growing base and increasing customer engagement enabled us to pass another milestone, as we processed a 106 billion in payment volume exceeding 100 billion in quarterly TPV for the first time. TPV grew at a currency neutral rate of 26% year-over-year, accelerating 75 basis points from last quarter. Our volume growth was driven by our leadership in mobile. In the quarter, 34% of the payments on our platform were made on a mobile device. PayPal processed approximately 36 billion in mobile payment volume in Q2, up 50% year-over-year. This growth is largely driven by the exceptional and differentiated consumer experiences we enabled on mobile devices. One Touch adoption continued to expand in the quarter with over 60 million consumer accounts opted in. Merchant accounts accepting One Touch now numbered just over 5.5 million growing by 500,000 in the quarter. Venmo users sent and received 8 billion in the second quarter representing a 103% increase from this time last year, as we continue to achieve increasing network effects in the millennial markets. Based on the strong trends we're seeing across the business, we're once again raising guidance for revenue and EPS for the full year. John will share more details about our results and guidance in his remarks. Our performance is driven by the cumulative effect of multiple incidents. We have fundamentally retooled our technology and infrastructure, leading to significant improvements and availability and develop our productivity. We have meaningfully improved our core experiences and expanded our suite of products. Our overall scale is accelerating due to the network effects of our two sided platform. It is clearly a macro secular shift toward digital payments and our customer choice results continue to exceed our expectations. We have completed a rollout of choice across our on-boarding, servicing and checkout experiences in the United States and over 13 million customers have opted into choice. We have the data from millions of customers over multiple quarters. We are beginning to see clear trends resulting from our choice initiative. Choice is both simplify and clarify our customer experiences, which has meaningfully reduced the volume of calls into our customer service centers. Despite our transaction volumes increasing by more than 20%, our net call volume into our global operations are down year-over-year. The results of choice on the numerous other product improvements, we delivered significant OpEx savings over the course of our three-year finding horizon. More importantly, customers who have opted into choice have meaningful increases in overall satisfaction. As a result, choice is driving a significant reduction in churn and a meaningful lift in overall engagement. And consistent with last quarter, the impact on our funding cost continues to remain well within our expectations. Based on the success of choice in the U.S., we are pleased to be expanding this rollout into Australia, Canada, The UK and Japan later this year. Choice will also help to expand PayPal's presence in our customers' lives. These opportunities are driven by the land mark partnership agreements we have announced with technology companies, financial networks, wireless carriers and financial institutions around the world. In the second quarter, we continue to make excellent progress with our partnerships. We continue to expand our relationship with Visa, expanding our partnership in the Europe. As most of you will recall, last quarter, we announced an agreement with Visa that covered the Asia-Pacific region. Consequently, we now work around the globe with Visa. And as part of our network agreement announced last year with Visa and Mastercard, we recently announced the new service as it designed to allow PayPal and Venmo users in the U.S. to instantly transfer money to their bank account via eligible debit card, linked to their PayPal account. Findings faster and more convenient ways for our customers to fund into and out of their PayPal accounts is a key part of our overall value proposition. Throughout the quarter, we saw a relationship with issuers grow increasingly collaborative and productive. For example, we are pleased to see leading issuers including Wells Fargo and HSBC actively marketing PayPal to their customer base, encouraging their clients to link their cards into PayPal accounts. We also announced new strategic relationships with JPMorgan Chase and as of today Bank of America to utilize their token services and enable their customers to easily integrate their cards into PayPal and seamlessly create a new PayPal account from their properties. Furthermore, as part of our expanded relationship with Citi and Chase, we will make Citi ThankYou Rewards Points and Chase Ultimate Reward Points available in our PayPal wallet to be used as a funding source for consumers shopping at our 17 million merchants. As I've said on last quarter's call, it's hard to overstate the difference in the relationships we now have with companies across multiple sectors to many once view as potential competitors. We are confident these partnerships will drive enhanced value to our mutual customers. The accelerating and extensive scale of our two sided global platform, which will allow consumers and merchants to transact instantly in new context, across operating system, technologies and platforms, create a strong foundation and is very attractive to multiple partners. Our open technology platform has enabled expanded partnerships with Google, Apple, Facebook and Samsung over the past few months. These agreements benefit both PayPal and our partners by creating innovative consumer-focused experiences that connect their combined billions of consumers to new buying experiences enabled by PayPal's powerful platform. In April, Google announced an expansion of our partnership to make it easy for consumers to use PayPal as a payment method in Android Pay wherever it is accepted, in-store, in app and online. In addition, Android Pay users on Google's Chrome mobile-web will be able to seamlessly pay at the millions of online merchants that accept PayPal, simply by using their PayPal account and fingerprint authentication. Just like the deployment of One Touch, this great new checkout experience will be available to millions of PayPal merchants without requiring any integration work from the merchant, further extending the value we bring to our merchant customers. Also in the quarter, Facebook announced additional commerce experiences with PayPal that will be available within its Messenger platform. At F8 Facebook shared that over 1 million joint PayPal and Facebook customers have already enabled our payments experience within Facebook Messenger. Earlier this month, PayPal and Apple announced an expansion of our iTunes integration, which mean customers can now buy games, music, movies and in-app purchases with PayPal, on their iPhones and iPads in the Apple App Store, iBooks, Apple Music and iTunes stores in 12 countries including the U.S., Australia and parts of Europe. We anticipate that this integration will expand to more countries around the world in the coming months. This complements our existing integration into Siri and Apple iMessage and marks a growing relationship with Apple. Finally, we announced a strategic partnership with Samsung. Users of Samsung Pay in the U.S. will be able to use PayPal to pay for purchases in-stores using Samsung Pay's mag-stripe emulation technology, which is used at the vast majority of merchants that accept cards. The totality of these partnerships reinforces the fact that we're becoming an underlying open payments platform and wallet for many of the leading technology platform, OEMs and wireless carriers around the world. We continue to make good progress in rolling out Venmo as a payment option for PayPal merchants. As we shared last quarter, we're not introducing the ability for U.S. PayPal merchants to accept Venmo as a mobile payment option. Venmo users are now able to use Venmo at an expanded number of PayPal merchants such as lululemon and Forever 21 and I'm quite encouraged by the early results. We expect that the ability to pay with Venmo will be widely deployed across millions of our PayPal merchants by the end of this year and I look forward to sharing more details in the coming quarters. The ability to deliver new consumers and enhanced sales growth to merchants of all sizes is a key benefit of PayPal, especially as the world becomes more global and increasingly digital. As of today, this includes bringing the power and reach of the PayPal platform to the expansive and rapidly growing Chinese consumer market. We're very pleased to announce that PayPal has signed a strategic partnership agreement with Baidu, the leading Chinese language internet search provider with approximately 700 million users. This partnership allows Chinese consumers to pay with their Baidu Wallet and PayPal at our merchants outside of China. Beginning later this year, this partnership will provide Chinese consumers more ways to discover and buy from PayPal merchants in the U.S. and will eventually expand the PayPal's entire global merchant base outside of China. We expect this partnership to drive significant demand and additional cross-border trade over the PayPal platform. In addition in helping our merchant customers maximize their opportunities in the age of digital commerce, another key part of our strategy is helping underserved consumers, join and thrive in the digital economy. This vision drove our recent acquisition of TIO Networks, which adds bill pay functionality to our two sided platform, offering consumers the ability to access a digital network and benefit from the convenience and speed of digital bill payments. Last week, we announced that we have closed our acquisition of TIO Network and I would like to take this opportunity to welcome Hamed and the TIO team to the PayPal family. Three years ago, we set off to transform PayPal. Our goal is to create an open platform for digital commerce to deliver innovative mobile checkout experiences that blur the lines between physical, online and mobile shopping. We set off to create an integrated suite of services, experiences and APIs that could extend the power of our two sided ecosystem, to our merchants with a little and I'd say no integration work required. That vision has grown increasingly important to our merchants in today's rapidly evolving retail landscape. Our execution in support of that vision is yielding strong results and expanding our leadership position. Our efforts to place our customers' frontend centered everything we do is driving the scale and engagement on our platform. It has opened the door to strategic and reductive partnerships that have extended the PayPal experience across multiple contexts in existing and new geographies. But we know we are still in the early stages of our transformation and we are just scratching the surface of the opportunities in front of us. We are fully committed to delivering a true core experiences and additional innovative and comprehensive solutions for our customers, helping our consumers and merchants to navigate the rapidly evolving and expanding digital payments landscape. And with that, I would like to now turn the call over to John.

Thanks Dan. I also want to thank all of PayPal’s customers and our employees worldwide for making this another great year. As Dan discussed, we achieved several notable milestones in the second quarter, including for the first time processing more with $100 billion of TPV and generating more than $3 billion of revenue in a quarter. In addition, we saw accelerating growth in customer accounts, revenue, operating income, earnings per share, and free cash flow. Our second quarter financial and operating results demonstrate a momentum in our business and build on the strength of our recent performance. Relative to our expectations go into the quarter, our revenue and operating income outperformed. On the top line, we attributed acceleration in our core to strong account engagement growth, enhanced user experiences that make setting preferences and choosing funding instruments intuitive, cross border initiatives as well as increased functionality that allows our customers to use our products and additional contacts. In addition, the foreign exchange rates continue to be a headwind in comparison to last year. It provided a benefit relative to our plans going into the quarter. On the expense side, non-volume related expenses grew 4.5%, approximately 25% of the rate of revenue growth. Our team did an outstanding job managing cost, resulting in cost performance slightly better than our expectations. At the same time, we continue to fully fund our key growth initiatives. This level of expense growth demonstrates our ability to scale with minimal incremental cost. Before I discuss the financial results in details here are some highlights for the quarter. Revenue was $3.14 billion, growing 18% on spot basis and 20% on a currency neutral basis. Non-GAAP operating income grew 25% to $659 million and non-GAAP EPS grew 27% to $0.46. We generated $921 million operating cash flow and free cash flow grew 51% to $747 million. For the second quarter, our total payment volume was $106 billion up 26% on a currency neutral basis consisting of U.S. payment volume growth of 27% and international volume growth of 25%. Our merchant services volume grew 30% on a currency neutral basis to $91 billion. Merchant services represented approximately 86% of our total volume in the quarter. Volume associated with eBay represented approximately 14% of the total compared to 15% in the first quarter of 2017 and 17% in the second quarter of 2016. P2P continues to be a meaningful contributor TPV, representing approximately 21% of total payment volume. In the quarter, active accounts grew 12% and we ended the second quarter with 210 million active accounts. Active account growth was driven by strength in our core PayPal business as well as growth in Venmo. The number of payment transactions per active account on a trailing 12 month basis reached 32.3 with 6.8 billion transactions occurring on our payment platform over that period. In the second quarter, transactions grew 23% to 1.8 billion. Revenue grew 18% on a spot basis in Q2 and was the result of an 18% increase in both transaction revenue and revenue from other value-added services. The revenue growth in the second quarter represents an acceleration of more than 100 basis points versus the first quarter. Transaction revenue growth was primarily driven by our core PayPal and Braintree businesses and revenue from other value-added services was predominantly driven by credit. For Q2, our transaction take rate was 2.58%, a decline of 11 basis points from the second quarter of 2016. And our total take rate was 2.95% down 13 basis points year over year. 75% of the decrease in both transaction and total take rate was related to the increase in our P2P volume. Increased stability in our transaction take rate in the second quarter is indicative of the balanced growth and the strength we are seeing across our platform as well as our ability to monetize experiences where we demonstrate a compelling value proposition for our customers. Volume based expenses were up 29% year over year. Transaction expense was $1.06 billion, up 31% year over year driven primarily by increased funding cost across our core PayPal platform. As Dan mentioned in his remarks, the increased transaction expenses we have seen from choice have been well within our expectations. Further, we continue to see benefit on both the top line as well as cost improvements from lower customer call volumes in servicing costs, validating our initial expectations. We're pleased to roll out these experiences to additional geographies in Europe and Asia. Transaction loss in the quarter was $185 million or 17 basis points of TPV compared to 18 basis points of TPV in Q2 '16. Low losses across our consumer and merchant credit products were a $123 million, representing 26% growth in line with the growth of our receivables portfolio. Our consumer credit portfolio continues to perform in line with our expectations. The net charge off rate was 6.9% in second quarter. We ended the quarter with an aggregate gross receivable balance including both principle and interest of $6.1 billion in our consumer and merchant loan portfolio and our total reserve of $380 million. Other operating expenses increased 4.5% to $1.1 billion representing 35% of total revenue, an improvement of 465 basis points of operating leverage versus the same quarter last year. Both general and administrative and product development costs were flat year-over-year and experienced the lowest rates of growth since separation. Sales and marketing expenses grew 10 as we invested to support our brand strategies and choice experiences. For the second quarter in a row, other operating expenses increased only $0.10 for every incremental dollar of revenue, demonstrating the scalability of our platform. Strong revenue and cost performance resulted in 25% growth in non-GAAP operating income to $659 million. Non-GAAP operating margin expanded 110 basis points to 21% compared to Q2 '16. GAAP operating income grew 16% in the second quarter to $430 million and resulted in a GAAP operating margin of 13.7%. Both GAAP and non-GAAP EPS grew 27% in the second quarter to $0.34 and $0.46 respectively. We ended Q2 with cash, cash equivalents and short-term investments of $6.4 billion. We generated $921 million of operating cash flow in the quarter and capital expenditures were $174 million or 6% of revenue. This resulted in $747 million of free cash flow in the quarter as we generated $0.24 of free cash flow for every dollar of revenue. Capital return is a fundamental component of our overall capital allocation strategy. Year-to-date, we've returned more than $600 million to shareholders in the form of stock repurchases. We now have approximately $400 million remaining on our original $2 billion authorization. As announced on our last earnings call, our Board has also approved an additional $5 billion buyback authorization. In addition to focusing on enhanced capital allocation strategies, we're also committed to optimizing our capital structure. As we've shared over the past few quarters, we're exploring alternatives to run our consumer credit business in a less capital intensive manner. We're encouraged by the discussions with potential partners and based on the progress we're making the timing and structure of these alternatives are in line with our expectations. While we continue to assess more efficiently to manage balance sheet exposure and consumer credit, we are also assessing strategies that will support the growth of merchants and credit products. We continue to introduce and expand financial services and tools, have small and mid size business customers, start and grow the businesses. Since 2013, PayPal working capital has provided in excess of $3 billion in funding to more than 115,000 merchants. PayPal working capital is a strategic offering for PayPal which drives merchants' sales growth, increases processing volume and reduces merchant churn rate. We will continue to invest in our working capital business to provide innovative financial products to small-and medium-sized businesses. I would now like to discuss our updated guidance for the full year 2017 as well as the guidance for the third quarter. For the full year, we are raising our revenue guidance and now expect revenue between $12.775 billion and $12.875 billion, representing currency neutral growth of 19% to 20%. At current exchange rates for the full year, we expect currency translation to impact revenue by approximately 100 basis points, resulting in spot growth of 18% to 19%. For the first half of 2017, non-volume related expenses have grown only 4.5%. We are pleased with this performance and it's indicative of the type of cost discipline with which we can operate going forward. This level of growth for our non-volume related expense is sustainable given the manner in which we are scaling our business and the changes we have made to our organization structure. At the same time, this vary measured approach to experience growth gives us the flexibility to be opportunistic and make investments to drive our business going forward. Given our year-to-date performance and our operating plans for the remainder of the year, we expect with our full year non-GAAP operating margins will expand relative to 2016. We are also raising our full year EPS outlook by $0.05 at the high end and now expect non-GAAP EPS to be in the range of $1.80 to a $1.84. Further, we are increasing our free cash flow outlook and now expect to generate in excess of $2.9 billion in 2017. As Dan mentioned, we recently closed our acquisition of TIO Network and have included and expected impact of $25 million in revenue for the remainder of the year and our full year outlook with a negligible impact to our earnings. At the high end of the ranges we are providing today, our current full year guidance represents an increase of $225 million in revenue, and a $0.10 increase in non-GAAP EPS relative to the initial full year 2017 guidance that we have provided in the January. For the third quarter, we expect revenue to be between $3.14 billion and $3.19 billion and we expect non-GAAP EPS to be between $0.42 and $0.44. I want to close with the few observations on the quarter and our full year outlook. We saw accelerating growth across net new actives, TPV and revenue in the quarter. Net new active accounts grew by 80% and our currency neutral basis TPV grew 26% and revenue increased 20%. Our merchant services growth has been consistently in the 30% and demonstrates we are continuing to grow on market share. And while growing our top-line, we expect to maintain disciplined expense growth which allowed us to deliver with 100 basis points of non-GAAP operating margin expansion in the quarter. This performance gives us great conviction and our ability to deliver on our commitments for the year. With that, let me turn it back over to the operator for questions. Thank you.

[Operator Instructions] Our first question comes from Dan Perlin with RBC Capital Markets.

I had a question around the payment transactions for active account. I know they were up 10% and that’s still a very strong number. It was down a little bit relative to last quarter. I think it was up 12 and then over the last six quarters prior to that, it was up on average 13%. So I would have thought given choice in all of the kind of reduced friction that you guys have had that you might actually see that number accelerating as opposed to decelerating in its growth. Is there any callouts in the quarter we should know about?

Dan, it’s Dan on. Nice to hear you and thanks for the question. So I am quite pleased with our progress on engagement. It is up 10% despite really what is an accelerating day right now which is kind of the high-class to have. We are seeing tremendous adoptions across merchants and consumers into the PayPal franchise. As I mentioned, we think we’ll exceed 25 million net new actives for the year. In past couple of years, we’ve taken our active user engagement up almost seven transactions per user across the whole days. And if you look under the covers what we’ve done here quite a bit, the news is even better because the majority of our user engagement right now is coming from the core PayPal Wallet and in many prices before it was coming from growth of Braintree and core PayPal. But now it is being driven the majority from our PayPal core wallet and that is a great story for us. And if you look at our product growth and our core PayPal franchise over the last several quarters, we’ve taken multi-year trend that have been drifting slightly down in terms of their real growth year-over-year and we have bent these curves across pretty much every single one of our core products and they're now up and accelerating. So, that is a piece of really good news that you probably wouldn’t see from a number in and up itself. And it kind of feels like, we’re just at the beginning of this. We've got One Touch that is driving engagement, that’s driving increased engagement and it’s accelerating across the base. Choice still new, but choice engagement and summing up into choice that engagement is up quite substantially, and I am really pleased with what we are seeing from choice. As I mentioned, we're about 13 million plus customers that are in choice now, that will grow and that will impact engagement. We’re obviously just beginning of the journey the movements in your context. Now, we now at basically major agreements, we're pretty much every major issuer, we’ve got agreement from the financial networks to utilize their tokens and those start to move us, move more an in-store environment as we go into next year, that'll also drive engagement. You got pay with Venmo. Right now, there's no engagement with Venmo, it's P2P, but we don't count that in our engagement. So also you'll see that drive up. TIO just came on. Our new partnerships with Facebook and Google are going to start to kick in, that's really not in our guidance right now, as they -- those things are going to start to accelerate and drive our future growth as we look into '18, '19, '20. So, we still have a goal that would consumer use PyaPal two times a week. That is our goal, not to drive once a week, but to drive two times a week. And I feel with all the initiatives we've right now and the trending that we're seeing that over -- our medium to long term that’s within our reach too. So feeling pretty good about where we're on the engagement side.

Yes, that's fantastic. I'm going to ask one more quick one is you've mentioned all these strategic partnerships and they are plentiful. I'm wondering how you're viewing that from a trend perspective to bring down your customer acquisition costs as we think about the future?

You've violated first quarter rule, one question, but otherwise okay. Correlate with it and I admire that.

I'm increasing my engagement.

So, listen one of the things I mentioned in my opening remarks is we're beginning to see a tremendously collaborative relationship with issuers right now. We're seeing I mentioned two that are marketing to their pace to actively encourage them to link their cards into our PayPal account. And that's happening because we're going to drive growth for them, as John mentioned in his remarks, our MS TPV -- our TPV growth outside of eBay is growing at 30% and we're the perfect digital distribution channel for financial institutions especially now that we've implemented choice. And consumer will opt on how they want to pay and where they want to pay on that. And so I think this acceleration of our net new actives is coming at a lower cost to it, so it's really found sort of one-two punch that’s positive for us now, but especially as we look forward.

Thank you. Our next question comes from Lisa Ellis with Bernstein.

I had a question about in-store and your in-store strategy in light of the partnerships that you've signed. Can you kind of give an overall view of in which of these instances like in Android Pay versus Samsung Pay versus using the network tokens in your own wallet you're able to generate revenues for PayPal or envision that over time versus where it's just a strategy of driving more user engagement at the POS even though it's not revenue generating?

This is a great question. And you're exactly right that as you parse of the part, there are places where we earn revenue, there're places where you think about an engagement opportunity. And so the places where somebody paying in-store and are using our PayPal balance, those are places where we would make revenue on those transactions. And places where we're enabling the use of an issuer's card directly and we're providing a pass or token, we would earn revenue on those, but we also don't have cost on those, and so we did great consumer engagement, but without cost on those transactions per se. Also importantly in addition to what we are doing with partners like Samsung Pay and Android Pay to drive into the store, we are working with those same partners, particularly Android Pay for example where it's not just in-store but that blends into in app purchasing and online purchasing. And there is a lot of blurring in the lines of online and store things like buy online, pick-up in the store where these cross channel experiences are really getting to consumers using a mobile device, but really engaging with the retailer and the store. You see us really, really delivering on those types of experience as well. So we have a broad strategy that can both help the retailer engage across the multiple front, drive engagement with the consumer and we have several those that’s we monetized directly. And some of those that are going to be a path-through which would be -- we are not driving revenue across for us, but we would also not generate cost for us. We have many of those like [indiscernible] to different store, paying with your balance to reduce generate revenue on those things. And by the way, this is consistent with PayPal history where we historically have products such as P2P that were free then we've been monetizing other form. So, this is a strategy that we have employed previously and we feel very good about where we are in that.

Just to add to that, we saw first [indiscernible] well and we spent a lot of time as we started the transition of the Company from being really single product type of company to being a platform company that offers a suite of services to both merchants and the consumers. And where we found and with a ton of detailed research and analytics on this is when we add an incremental service to a consumer or even to our merchants, we see the lifetime value basically double. And so a consumer adds to P2P, we see them they engaged more, their use of PayPal goes up, their churn goes way down, and it is a gigantic benefit for our flywheel and for our economics. And so, the more products and services and experiences and more engagement we could have with the consumer and a merchant, the better the LTV is for us. And that comes through us, as Bill said, historically as we have seen with P2P and others. We also start in-store with Vodafone as we go down, we have seen these. People have used Vodafone and PayPal in-store. They use PayPal more in app and online because the distinctions between those things are blurring especially with mobile. And so, our ability to engage with consumers and drive that engagement is a good thing both for consumers, for merchants and for the economics of PayPal.

Our next question comes from Ashwin Shirvaikar with Citi.

My question is with regards to the rise in active accounts and the V acceleration of that that has gone from 10% to 11% to 12%. Is that a straightforward relationship with consumer choice? Is it possible to potentially estimate? Is there sort of untapped number of inactive accounts people who've downloaded PayPal, but didn't use it that can give us some idea of the potential to continue increasing their accounts?

I'll start then maybe Bill can supplement. So, I would say and as I mentioned in my remarks, there's no one single thing driving the growth of those net new active. And as I mentioned, you know, I said I think we'll do an excess of 25 million net new active that would imply so that we're going to do another on average 6 million or so in the third and fourth quarter. So we see a continued strength in net new active. That's coming as a result and Bill won't say this, but I will from the great work that Bill and his product and engineering teams have done, great work that have done. The risk teams have done around improving our core experiences. And as I mentioned, we're bending multiyear curves now and we’re seeing now really nice year-over-year growth in our core experiences. Availability just thing like availability is up, that matters a lot, we'll wait and see. It's down. That matters a lot. We got a new mobile app there. We got One Touch. We got choice coming in. Choice is driving both reduction in churn which helps to net new actives obviously, but it’s also driving additional new adds because the on-boarding process is so much more streamlined, and then you also have partners that are now actively marketing PayPal because together we're sort of allies in advancing digital payments and tapping into that growth. So I think there is a number of things and we also obviously with 210 million people now on the platform, we’ve got maybe at a tipping point of these network effects right now where there's so many merchants on the platforms, so many consumers on the platform, that it's a must have for people especially if they move into mobile check out experiences. I think what Bill and the risk teams have done and things like One Touch have really been an unparalleled kind of a mobile checkout experience, almost two times the conversion of the industry average. And so, I'll look at a number of things that we've done over the course of the last several years, and they're beginning to take hold in the market, and really driving our results and Bill would you answer that.

I think you captured really well just being the points there. We have multiple new places that customers are coming in, but as Dan described, we have across nearly every major product area, revamped those products over the last few years that we're were seeing, not only do each of those products tend to get more net new actives for us coming in. We're driving increasing engagement across each of those as people come in through those, they become more engaged on those products in those additional product that they can engage with and also even our relationship with those customers really, we have some more there -- their daily life. So, just as Dan said, it is across multiple fronts and quite noteworthy that it's across our core experiences as well as we’re deepening our engagement.

I'll just add one last thing and then we'll be done with your question, Ashwin. We didn't underestimate what can happen with Baidu, I mean we're now tapping into that Chinese consumer marketplace, and that is going to open up a whole new market for consumers to come on to the PayPal platform, interact with our PayPal merchants outside of China and drive what we think could be substantial cross-border traffic. And I talked about this, it's not just Baidu, it's Baidu and PayPal. So almost a little like we've done with Android Pay that it's a cobranded experience and sign up to our PayPal account from there. So, there're a lot of things that we're working on, a lot of things we still want to implement but feel good about the current trend right now.

Thank you. Our next question comes from Tien-tsin Huang from JP Morgan. Tien-tsin Huang: In momentum, I want to ask about maybe the partner pipeline just maybe big partnerships out there, still designing in 2017 and need to ask about the acquisition pipeline as well and your appetite to do deals?

Yes, so, we've done I think 24 major partnerships in the last 18 months and you've seen it last quarter starting to accelerate actually. And it's accelerated that people are beginning to understand the assets that we bring to our partners. We obviously bring our scale to partners and when you talk to different platforms whether it'd be Baidu or Google or Samsung, the ability to tap into 17 million merchants we have that long tail of merchants, that's a very difficult asset for others to replicate and it's accelerating in its growth. If you look at other partnerships, we can add potential for pretty significant additional growth for them, whether that's driven by mobile and we can do a One Touch or TPV that's accelerating. And as you know, we also control value prop end-to-end, there're very few players who do that, there're some players that can take a piece of it, but very few players own it including risk, custom service, brand reputation. And we own all of that parts of that proposition and we've also changed our model, quite a bit, we're an open platform and a suite of service both branded and unbranded that's operating system and device and technology agnostic. And so, we're -- and very importantly, we're a neutral third party platform. So we don't compete with any of our merchants or partners who are allies in advancing digital payments. So, I think our positioning is really good within the entire ecosystem to continue to partner. There're a number of other partnerships that are on the horizon and I think the more we partner the more people see that the benefit of doing that could be quite substantial, so I think we announced enough partnerships right now, so we'll save some for the next -- for the next announcement. But I think we're really well positioned on that front. On the M&A front because you got two questions in there in a very subtle way. But on the M&A front, look we've a very strong balance sheet. John mentioned, we've $6.4 billion of cash equivalents on our balance sheet. We're generating -- now with our guidance is over $2.9 billion of free cash flow for the year. So that’s the competitive advantage for us. There is no question about it and we are very active and looking at range of opportunities around the world, both big and small. But look those opportunities needs the time to our vision in our mission. They got to accelerate our progress either against the key vertical or geographic expansion. We do tuck-in acquisitions from a tech or functional capability like a TIO type of things, but we look at this in the through the lens of do we build, do we partner or do we buy. And the amount of work that John and Bill done on there, respective platforms with risk capabilities or full infrastructure -- I mentioned the increased developer productivity, we can put out a ton of releases, now we put out some like 30,000 releases in the quarter. I mean it's amazing in velocity of new functionality and innovation that Bill and his team are putting out into the market place. And so, well, we used to have to buy at onetime because it would take us month to make a change on our website because we have such a monolithic infrastructure. Now, there is a rapid velocity, a very innovative services coming in. Second thing is we can partner now in ways that we never partnered before. Choice has enabled that. We have new velocity about cooperating with people. It's created in environment that gotten very competitive one to one that’s much more cooperative. We have a ton of complimentary resources that we can use with partners. And now many times where we used to think that we will have to buy something, we can that partner on a commercial relationship to go and do that. And then obviously, if we can't do any of that we look at buy and we do that in a very disciplined manner. We have got certain amount of skill and capabilities and so you can expect us to continue to be acquisitive, but in a disciplined fashion and within the context that what I just mentioned.

Our next question comes from Paul Condra with Credit Suisse.

I guess Bill I just wondered if you could give a little more detail on Venmo. What you are seeing as you rolled that out in terms of the way consumers are using it? Are they potentially using a credit card? And then any merchant feedback and just anything, any surprises or anything unexpected just kind of help us understand where your focus is, as you are scaling that product out?

As we talked about in prior calls, we -- since quite a long time, really making sure that we had dialed the customers' experience, so that Venmo would not just be another payment button, but that’s the uniqueness of Venmo really gets to great mobile payments as well as the social engagement. Then we have had that dialed in, we took that from person to person payments and to merchant payment. We have been working through that for a year plus. And so, we are really on the place of taking those prior learning's as what we got to put feeling really great about and we are hoping that up to the PayPal merchant base. And so the really interesting thing is happening right now is that we are saying for our Venmo users, we are lining up PayPal merchant allowing, Venmo users to pay PayPal merchants, notably without PayPal merchants having to do anymore just like we rolled out PayPal One Touch, just like we rolled out Android Pay and so you’re seeing us leverage that their unique distribution capability to PayPal merchant again to go deliver Venmo consumers to those PayPal merchant. And so we’re in the midst of ramp of that. But we’re feeling really good about that. We not only had previously proven out the consumers on Venmo, really want to use Venmo for more things beyond P2P and we have a number of merchant where we see really, really part of results in terms of how Venmo stacks up next to other payment alternatives and those merchants we feel great of those things. For now, we really focus on how we take that from where we are now with a handful of merchant to go take that to millions of PayPal merchants. And we started that journey already, as Dan mentioned previously, we’ve started to introduce that, we have merchants like lululemon and Forever 21 that are now there. We have thousands of PayPal merchants now where you can Venmo to pay and we expect, we’ll progress that towards the millions of PayPal merchants over the coming quarters. We’re feeling really about those things, but what consumers want to do this, what was the interaction model with what -- those are things that we really speed that prior year testing out. So now we’re in the mode just thoughtfully scaling out, we’re feeling really good about how that’s going so far.

Our next question comes from Darrin Pellar with Barclays.

Just following up on this acceleration and partnerships, Dan, especially around the mega-tech companies such as Apple and Google this past quarter. Can you touch on these partnerships a little more detail, but more -- does this underscore any type of deeper meaning around the positioning in the payments to ecosystem like any of these companies? Just given -- there has always been a lot of questions over the competitive threat from some of these names versus PayPal. Are they now more partnerships? And then John, to sneak one quick financial one in, pricing opportunity, I know there was a key driver potentially in the quarter. Is it still driver or suppose to be or could be a driver in the year? How much more of that to go? Is there or how much of an impact in the quarter and just maybe comment on a little further? Again, thanks again guys.

Sure. Darrin, I’ll start and then kick it over to Dan. As we talk a little bit about this year, pricing is an opportunity for us. We did announce a couple of corridors where we made price increases. And in part of that is reflected both in our financial results for the quarter as well as are improved guidance for the year. I will say that we’re very focused on really identifying where customers drive value enhancement as part of that experience. And then pricing to that versus just arbitrarily going out and raising prices for something where there is no incremental value, that’s perceived by the customers. So, we've had some targeted initiatives that we’ve done and that’s reflecting in our results as well as our guidance for the year.

So, I’ll start off and then I’ll turn it over to Bill. But I think there is a real difference now with the partnerships that you mentioned that are major tech platform companies. I think none of that really wanted to go into payments as an end to itself. It was a means to an end that they have. And so, it might be more engagement on their platform and that engagement lead to key metrics that they want to try to keep the advertising, it could be other thing. And when we made the shift to being an open payments platform as opposed to just seeing a button as I check-out experience, and really open our platform up to pretty sophisticated technological upgrades through open APIs with the partnership we had with tokenization and that kind of thing. We were then able to become really in many ways an underlying payment OS or those tech platforms that enable them to create the experiences, that they wanted to drive for their end user. And so that partnership is fundamentally different right now and it has evolved greatly over the last several years. I'll ask Bill to add a color to that, but it's a very different conversation that we have now then we used to have.

Yes, I'll just add to that, that absolutely payments was a mean to end, as Dan described, and what we've demonstrated is that, through unique two sided platform that we've and our ability to connect consumers and merchants around the world do so in a single touch, makes us very unique being able to light up those experiences for those partners. And so, not only did we make the strategic shifts that they wanted to be more open platform to enable those thing, and improve our experiences so that we could do things like One Touch to drive industry-leading conversion levels to connect to those experiences. I think as mobile as matured and players have been able to see different alternatives in the ecosystem, and see what consumers have affinity issue, what drives better conversion rates. I think we're demonstrating consistently that uniqueness of our two sided platform and our ability to connect consumers and merchants, let's us drive connection between consumers and merchants of all types of consumers and tech ecosystems in ways that other can't, whatever their aspirations are whether that's selling more app or selling more devices, or driving engagement with their experiences. We're generally able to connect users to them in those experiences are in a lower friction way than anybody else out there. And that's why you're seeing us really start to play a central role there. And I think as more and more of these interesting new experiences proliferate every time that happen, I think PayPal is now positioned as a place where of course people would want to look given what we've demonstrated we can do on those things.

Thank you. Our last question comes from Bryan Keane with Deutsche Bank.

Just wanted to ask lots of new partnerships, the Chase deal in particular caught my eye, thinking about the ability for PayPal to process through Chase Net. Doesn't that materially lower your funding costs with Chase cards going forward? And then just as a bigger strategic picture maybe Dan with all these partnership. Are we about to launch a big in-store campaign or opportunity? Or is it going to be a more of trial in your process? Thanks so much.

I'll start off with that. Obviously, we've worked closely with JP Morgan Chase over the last couple of years actually, as we've talked about the potential for how we might work together. And I'm really pleased with where we came out in this partnership. We both see a lot of value in it, if two very strong companies lending what are really impressive assets to create consumer experiences, including as you mentioned processing through Chase Net which obviously does give the potential. We are not talking about any deal terms one way or another, but potential for lower cost from that. So I'm really pleased with the comprehensive nature of the partnership that we have with Chase because time to work through all the details of it. But I think both of us are really good about and really good about what we can drive coming out of that.

And I would just add to that, again we're not coming on the deal terms, anyone specific deal. The closer working relationship that we now have with the broader financial ecosystem, as you look through a broad lens of how you think about cost whether that’s customer acquisition or risk in fraud losses, all these types of things, we as one of the largest drivers of middle transaction for banks and issuers. And then that being place that is when the larger structure growth for banks and issuers, the opportunity for us to collaborate across the number of frauds across the ecosystem is quite meaningful we believe. We see that across these partnerships, it's not just about what the cost processing a transaction, but how can we think about delivering better digital experiences to customers that has impact, positive impact on customer engagement, on customer acquisition cost, and how we think about the lifetime value of the customer risk, all these things. The opportunity collaborate with the ecosystem has many, many potential positives across the number of those things. And that’s something we feel very encouraged by in the conversations that we have and relationships we build in.

I think you just think about things like reward points, Discover, Chase, Citi have all decided that utilizing the reward points within the PayPal platform to utilize those for purchases that are 17 million merchants. That’s a real significant differentiation for those particular financial institutions and their customers who are using their instruments, but also for PayPal because you now can utilize those reward points in a split transaction. You have X number of reward points, but maybe couldn’t do that full transaction. You can now split that, you can use this reward points to purchase 40% of which we are going to do and then the other 60% can be done to whatever funding instrument you select as a consumer. That’s a little over a cost funding mechanism as well for us so. There are all sorts of things within these relationships that we have, they try to enhance value for our mutual customers that, if you parse through them, it's really quite significant and differentiated from where we were certainly a year or so ago. Now the in-store stuff, we obviously now have the ability to use industry tokens from these Mastercard and others. And now, we are working with each of the FIs to use their tokens for their particular instruments. And so, you will start to see that’s just a naturally begins our rollout. There really is much of a trial and error per se on this. We will have the ability for our PayPal customer, if they are opted into one of the bank services that’s provided token, we will use network tokens with that. And you will simply be able to use that instrument seamlessly across where actually it is accepted now on android phone for instance across in-app experience, online experience, or an in-store experience without us having to do bespoke customization of software at the point of sale terminal. So that would just be a natural rollout utilizing existing POS technology. Okay, so thank you for that last question, Bryan. And thanks everybody for joining us. We really appreciate your time and we look forward to speaking with all of you soon. Thanks a lot everybody and thank you operator.

Thank you, this concludes today's question-and-answer-session. Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great afternoon.