Gabrielle Rabinovitch - IR Dan Schulman - President and CEO John Rainey - CFO Bill Ready - COO

Jason Kupferberg - Bank of America James Fawcett - Morgan Stanley Heath Terry - Goldman Sachs Sanjay Sakhrani - KBW Bryan Keane - Deutsche Bank Bob Napoli - William Blair Tien-tsin Huang - JP Morgan Darrin Peller - Barclays George Mihalos - Cowen

Good day, ladies and gentlemen and welcome to PayPal’s Third 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 be given 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, Andrew. Good afternoon and thank you for joining us. Welcome to PayPal Holdings’ earnings conference call for the third 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 webcast and both the presentation and call are available through the Investor Relations section of our website. We will discuss some non-GAAP measures in talking about our company’s performance. You can find a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the presentation accompanying this conference call. 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 fourth quarter and full year 2017 as well as our initial outlook for 2018. Our actual results may differ materially from these statements. You can find more information about risks, uncertainties and other factors that could affect our 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, October 19, 2017. We expressly disclaim any obligation to update the information. With that, let me turn the call over to Dan.

Thank you, Gabrielle and thanks everyone for taking the time to join us today. I'm pleased to share that PayPal delivered what is perhaps our strongest quarter since our separation from eBay. Our revenues were up 22% on a currency neutral basis, coming in at 3.24 billion. Revenue growth accelerated for second consecutive quarter and was once again driven by strong PayPal core growth. We continued to drive operating leverage across multiple areas of our business. As a result, our non-GAAP operating income grew by 32%, while our operating income margin increased approximately 160 basis points from Q3, 2016. Consequently, we delivered $0.46 of non-GAAP EPS, up 31% versus last year. Free cash flow grew by 36% to a record 841 million in the quarter and it’s worth noting that we now expect our free cash flow for the year to be greater than $3 billion. Our customer metrics, which include net new active accounts and engagement for active accounts were record setting. I pay particular attention to these measures as they represent a direct form of feedback on our value proposition, customer experiences and brand. We acquired 8.2 million net new active accounts this quarter. That is up almost 90% year-over-year and is a record number in our recent history. We ended the period with 218 million active customer accounts with over 200 million consumers now shopping at our more than 17 million merchants. We now expect we will acquire close to 30 million net new active accounts in 2017. Even with this record breaking net new active growth in our denominator, engagement per active account continues to improve, increasing to 32.8 times for the year, up from approximately 30 in the third quarter of 2016. The combination of our growing base and continued growth in engagement drove year-over-year total payment volume growth at swap rates of 30% in the period, sequentially accelerating 335 basis points from Q2. We generated $114 billion in payment volume. Our Merchant Services volume outside of eBay grew by 34%, as we continued to grow our market share. Mobile payments led our growth again, growing approximately 54% to $40 billion in the quarter. These positive trends are the direct result of investments made across the business. We've increased the availability of our platform and significantly improved our customer experience across an ever growing suite of products and services. Putting our customers first in everything we do and opening our platform to partners across the ecosystem has redefined our business model and our aspirations. Customer choice is one of the most visible examples of this, with approximately 20 million customers, engaging with our choice experience by actively choosing a funding option. We continue to see consistently positive results. Customers who use Choice have much higher engagement levels and tend to spend more per transaction. They have an increased appreciation for our value proposition and as a result, increased satisfaction levels. This naturally leads to a meaningful reduction of calls to our service centers and reduced churn levels. Our streamlined sign up process is generating more net new actives. And as is evidenced by our increasing OI margin, expenses are well within our expectations. Another measurable result from the improvements we've made in our core product experiences is the increasing value of the PayPal brand. Interbrand just named PayPal for the third year in a row as a top 100 global brand. In our first year as an independent company, we came in at number 97. Last year, we improved to number 90. This year, we were cited as one of the fastest rising brands, improving our brand rating by 10 spots to reach number 80 in the world. Cohn & Wolfe in their influential annual index of global brands ranked by consumer perception of authenticity saw PayPal jump by 20 spots to join Amazon, Apple, Microsoft and Google as one of the top five most authentic brands in the world. Mobile is becoming the defining force in digital payments and it is a rapidly blurring the distinction between online and offline and accelerating the adoption of digital payments. PayPal’s One Touch experience continues to set the standard in mobile check out conversion with almost two times the conversion rate of the industry average. We now have 70 million consumers who benefit from the speed inconvenience of a Single Touch checkout and over 6 million merchants around the world now offer this transformative checkout experience. As I mentioned earlier, we processed $40 billion of mobile transactions, accounting for 35% of our TPV in the quarter. Earlier this week, we announced that Venmo's broad and engaged base of millennial customers can now pay with Venmo at over 2 million PayPal merchants across the United States. This is an important milestone for us as we both add differentiated functionality for Venmo consumers and begin to monetize Venmo. Our existing PayPal merchants are also excited to offer Venmo as a way to pay on their sites. In fact, Venmo has prompted some of the largest and most influential merchants in the US to come to PayPal for the first time. In the quarter, we signed an agreement with the Williams-Sonoma Inc. brands to bring both Venmo and PayPal to their web and mobile properties in early 2018. That includes West Elm, Pottery Barn, Pottery Barn Kids and Williams-Sonoma. Our priority is to enrich and expand the Venmo experience, adding to the magic that has made Venmo a viral phenomenon. We are pleased that in the quarter, Venmo reported 9.4 billion of payment volume, growing 93% year-over-year. In addition, Venmo had its strongest net new active quarter in its history, demonstrating its growing popularity and its corresponding network effect. Our partnership strategy is a key pillar in our efforts to broaden the availability of PayPal. Combining with best of our platform capabilities and services with the best assets of some of the world's most popular brands enables us to offer our mutual consumers and merchants unparalleled value. We are very pleased to be building on these partnerships. In the quarter, we announced that consumers can now use PayPal on Nintendo gaming systems in 34 countries across North America, Europe and Asia. Microsoft announced that Skype users in 22 countries can use PayPal to send and receive money via the Skype mobile app. Mastercard announced the extension of our strategic relationship into markets around the globe. And we’re very pleased to announce additional financial partnerships outside of the United States. We signed partnership agreements with Banorte in Mexico and Shinhan Card, the largest credit card issuer in South Korea that mirror our US partner agreements. Here in the US, more than 185 issuers are updating their PayPal experiences as part of our choice initiative. We continue to deepen our ever growing partnership with Facebook with new capabilities constantly being introduced. We firmly believe that great results come from doing the right things. This is fundamental to our values. We believe that access to innovative technology must be an engine of inclusion and opportunity around the world and we are deeply committed to advancing that goal. When hurricanes Irma, Harvey and Maria battered the United States and the Caribbean, earthquakes throughout Mexico and fire swept through Northern California, PayPal is quick to respond. Like many other generous organizations, we made direct donations to global and local agencies. With the power and reach of our platform also allows us to do more in times of crisis. We launched appeals to the PayPal community, agreed to cover the fees for donations, sponsored the hand-in-hand telethon and provided our fundraising platform to support many other appeals. In total, to date, we have helped to raise more than $55 million in donations to support the families and communities devastated by these natural disasters. Increasing inclusion and diversity inside our company is also a direct reflection of our values. I'm proud to report that the PayPal Board of Directors has now reached 45% gender and ethnic diversity, up from 20% at the start of the year. And our just released diversity and inclusion report showed significant progress in our percentage of female leaders, including a 20% increase in our female Vice Presidents. We also announced 100% pay equity across gender on a global basis and a 100% pay equity across ethnicity in the US. I'm pleased with our overall progress, but we obviously have so much more to accomplish. In many ways, we are just at the beginning of our journey. The world is rapidly accelerating to digital payments and we know that we have a tremendous opportunity in front of us and we have the ability to make a real difference to all the constituencies we serve. I would like to end my remarks by thanking the global PayPal team for their passion, focus and commitment to our customers and our shareholders. And with that, I'll now turn the call over to John.

Thanks, Dan. We're reporting another solid quarter with results ahead of our expectations. Our operational metrics for the quarter in addition to the financial results that we delivered demonstrate the strength of our position as the world's largest open digital payments platform. There is great momentum in our business as we approach the end of 2017. First, I will walk you through the financial highlights for the third quarter, followed by a more detailed discussion of the drivers of our financial performance. And then I will provide a framework for how we’re thinking about 2018. For the third quarter, revenue was $3.24 billion, growing 21% on a spot basis and 22% on a currency neutral basis. Non-GAAP operating income grew 32% to $646 million and non-GAAP EPS grew 31% to $0.46. We generated more than $1 billion in operating cash flow and free cash flow grew 36% to $841 million. For the third quarter, our total payment volume was $114 billion, up 30% on a spot basis and 29% on a currency neutral basis, consisting of US payment volume growth of 31% and international volume growth of 27%. Our merchant services volume grew 34% on a currency neutral basis to $98.6 billion. This represented 86.5% of our total volume in the quarter. Volume associated with eBay represented 13.5% of the total compared to 16% for the third quarter of 2016 and 20% two years ago. P2P volume, which is a component of merchant services, grew 47% to $24 billion and represented approximately 21% of total payment volume. During the third quarter, growth in active accounts was 14% and we ended the quarter with 218 million customer accounts. Account growth was driven by the strength of our core PayPal business, followed by growth on the Venmo platform. Improvements to our on-boarding and checkout experiences and across our P2P flows enabled us to add 8.2 million new customer accounts, a record addition to our platform in a quarter. The number of payment transactions for active account on a trailing 12 month basis reached 32.8 with 7.2 billion transactions occurring on our payment platform over that period. In the third quarter, transactions grew 26% to 1.9 billion. Revenue grew 21% on a spot basic in Q3. US revenue grew 21% versus Q3 ’16 and international revenues grew 22% year-over-year on a currency neutral basis. In the third quarter, we saw strong revenue growth across all key geographies. At the same time, there was a partially offsetting impact from our hedging program, as we recognized $13 million in hedge losses versus a gain of $28 million last year, resulting in a headwind of more than $40 million in the period. In the third quarter, transaction revenue grew 22% and revenues from other value added services grew 15%. Transaction revenue growth was driven by our core PayPal and BrainTree businesses and revenue from other value added services was driven by credit. For Q3, our transaction take rate was 2.48%, a decline of 16 basis points from the third quarter of 2016 and our total take rate was 2.84%, down 21 basis points year-over-year. In recent quarters, our take rate declines have compressed and the pressure on our take rate has been predominantly driven by growth in P2P. While this was the largest single contributor to the take rate decline in the third quarter, we also saw increased pressure from our hedge loss, from lower growth in credit revenue and from the inclusion of TIO Networks in our results. Volume based expenses grew 33% in Q3. Transaction expense was $1.1 billion and represented 97 basis points of TPV, consistent with our expectations that we would see less pressure in Q3 relative to the first and second quarters of 2017. Transaction loss in the quarter was $219 million or 19 basis points of TPV, an increase of 1 basis point versus the same period a year ago. Loan losses across our consumer and merchant credit products were $144 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 6.4% in the third quarter. We ended the quarter with an aggregate gross receivables balance, including both principal and interest of $6.7 billion in our consumer and merchant loan portfolios and a total reserve of $424 million. We continue to see excellent results in managing the cost of our business. In the third quarter, other operating expenses increased only 4.8% to $1.1 billion, growing at less than a quarter of the rate of growth of revenue. The slower rate of growth in non-volume based expenses drove 550 basis points of operating leverage versus Q3 ’16 and represent 35% of total revenue. Normalizing for the acquisitions of TIO Networks, and Swift Financial, other operating expenses increased only 3.5%. Considering we grew revenue by more than 20%, this is exceptional performance. We're managing costs very efficiently, allowing us to deliver better cost performance, relative to our expectations, while at the same time, investing in our growth initiatives. Consistent with the first half of the year, other operating expenses increased $0.09 for every incremental dollar of revenue, demonstrating the scalability of our platform. Year-to-date, we have consistently demonstrated our ability to scale with minimal incremental cost. Strong revenue growth and cost discipline resulted in record non-GAAP operating income and EPS growth. Non-GAAP operating income grew 32% to $646 million and operating margin expanded approximately 160 basis points to 20% compared to Q3 ’16. GAAP operating income grew 22% in the third quarter to $423 million with an operating margin of 13%, flat to last year. Non-GAAP EPS grew 31% in the third quarter to $0.46 and GAAP EPS grew 17% to $0.31. The hurricanes in the southeast also affected our performance in the quarter. Waiving late fees and increasing reserves for our credit customers had an approximate $0.01 per share impact on our results. We ended Q3 with cash, cash equivalents and investments of $7 billion. Strong cash earnings generation resulted in 36% growth in free cash flow year-over-year. Our free cash flow for the third quarter was $841 million, representing $0.26 of free cash flow for every dollar of revenue. Third quarter capital expenditures were $165 million or approximately 5% of revenue. We also funded two acquisitions during the third quarter, as the TIO Networks and Swift Financial transactions closed in July and September respectively. Capital return continues to be a core component of our overall capital allocation strategy. And year-to-date, we’ve returned more than $700 million to shareholders in the form of stock repurchases. We now have approximately $300 million remaining on our original $2 billion authorization, after which time, we will begin buying back stock under the $5 billion authorization that was approved earlier this year. Our business generates significant cash flow and we will continue to take a long term view of capital allocation to maximize value creation, while optimizing our capital structure and investing for growth. I would now like to discuss our updated guidance for the fourth quarter of 2017 and the full year as well as our initial thoughts on 2018. For the fourth quarter, we expect revenue in the range of $3.57 billion to $3.63 billion or 20% to 22% growth on a currency neutral basis. We also expect non-GAAP earnings of $0.50 to $0.52 per share. I’d also like to give you some detail on how we're thinking about other operating expense growth in the fourth quarter. Our current plans contemplate discretionary investments and product development and sales and marketing in the fourth quarter that are over and above our current trend and will result in elevated growth in other OpEx, relative to the first three quarters of 2017. Importantly, these investments will benefit our results in 2018. For the full year, we expect other operating expenses to grow in the mid single digits. We now expect revenue for 2017 to be in the range of $12.92 billion to $12.98 billion or 20% to 21% growth on a currency neutral basis. We expect non-GAAP earnings per share in the range of $1.86 to $1.88. In addition, given the strong free cash flow that we have generated all year, we now expect free cash flow for the full year to exceed $3 billion. We're also reaffirming our prior full year 2017 guidance on CapEx of approximately 5% of revenue and a non-GAAP effective tax rate of 17.5% to 18.5%. We are still in our planning process for 2018, but I'd like to provide you with an initial framework for how we’re thinking about our business next year. We are planning for payment volume on a spot basis to grow at a rate -- in the range of mid to high 20%. Also, on a spot basis, we expect approximately 20% growth in both revenue and non-GAAP operating income with our GAAP operating margin expanding in line with non-GAAP operating margin. This view incorporates our initial integration and investment assumptions for the acquisitions of TIO Networks and Swift Financial, offset by modest operating margin expansion in the rest of our business. As we have not yet announced our plans for consumer credit as they relate to pursuing a more asset light approach, our initial framework for 2018 does not incorporate the financial impact of this initiative. Our process is on track and we're in ongoing negotiations and at the current pace, we expect to announce the deal towards the end of the year. We're committed to structuring the best partnership for PayPal that will create the most shareholder value over the long term. We’ll provide additional detail on our outlook for 2018 when we announce our plans for consumer credit. As we reflect on the first three quarters of 2017, we're very encouraged by our performance and the opportunities ahead. This year, we have accelerated our revenue growth and earnings growth and generated record free cash flow. We're building superior experiences for our consumers and merchants. The sustained momentum we see in the business gives us the confidence to invest in high potential areas such as Venmo and PayPal working capital. We’re extremely pleased with our progress and I also want to thank all PayPal’s customers and our colleagues worldwide for making this another outstanding quarter. With that, let me turn it back over to the operator for questions. Thank you.

[Operator Instructions] The first question comes from the line of Jason Kupferberg with Bank of America. Your line is now open.

So just wanted to ask a question, if we go back to the Analyst Day in 2016, you guys had indicated at that point that the credit business was about almost 10% of revenue and a little bit more than that as a percentage of operating profit. So I wanted to see if those numbers are still valid today. And then just related, can you give us an idea of what percent of your operating profit currently comes from eBay.

Sure, Jason. I'll take that. So the way you think about credit is, it has more or less grown in line with the rest of our business since we gave that guidance at that point in time. Credit represented - depending upon the quarter about 2% or 2.5% of TPV. And that was the case when we gave that guidance on revenue and profit at that Analyst Day. So it's fair to conclude that it represents a similar portion today. To be clear on asset-light, what we'd like to do is continue to very much be in the credit business for our merchants and our consumers and provide all of the benefit that they derive from that. But we can do that in a much more asset-light way where we can free up that capital to utilize for other maybe seemingly higher turning alternatives. At the same point in time we would continue to share in the economics of that business if we were to elect to pursue a partnership type of arrangement there. And then the second part of your question was eBay. eBay - we hadn’t disclosed what percentage of our business that represents in terms of profit. As I said in my prepared remarks, we've - that's about 13.5% of our volume today that’s come down from 20% just a couple of years ago. And whether it's TPV or revenue what you've seen is that that declined 300 to 400 basis points each year in terms of the percentage of our overall volume in the business and revenue in the business in this case maybe.

And our next question comes from the line of James Fawcett with Morgan Stanley. Your line is now open.

I just had a question on account adds those have been very strong 30 million or 25 expectation. What's driving that strength and how much benefit are you getting from recent partnerships and I guess a little color on how many accounts has Venmo have and how is that growth versus the core PayPal? Thanks.

This is Dan, I’ll take that question and Bill you can jump in on this. So this is not any one thing that’s driving our growth, it’s multiple initiates that we’ve launched. In general as we get bigger we’re seeing a network effect start to take haul, we have over 17 million merchants on a network now, now over 200 million consumers and there is distinctly a network effect. We've also seen all the core experiences that Bill and his team and others in the company that worked on whether that be availability, latency, One Touch, choice, our new mobile app out there that are all kind of bending multi-year curves now with all of our product curves bending upwards reversing a many year trend line that we had before. That’s reducing churn and also attracting a lot of new customers. We’ve got a bunch of new products out there right now from bill pay to international remittances to new services on P2P, new flows on P2P and so those are driving a ton of net new adds as well. Really interesting thing right now is obviously choice has streamlined the sign-up process and we’re seeing good benefit from that. But I would say on the partnership front, we are at the very beginning of that. There is much more ahead of us than behind us. We've had some marketing campaign launched within financial institutions to drive card linking to PayPal, but the vast majority of that is still ahead us. In terms of the ratios of Venmo to the core, we never really announced those specifically. What I would say again as I said in my remarks is Venmo had a record net new active quarter. But the core had an even stronger, a record net new actives. So you see more than a majority coming from core PayPal as opposed to Venmo on this. Anything else, Bill, you'd add. Hope that answers your question, James.

And our next question comes from the line of Heath Terry with Goldman Sachs. Your line is now.

Wondering if you can kind of give us a bit of a sense as you sign more and more merchants up to the platform. Kind of where you are both from a partnership and a technology standpoint on in-store transactions. And then one just sort of quick follow-up on the comments that were made around transactional margins, you called out several things that are sort of driving the modest pressure that we're seeing there. Unless I missed it, funding mix wasn't one of them. Given what you're seeing in choice, I'm assuming that was intentional, but just wanted to confirm.

So you have a couple of questions there, Heath, as usual we respect. So let met talk a little bit about some of our purchase, turn it over to Bill and then John will address the last part of your question. So, we are increasingly turning from being a product company into a platform company and what we mean by that is we’re moving well beyond just check out as a button to really offering a full suite of capabilities and services that enable merchants to move into digital commerce to take advantage of mobile which is something every single one of our retailers from small merchants to the very largest are thinking about right now. Because the face of commerce is rapidly changing driven by mobile, and mobile as I mentioned is blurring that distinction between online and offline. Because it’s blurring that distinction our platform capabilities are increasingly omni in nature. Now one of the things that still ahead of us and one of the things that accrued to us as part of our network agreement that we had with Mastercard and Visa and Discover as well as all of our relationships with financial institutions is access to tokens. We're not going to do bespoke customization coming into the offline world, but we can use industry standard tokenization and add that capability into our app which we expect to do next year to start to move into the offline marketplace. Again, we think that a lot of what’s going to happen at offline will be value proposition driven not form factor driven. But our PayPal digital wallet will have the ability for somebody to use their mobile phone eventually at a point of sale expect NFC solutions. Bill, anything you’d add on top of that.

I would just say on in-store one of the fantastic things that’s happening on top of what Dan was describing where we have great partnerships both with networks as well as Google and Android Pay and Vodafone and others that allow us to do in-store point of sale. We’re also seeing just amazing momentum on e-commerce style experiences coming into the store, which really plays to our strengths. So things like buy online pick up in-store, you can witness in most major retailers around the country are starting to carve off sections of the stores that are specifically devoted to buy online pick up in-store as you see more and more of that happening. That’s really home field advantage for us that we are becoming the primary way that consumers think about accessing great new digital experiences like that. So we certainly see growth across the board in mobile, but this is a really interesting area for us where we see mobile starting to really come into the stores to buy online pick up in-store and those types of things in addition to the way that folks thought about it traditionally of using the mobile device at point of sale where you’ve got great partnerships as Dan describes that help get us into those.

And Heath, this is John, just on the last part of your question with respect to transaction expense. You’re right, while it’s a small year-over-year increase. This was down on a unit basis in terms of TPV from what we saw in the first half of year. And we indicated that would be the case. At 97 bps this quarter, it’s down from the high watermark of 100 bps in the second quarter. It’s a result of couple of things. But one we talked about before as our customers are opting into choice. There is much more balance across the various funding instruments that they choose than what our initial expectations were. At the same point in time with great growth on platforms like Venmo, which come at a very low expense rate that actually helps suppress the rate of growth in that unit level. A good way to think about this even going to the fourth quarter and into 2018 is this is more or less for that period of time the level that we expect. I did note again 100 basis points was the - at least the high watermark for the foreseeable future for us in this areas. So we expect to contain the inflation in this area going forward.

And our next question comes from the line of Sanjay Sakhrani with KBW. Your line is now open.

Dan, during the quarter there were some press articles implying you guys were on the lookout for acquisitions. I know you made a bunch already, but I assume you might have been talking about something larger or more transformative. Could you just talk about where you guys might feel like you lack and some areas that you're looking at in size. Thanks.

So yeah I did read some of those articles that were out there. Look I start off by saying that I really need pleased and I'm happy with the set of assets and capabilities we have today. We've got a leading market position in those. I feel really good about where we stand. We have a very robust product pipeline and roadmap. And we're ready with the assets we have to compete as a leader in the market today. I think we're playing from a position of strength as we go into the market and look at what’s available. Obviously we have a very strong balance sheet and it's a potential weapon for us as we think about competing going forward. We’ve got some $7 billion on our balance sheet. As John mentioned over $3 billion of free cash flow that we’ll have this year. And our intention is to stay acquisitive and be a consolidator in the industry. We look at hundreds of opportunities every single quarter from small investments we make in some interesting start ups to much larger. And we look at the whole gamut of that. Now the criteria we look at this it got to fit into the vision and mission that we've set out for ourselves, it needs to accelerate our progress, I’m going to talk about that in a second, across key vertical like a Bill Pay would be an example of that, a geography or some technology that could be a security bolt-o something like that helps our platform overall. And we look at all of that through the lens of build, partner and buy. And on the build side as I’ve not mentioned before and Bill has talked about, we are so much more productive and innovative internally than we've ever been before. We had something like 300% increase in releases that we're doing now in what used to be a necessity for us to buy several years ago to innovate. Is now quite well covered by what we built internally. The other thing obviously is we've created a fundamentally different technological architecture an open-platform that allow us to partner in ways that we've never been able to go do before and so there used to be capabilities we need that now we can merge the assets of a partner into our platform and vice a versa without needing to acquire. And then obviously there's buying. And as I mentioned we look at that across the world and at all levels of different investment that we might make on that. But we're very disciplined in a way we look at that. Honestly we don't mind if it’s small or a large acquisition but it’s got to make sense to us on the criteria that aligned above and it’s got to make sense to us from a cost basis. And so you can expect us to be acquisitive, but in a disciplined and thoughtful manner.

Your next question comes from the line of Bryan Keane with Deutsche Bank. Your line is now open.

Just wanted to ask on the 2018 guidance. Does that include any Venmo monetization and if not, how are you thinking about that the size and timing of the Venmo monetization opportunity. And then just a quick on ’18, the ’18 numbers, does it include and how much FX and acquisitions? Thanks.

Bryan, it’s John. Good to speak with you. We do have some modest assumptions about monetizing Venmo going into next year. We’re courage by the launch of Pay with Venmo with 2 million merchants right now. We’ll continue to expand that. But as we said before this is has been an area of investment for us. We're looking forward to being able to monetize this. But we've got pretty measures expectations around this. So we don't want to get too far out in front of ourselves. This is a pretty precious experience. So we’re going to make sure that we get it right. And so given in the guidance that we gave approximately 20% revenue growth and 20% earnings growth that does include some assumptions about Venmo. But this is a leg of growth for us, profitable growth into the future. And we've got a multi-year outlook on what this will be. In terms of the guidance that we gave with respect to FX that basically assume the currency environment that we're in right now. That answers your question.

And then acquisitions, is there any acquisitions in that?

No, that’s an organic assumption say for the two acquisitions that we already acquired in the third quarter this year.

And our next question comes from the line of Bob Napoli with William Blair. Your line is now open.

The actives, want to dig in that a little bit more. Dan, when you - John, Bill, when you guys spun off you were targeting 3 to 5 million net new ads per quarter and obviously you haven't updated that guidance and that guidance is old. The 8 million the new substantial ramp up, how much of that is from customer choice. I think John you had said at one point there were a million customers a month that were signing up and not activating because - you thought because they didn't - you didn't have customer choice. How much of that is coming from customer choice and what is - going into next year, where there some low hanging fruit this year that we should see a big [indiscernible] in active account growth going into next year.

I’ll start off and then it over to either John or Bill as we go into this. So obviously we hit a different level in terms of acquisition and that 3 to 5 million is outdated. We did talk about this year that we expect to acquire close to 30 million net new actives. A part of that is driven by choice and a part of it is driven by new experiences, our P2P flows, reduction in churn that’s going on. So there is really not one thing that I would point to, you are right, we were losing out on a million or so activations a month that had put in a funding instrument but did not do a transaction with us because we also asked for additional information post that and that's not occurring right now. So I think we are at a different level in terms of the net new actives going forward. We’ll update that as we look at updating our overall 2018 guidance for you. So stay tuned on that but obviously 3 to 5 million is an old number now.

And our next question comes from the line of Tien-tsin Huang with JP Morgan. Your line is now. Tien-tsin Huang: Just one last, Bill, just on Braintree performance and maybe give us an update on when share there anything new on PayPal share, a checkout or on the merchant ads side is that still primarily be driven by Braintree or core PayPal, has that mix changed? Thanks.

We continue to see great performance across our merchant segments. Braintree continues to perform really well in line with what we discussed previously. And share of checkout driven by One Touch and industry leading conversion rate in addition to us having strong consumer growth, our share of checkout continues to increase. When you look at our merchant services volume growth that is significantly beyond the growth of the e-commerce industry which means that we continue to take share. And that taking of share is both in new merchant sign-ups that are really across small businesses, mid-market as well as a large enterprise, so across every segment we continue to add merchant. And then within each of those merchants we continue to see expansion of our share of checkout as consumers more and more gravitate towards PayPal given that we have conversion rate that is nearly twice that of entering a card and online. So it's broad-based across those but we see each of those segments performing well inclusive of the Braintree segment.

And our next question comes from the line of Darrin Peller with Barclays. Your line is now.

Just if we could follow up quickly on the outlook for ‘18. Maybe John if you could touch on pricing and how that's going highs. Some of the updates you're doing now and then what’s included in that and your outlook. And then really just on top of that your guidance on margins, I just want to make sure we're clear on it. Now you’re talking about it being in line with GAAP operating income growth which it sounded like was also 20% I think among revenue growth. I mean is that - what is the margin expectation, your expansion or anything impacting next year versus this year. Thanks.

First on pricing, as you are aware we've made a few different price changes this year positive and negative, try to optimize for certain corridors where we operate. But the main thing to take away from pricing is that we want to price in areas to where we can clearly attribute that price to value that’s being added to the customers experience. And so to your question about whether that assumes anything in 2018, yes it does. This is a pricing in any business is an ongoing driver of value that you need to be responsive to the broader market and competitive set in which you operate. So we've seen some benefit from that in 2017 and we would expect that to continue not only in 2018, but into further years. On the second part of your question, with respect to margin expectations in 2018. We do still expect to have sort of the same guidance that we said before as stable to growing operating margins and that’s whether you're talking about 2018 or the next few years after that. As I noted in my prepared remarks we are integrating to acquisitions next year. And so there's always integration and investment around that. If you were to normalize for that, you would certainly see that organically there is margin expansion in the business. And importantly as I noted in my remarks and has been quite a focus this year that the GAAP operating margin is also expanding in line with non-GAAP operating margin next year. Again some of the changes that we made with respect to share-based compensation this year we said were specific to this year, we do not expect that to continue at that level in the future.

Okay. Our last question please operator.

Our last question comes from the line of George Mihalos with Cowen. Your line is now open.

If I could just ask a question around Pay with Venmo from a margin perspective. If we think about the funding sources there and I know you guys are encouraging people linking credit cards to the Venmo wallet. But a substantial portion of that is still going to be funded through sort of cash on hand. Is there any reason why we shouldn't think that Pay with Venmo won't be accretive to your overall transaction margin and not sure if you're willing to provide any color as to how much of an uplift that might provide for ’18. Thank you.

I’ll describe Pay with Venmo with a little more detail. One of the beautiful things about what we have done with the Pay with Venmo deployment is that we're making that automatically available to PayPal merchants over the same distribution rail that we used to have such a rapid deployment of PayPal One Touch. And so while that makes it really easy for the merchant to adopt and really easy for the consumer to have more places to use it, it means that those merchants are accepting Venmo on the exact same terms that they would accept PayPal. So our revenue on those transactions when somebody uses Venmo to pay at one of those PayPal merchants, our revenue on that transaction would be exactly the same as if that user had paid with PayPal. As you rightly noted Venmo tends toward predominantly lower cost funding instruments so the cost of those transactions it would be reasonable to assume is going to less than the average across the PayPal base. And so I think your assumptions there are directionally correct. We are not providing guidance on how much of that or any of those types of things. But at a unit level you're exactly right that is the same revenue per transaction for us but with a wallet that is loaded with on average lower cost funding instruments for us.

Thank you, George, for that question, and thank you everyone for joining us today. We really appreciate your time and we look forward to speaking to all of you soon. Thanks a lot.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone, enjoy the rest of your afternoon.