PayPal Upgrading To OP - AB PDF

7 January 2020
7 January 2020
Rating Change
Harshita Rawat, CFA

Payments +1-212-969-6228
harshita.rawat@bernstein.com
PayPal Holdings Inc
Matthew McLean
+1-212-756-4167
Rating
matthew.mclean@bernstein.com
Outperform (Market-Perform OLD)
Target Price
PYPL 130.00 USD (115.00 OLD)
PayPal: Upgrading to OP on likelihood of positive revisions, reset

expectations and long-term optionality from multiple levers
We are upgrading PYPL to OP with a 1yr price target of $130. After a yr of negative revisions Close Date 6-Jan-2020
(on rev), intensifying competitive concerns & execution hiccups (on Venmo, partnerships, etc.), PYPL Close Price (USD) 110.17
we believe expectations have now been reset & there is a compelling 1-yr bull case driven by: Target Price (USD) 130.00
#1. Likelihood of 2020 positive revisions due to tailwinds from partnerships, pricing, Honey Upside/(Downside) 18%
deal & Venmo monetization. We note that positive revisions have historically been a powerful 52-Week Low 86.02
catalyst for PYPL. We are 2% above 2020 cons. We est. that recent partnerships (Paymentus, 52-Week High 121.48
Uber) will help PYPL achieve mid-20s TPV growth in '20 (TPV is the #1 metric for PYPL). SPX 3,246.28
#2. Long-term optionality for growth acceleration from a) partnerships (MELI, Uber, Instagram, FYE Dec
Paymentus), b) potential offline-online convergence meaningfully expanding TAM, c) better Indicated Div Yield NA
execution on areas that are either under-monetized or under-invested e.g large M&A, ROW Market Cap (USD) (M) 129,361
expansion (PYPL's biggest profit driver), value-added services, Venmo, bill-pay etc. EV (USD) (M) 124,376
#3. A likely more manageable eBay roll-off (even in 2021) vs. bear concerns.
Performance YTD 1M 6M 12M
#4: Sustained potential for margin expansion (vs. our prior concerns) as underlying gross Absolute (%) 1.8 5.6 (6.0) 26.7
profitability drivers (e.g., take rates, transaction expenses, losses etc.) are starting to stabilize SPX (%) 0.5 3.2 8.6 27.3
– based on our recent work on disaggregating profitability by business line (see link).
Relative (%) 1.4 2.4 (14.5) (0.6)
Finally, we see valuation as more 'palatable' now at 31.5x NTM E (vs. 37x 6months ago and vs.
MA at 33x) for a 20s EPS grower (& yes, we acknowledge the GAAP vs. non-GAAP reporting). Analyst Page Financials
In the medium-to-long term, we continue to closely monitor 'weak spots' in PayPal case e.g., the
eventual TPV deceleration from competitive risks and maturity of the core button. That said, Bernstein Company
Events Page
we believe these weak spots are outweighed by positive catalysts over the next 12m.
Investment Implications
We rate PayPal OP, TP $130. Biggest risks to our '20 est. are FX, weak cross-border & macro.
EPS Adjusted F18A F19E F20E Financials F18A F19E F20E CAGR Valuation Metrics F18A F19E F20E
PYPL (USD) 2.42 3.07 3.55 Revenues (M) 15,451 17,731 20,989 16.6% P/E Adjusted (x) 45.50 35.92 31.02
SPX 158.48 160.28 174.77 Net Earnings (M) 2,913 3,650 4,123 19.0% REL P/E Adjusted (x) 2.22 1.77 1.67
FCF/Sh 3.87 3.09 3.95 1.0% PEG Adjusted (x) 1.67 1.35 1.96
Adj. Op. Margin (%) 21.67 23.37 23.75 P/B (x) 8.61 7.06 7.48
EPS Growth (%) 27.24 26.67 15.73 P/FCF (x) 28.44 35.64 27.89
EV/EBITDA (x) 38.81 31.41 26.08
See Disclosure Appendix of this report for important disclosures and analyst certifications www.bernsteinresearch.com
Harshita Rawat, CFA +1-212-969-6228 harshita.rawat@bernstein.com 7 January 2020
DETAILS
Links to our recent relevant research:

December 2019: PYPL: Our proprietary model to forecast growth & gross profits by business lines - and what it means for 2020
& long-term outlook
July 2019: PayPal: ~20% share of global eCommerce (ex-China, Amazon and bill pay) - how high can it go? A short primer on TAM
March 2019: PayPal: >30% share of U.S. eComm (ex-Amazon & bill pay) - glass half-empty or half-full? Our eComm model &
outlook for U.S. TPV
April 2019: PayPal: Bull and bear - Takeaways from our 4th annual proprietary survey
March 2019: V, MA, PYPL - Cross-border payments - a short primer (market size, growth drivers) & perspectives on V/MA
divergence
November 2019: Quick Take: Our perspectives on PayPal's latest (and biggest) $4B Honey acquisition
Table of contents
1. Stock context ......................................................................................................................................................................................................... 2
2. Our Outperform Thesis......................................................................................................................................................................................... 3
3. Key exhibits ............................................................................................................................................................................................................ 7
4. Company context – a view by business line .................................................................................................................................................. 14
5. Our perspectives on key controversies .......................................................................................................................................................... 16
Appendix - Financial Forecasts ............................................................................................................................................................................ 29
1. STOCK CONTEXT
PayPal emerged to be one of the most controversial large-cap payment stocks in 2019. Stock is down 9% since 2Q19 results
(vs. +8% market and +7% Mastercard) when the company guided down on FY19 revenue.
Bulls view PYPL as a clean pure-play way to play the powerful secular growth in eComm (which likely has decades of runway) & a
company with significant optionality from margin expansion, Venmo, partnerships and a large strategic acquisition – all
contributing to a sustained 5-10yr+ runway of mid-20s EPS growth. In the near-term, bulls see greater likelihood of 2020
positive revisions (and we agree) due to potentially conservative management guide, partnerships (Meli, Uber) and pricing
getting pushed out from 2019, tailwind from Venmo, Honey, & 'manageable' eBay transition. Bulls believe that a steady beat-
and-raise 2020 will close some of the valuation gap vs. MA (which has widened significantly this year).
Bears remain concerned about competitive pressures & law-of-large numbers creeping up for this leading online checking
button – against the backdrop of guide-downs (on revenue) in 2019 and potentially intensifying competition from the likes of
click-to-pay, Apple Pay and Amazon Pay. Bears also worry about potential 'negative' revisions for 2020 on concerns re eBay,
limited tailwinds from partnerships, perceived hiccups in monetizing Venmo & deceleration of core. After 2019 guide-downs
(when many other payment stocks guided up), many investors want to ‘see’ positive revisions to really believe it. Bears are also
incrementally concerned around management’s ability to execute on partnerships and M&A (with some lingering
disappointment re lack of international focused M&A).
The key catalyst investors are watching are estimates revisions, trajectory for revenue and TPV, and M&A this year.
PAYMENTS BERNSTEIN 2
2. OUR OUTPERFORM THESIS

We are upgrading PYPL to OP with a 1yr price target of $130. After a yr of negative revisions (on revenue), intensifying
competitive concerns & execution hiccups (on Venmo, partnerships, etc.), expectations have likely now been reset & there is an
emerging 1-yr bull case driven by:
2.1. Likelihood of 2020 positive revisions from..

…tailwinds from partnerships, pricing, Honey deal and Venmo monetization. We note that positive revisions have historically
been a powerful catalyst for PayPal’s stock performance. We are 2% above consensus for 2020.
We expect ~18% nominal revenue growth for next year (vs. ~15% nominal guidance and ~17% cc guidance) driven by:
 ~17% core business growth (organic cc),
 ~1-2ppt tailwind from pricing (cross-border pricing increasing, returns policy change, currency conversion fees)
 ~1ppt tailwind from Paymentus with some small incremental contribution from Uber (MELI, Instagram, other partnerships
are unlikely to have an impact on revenue in 2020)
 ~1.5ppt impact from Honey deal
 0.5-1ppt from Venmo monetization
 ~1ppt eBay related headwind,
 ~2ppt headwind from FX
 ~0.5-1ppt headwind from lower interest rates (we est. that PayPal earns ~$200-300m in revenue from interest on
balances), and loss of SYF transitional payments (for full year)
We est. ~20% EPS growth (adj. for investment gains) in 2020 driven by:
 ~22% TPV growth (~24% CC organic YoY growth)
 ~4% YoY decline in take rate (-1% adj. for P2P and hedging gains)
 ~29% Other Value Added Services revenue growth (~20% adj. for Honey and non-rec. rev from transitional loans)
 Leading to revenue growth of ~18% for next year
 Operating income growth of ~20% YoY (driven by +20.5% growth in transaction-based expenses and +12% growth in
non-transaction-based expenses and resulting 30bps yoy margin expansion)
 ~2.5-3% additional interest expense on recent debt issuance and lower interest income earned on corporate cash
 ~2.5% from buybacks
We note that the macro environment (e.g., in UK, or in cross-border) doesn't appear to be meaningfully different in 2020 (vs.
2019). We expect stable cross-border trends – in-line with recent trends.
For further details re our revenue forecasts for next year, please reach out to us to get a copy of our business line forecasts. See
link to the note – PYPL: Our proprietary model to forecast growth & gross profits by business lines - and what it means for 2020 &
long-term outlook.
2.2. More manageable eBay roll-off

 Context on eBay:
 eBay is ~9% of TPV, ~14% of revenue and ~17% of gross-profits (Bernstein estimates). eBay (on PayPal) take rates
are significantly higher vs. rest of PayPal (~4% for eBay vs. ~3% for PayPal ex-P2P) and is only partially offset by higher
costs associated with eBay (e.g., fraud, custom product development and customer support, etc.). Of the ~$60B
volumes on eBay (through PayPal) today, ~25-30% are likely unbranded (PayPal provides white-label checkout
services), and ~70-75% are the more profitable branded button volumes (users click on "Pay with PayPal" button).
Starting from mid-2020, the unbranded portion will likely move to the Adyen platform (driving compression in volumes)
– and also the branded portion of eBay volumes will move towards eBay's managed payments offering (driving
compression in take rates).
 Our expectations re headwind
 We estimate eBay to be a 1% drag on revenue next year (in-line with company guidance), 3-4% drag in 2021, and 1%
headwind in 2022 and 2023. Based on our analysis and input from the company, we believe it is likely that eBay
transitions merchants to its managed payments platform over a protracted period of time and even after the transition,
the pricing on eBay (for PayPal) will likely come down over a period of time (our est. of 3-4qtrs). In a steady state, we
est. that eBay contract loss is a ~10%+ earnings headwind for PayPal. See details in our prior work - PayPal: 2020
Estimate Revisions - The Bull and Bear
2.3. Sustained potential for margin expansion as underlying gross profitability drivers stabilize
We recently published a deep dive on PayPal's underlying business lines (e.g., core U.S. button, ROW button, Braintree, Venmo,
OVAS, Xoom, Honey, etc.). See link – PYPL: Our proprietary model to forecast growth & gross profits by business lines - and what
it means for 2020 & long-term outlook.
One of the key insights from our analysis is that even though core-TPV will likely decelerate to ~20% in the medium/long-term,
many of the underlying gross profitability drivers (e.g., take rates, transaction expenses, etc.) will stabilize. As such, we are now
more constructive on long-term margin expansion potential for PayPal. Some details:
 We forecast ~4% gross margin contraction (ex-eBay contract roll-off) for PayPal over the next 5 years vs. ~10% over the
past 5yrs.
 Historically, one of the biggest drags on gross profit margins on PayPal was deteriorating take rates (due to growth in P2P
and shift towards larger merchants) and increasing transaction expenses (due to increase in credit card funding).
 We est. that take rate pressures will ease (excluding eBay) over the coming years as P2P growth decelerates and as small
vs. large merchant mix is now starting to stabilize. Further, we estimate that transaction expense rate will remain stable
around ~95-100bps as growing credit card funding in the U.S. is offset by growth in P2P, international expansion and
deceleration of Braintree (which was historically a drag on both take rates and transaction expenses – and therefore gross
profitability). Outside of some potential near-term noise related to SYF payments and interest rates, we also believe
PayPal's OVAS business will continue to grow faster than transaction revenue and is highly profitable (e.g., ~80%+ gross
margins vs. transaction gross margins of ~50%).
2.4. Optionality for growth acceleration
In addition to likelihood of positive revisions, we also see optionality from growth acceleration from
 a) Pivotal partnerships that could fundamentally accelerate the growth rate (and achieve crucial goals such as international
expansion, etc.). We are closely watching:
 Uber – where PayPal can initially shift some volumes away from competitors to Braintree; some likely impact in 2020
as PayPal takes some incremental volumes via Braintree in places such as Brazil. In the long-term, broader commercial
agreement with Uber presents a moonshot optionality to gain meaningful share in EM (an Achilles heel for the
company), and solidify participation in a 'digital-centric' model for financials services.. See our note on Uber: PayPal-
Uber: Our brief perspectives on the extended partnership
 Facebook e.g., through facilitating Checkout by Instagram (still in very early stages e.g., in a closed beta; likely a 2021
and beyond impact). We believe Instagram Checkout (if successful) provides an optionality to fundamentally accelerate
discretionary eCommerce growth rate (e.g., if Instagram develops into a powerful marketplace) – potentially in a similar
fashion to how Amazon accelerated the growth of eCommerce. This is especially because PayPal is not accepted at
Amazon (which is 20-30% of U.S. ecommerce; ~30-40% of e-retail and growing 2-3x faster than the market) and the
PayPal is also facing market maturation in the U.S. See our note on Instagram partnership: Payments - Our
perspectives on recent announcements re Apple Card, Instagram Checkout and Amazon-WorldPay Partnership
 MELI partnership gives PayPal a foot in the door in the growing LATAM eCommerce market (e.g., through acceptance
bwithin MELI platform) and a share of cross-border volumes in the region. We believe the impact is likely in 2021 and
beyond – and is more centered on cross-border volumes (e.g., PayPal customers buying from LATAM, and Pago
customers buying internationally from PayPal merchants). We believe PayPal's international business is higher growth
and more profitable than its US business – so we closely watch any international and EM focused partnerships (such as
MELI) that could accelerate PayPal's volume growth in a region.
 See our work on PayPal's recent partnerships1.
 b) Potential offline-online convergence leading to a step function growth in TAM:
 As we highlight in our prior work on eComm (see PayPal: ~20% share of global eCommerce (ex-China, Amazon and bill
pay) - how high can it go? A short primer on TAM & PayPal: >30% share of U.S. eComm (ex-Amazon & bill pay) - glass
half-empty or half-full? Our eComm model & outlook for U.S. TPV), we estimate that PayPal currently addresses ~$2.5T
addressable market defined as global eComm ex China, Amazon and bill-pay. PayPal's TAM (as we define it) is currently
growing at ~13-15% cc globally and the company has ~20% of its TAM (ex-P2P volumes on PayPal).
 Currently eCommerce is only ~7% of global PCE and is heavily skewed towards retail, digital travel and media. We
believe eCommerce growth has the potential to accelerate (or at least sustain) if categories such as groceries and
restaurants move online in a meaningful way through food delivery, order-ahead and proximity pay models.
 Strong growth in marketplaces (which are digitizing swathes of volumes which were not digital before e.g., gig
economies, etc.) also offer further tailwinds. The omni-convergence is especially important because PayPal's has had
very limited success in in-store expansion (which remains an Achilles heel for the company).
 Further, PayPal has even more runway to grow checkout button TPV by expanding into other e-commerce segments
(both mature and emerging), which could meaningfully expand its addressable market, e.g., bill pay or grocery (as it
moves to an order-ahead e-payment model).
 c) Better execution on areas that remain either under-monetized or under-invested (e.g., ROW button, value-added services,
M&A, Venmo, etc).
 M&A or aggressive focus on geographic expansion:
 We believe geographic expansion is a critical driver of growth for PayPal, because its business is currently
concentrated in the U.S. and the U.K., and underpenetrated in other geographies – the U.S. and the U.K. combined
contribute to 2/3rd of PayPal's overall revenue. PayPal already has a tremendous advantage in awareness and
adoption among consumers in its core markets such as the U.S. and U.K.. PayPal is under-indexed in continental
Europe and Asia: e.g. continental Europe is ~20% of PayPal's revenue vs. ~10-15% of revenue from the U.K.
alone. PayPal's ex-U.S. business is generally higher growth and more profitable than its U.S. business: we estimate
PayPal ex-U.S.'s gross margins are ~20ppt higher vs. the U.S. and TPV growth is in the mid-20s vs. high teens for
the U.S.
 PayPal's execution on international expansion has been mixed – the company is primarily strong in countries with
legacy eBay business and has struggled to overcome the 'chicken-and-egg' challenge in establishing its button
business in ROW (especially Asia, Latam, Europe).
 We are closely watching aggressive investments or a strategic acquisition by PayPal internationally (the #1
optionality for the company). See details in our recent M&A note – Payments M&A: Why, Why now and Who’s next?
 Other value-added services (OVAS growth):
1 April 30, 2019: PayPal-Uber: Our brief perspectives on the extended partnership
March 26, 2019: Payments - Our perspectives on recent announcements re Apple Card, Instagram Checkout and Amazon-
WorldPay Partnership
 Other value-added services provide a strong optionality to be a significant revenue driver through multiple levers
of monetization which have secular growth runway (e.g., off-balance sheet consumer credit, merchant working
capital, partnerships, etc.).
 We estimate ~10% revenue but mid-teens gross profit contribution for OVAS (due to 80%+ gross margins). We
note that a significant portion of OVAS growth recently has been driven by growth in merchant working capital and
international consumer credit (a drag on FCF) – and also recent pricing increases on SYF portfolio.
 We believe faster OVAS revenue growth is sustainable even on an organic basis – as many portions of PayPal's
platform remain under-monetized (e.g., vs. its peers in the east).
 Venmo remains a deeply under-monetized asset.
 Management has disclosed ~$400m in annualized revenue for Venmo YTD in 2019. We estimate ~$300-500m in
transaction expenses and losses associated with in 2019 (primarily driven by P2P volumes which incur costs but
are not revenue generating). We estimate that Venmo gross profits will only just barely be positive in 2020 unless
management puts an accelerator on for monetization. Against this context, we believe Venmo is a deeply under-
monetized asset e.g., Cash App (by Square) is currently generating >$500m revenue annualized (vs. ~$400m
annualized run-rate for Venmo) – despite Venmo likely having a larger footprint in # of active users. We are now
encouraged by management focus on using multiple levers for monetization (e.g., credit cards, merchant funded
rewards, debit) vs. focusing on Pay with Venmo (the traction of which has been below expectations). We believe
Venmo is an under-monetized asset
2.5. Valuation
Finally, we see valuation as now more 'palatable' at 31.5x NTM E (down from 37x 6months ago and vs. MA at 33x). Based on our
quality compounder screen published last year (see link), we find that PayPal offers above average earnings growth for an
average multiple (although non-GAAP) vs. a quality compounder peer set.
Changes to our estimates: Note we recently increased our 2020 estimates in our December 10th note after a detailed business
line review – for more information see the note (link). In this note, we increased our estimates to better reflect PayPal's
operating leverage in out years (2021 onwards) as well as to better reflect the timing of the Honey acquisition which closed
yesterday (January 6), ahead of expectations. Overall we increased our revenues by ~1% in 2020-2023 and increased our
operating margins by ~20-30bps annually, which resulted in raising our 2021 EPS estimate by ~1% and our 2022-2023
estimates by ~3% each.
2.6. What we are watching for and risks to our forecasts

Catalysts
 Revenue and Earnings revisions
 M&A (e.g., focused on international)
 Momentum of partnerships (e.g., Instagram)
 User engagement drivers
 Traction of Venmo monetization
Risks to our forecasts:
 Macro – sensitivity for both revenue and multiple
 FX and resulting impact on cross-border volumes
 Steeper than expected deceleration of the core volumes due to competition, market maturity
 Execution hiccups in partnership implementation,
 eBay roll-off occurring faster vs. expectations

 Greater pricing pressures
2.7. Our medium/long-term thesis: We continue to monitor several weak spots in PayPal bull thesis
We have had a neutral view on PayPal, grounded in the perspective that there are valid both bull and bear arguments on the
stock. We still believe many of the bear concerns are valid and pose longer term risks; however, we believe they are outweighed
by positive catalysts over the next 12 months. In the medium-to-long term, we continue to closely monitor 'weak spots' in
PayPal case e.g.,
 Maturity of the core button: We believe the core PayPal button already has ~20% share of global eCommerce (ex-Amazon,
bill pay and China) and >30% share of U.S. eCommerce. Further PayPal's TAM is growing in the low-to-mid teens. Unless
PayPal is able expand internationally or in-store, we believe that its TPV will decelerate to <20% over the coming years (vs.
mid-20s growth over the last few years). This is because of already high share in U.S. and Europe, and under-exposure to
high-growth markets. See details in our work – PayPal: ~20% share of global eCommerce (ex-China, Amazon and bill pay) -
how high can it go? A short primer on TAM.
 Intensifying competitive risks: We believe that PayPal will start to face pressure from alternative ways to checkout online
(not to forget card-on-file) – not necessarily on a next 1-2yr time horizon but on a 2+ year time horizon. In our annual
PayPal surveys, we have discovered that alternative wallets are gaining traction against PayPal. In our view, card-on-file,
Apple Pay, Click-to-Pay and Amazon Pay (especially with its skew toward small, online centric merchants, PayPal's core
customer) appear to pose the greatest threat (with the highest adoption levels after PayPal and the relatively high
consumer willingness to switch). We also worry about new W3C web-browser standards for payments. In the near-term,
however, PayPal retains a commanding lead within the checkout button space compared to alternative wallets. See link to
our survey work – PayPal: Bull and bear - Takeaways from our 4th annual proprietary survey
 Non-GAAP reporting: The delta between PayPal's GAAP and non-GAAP metrics has been consistently large, stoking
investors' concerns about significantly higher valuation on a 'clean basis'. We note that currently, PayPal is primarily valued
on a P:FE basis using its non-GAAP EPS, while Visa and Mastercard is valued largely on GAAP EPS. On a 'clean' basis (i.e.
unadjusted for stock-based comp and M&A costs), PayPal is currently trading at ~40x+ clean PE vs. 31.5x Non-GAAP PE.
PayPal's non-GAAP vs. GAAP delta has widened from ~25% in 2015 to ~35% in 2019 (although stablized vs. 2018). While
on a FCF basis, PayPal is trading at ~25x (78th percentile over the past 5yrs) - we note that PayPal's FCF definition excludes
receivables and impact from stock-based comp – adjusted for these, we note that PayPal is currently trading at ~33x.
3. KEY EXHIBITS
EXHIBIT 1: After a stellar 2016 and 2017, PayPal’s stock performance has been in-line with the market and below
peers in 2019
PayPal, V, MA, and S&P 500 Yearly Price Performance, 2016-2019
83% 85%
65% 65%
43% 44% 42% 47% 41%
29% 22% 32% 32%
20% 22% 18% 21%
15%
3% 9% 12% 12% 8% 13% 7% 11%
1%
-8%
2016 2017 2018 2019
PYPL V MA FIS FISV GPN S&P 500
Source: Bloomberg, Bernstein analysis
EXHIBIT 2: PYPL is now trading at a discount to MA vs. premium over the last 2 years
PayPal Average P/E vs. Payments Peers and S&P 500, 2016-2020
32 33 33
31 31
28 27 28 29
28
26 26
24 25 25 22 21 23
24 23 23
25
22 21 22
19 19 18 18
17 18 17 18 17
16
2016 2017 2018 2019 1/6/2020
PYPL MA V FIS FISV GPN S&P 500
Source: Bloomberg, Bernstein analysis
EXHIBIT 3: We expect ~20% EPS growth for 2020 (adj. for investment gains) driven by strong revenue growth of
~18%
PayPal Growth 2020E Non-GAAP EPS Growth

24% (Bernstein estimates, excl. Strategic Gains)
25%
20%
1.5% 18% 2%
20% 1.6%
(3%) 17% 17%
(2%) (2%) (1.5%)

15% Incl. eBay
contract roll-
off
10%
5%
0%
Source: Bernstein analysis and estimates.
EXHIBIT 4: We are 1.5ppt ahead of consensus on 2020 revenue
PayPal 2020E Revenue Growth
25%
~1.5ppts 0.5ppt
~1ppt ~20%
20% ~1-2ppts ~18%
~17.5% ~1ppts ~0-0.5ppts 16.6%
~2ppts
15%
10%
5%
0%
Source: Bernstein analysis and estimates.
EXHIBIT 5: We are 2% above consensus EPS in 2020

PYPL : Bernstein vs. Consensus 2016 2017 2018 2019E 2020E 2021E 2022E CAGR ('19-'23)
EPS (non-GAAP)
Bernstein $ 1.50 $ 1.90 $ 2.42 $ 3.07 $ 3.55 $ 4.21 $ 4.97 17.7%
yoy growth 17.4% 27.0% 27.2% 26.7% 15.7% 18.5% 18.1%
Bernstein (adjusted for investment gains) $ 1.90 $ 2.36 $ 2.97 $ 3.55 $ 4.21 $ 4.97 18.7%
yoy growth 24.1% 25.6% 19.7% 18.5% 18.1%
Consensus - as of 12/13/19 $3.06 $3.48 $4.20 $4.96
yoy growth 26.4% 13.8% 20.6% 18.0%
Difference (Bernstein vs. Consensus) 0% 2% 0% 0%
Revenue
Bernstein 10,842 13,094 15,451 17,731 20,989 24,395 28,136 15.9%
yoy growth 17.4% 20.8% 18.0% 14.8% 18.4% 16.2% 15.3%
Consensus - as of 12/13/19 17,753 20,700 24,361 28,220
yoy growth 14.9% 16.6% 17.7% 15.8%
Difference (Bernstein vs. Consensus) (0%) 1% 0% (0%)
Operating margin (non-GAAP)
Bernstein 20.1% 21.0% 21.7% 23.4% 23.7% 23.9% 24.0% 1.0%
Consensus 12/13/19 23.2% 23.8% 24.4% 24.9%
% difference (ppt) 0.2% (0.0%) (0.5%) (0.9%)
Source: Bernstein analysis and estimates, Bloomberg
EXHIBIT 6: We forecast 20% TPV growth over the next 4years; 22% ex-eBay vs. 26% over the last 4 years. Our
expectation of long-term growth deceleration is driven by maturity of the core button and competition
PayPal TPV ($T) Org. CC CAGRS

'15-'19 '19-'23
$1.5
+26% +20%
$1.4
$1.3 ROW ex-Xoom, ex P2P +24% +22%
$1.2
$1.1 US ex-Venmo, ex-Braintree, ex-
+20% +18%
$1.0 eBay, ex P2P
$0.9
Xoom **+20-25% ~15-18%
$0.8 $0.7
$0.6 Braintree ~50% ~25%
$0.6
$0.5
$0.4 Other P2P (ex. Xoom) +24% +20%
$0.4
$0.3
$0.2
Venmo +93% +30%
$0.2
eBay +1% -12%

$0.0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Source: Bernstein estimates and analysis
EXHIBIT 7: Our expectations of PayPal's TPV growth is EXHIBIT 8: ..and PayPal's share gains within
driven by mid-teens end-market growth eCommerce (ex-bill pay and China)
Global E-commerce Market 5Yr CAGR PayPal (excl. Braintree) market share within E-commerce
(PayPal Adressed Market, Ex-China Commerce, (excl. Bill Pay, China, Amazon)
constant currency growth, '13-'18)
1.2ppt 1.6ppt 1.0ppt
18% 16-19% increase/yr increase/yr increase/yr
16%
Mid teens 30% 28%
14% 13-16%
12-15% 25%
12% 20%
20% 18%
10% 16%
15% 13%
8% 10%
10%
6%
5%
4%
0%
2% Global U.S. RoW
0% 2013 2019
Global US Europe RoW (Ex-China)
Source: Bureau of Economic Analysis, Census Bureau, Eurostat, Euromonitor, Source: Bureau of Economic Analysis, Census Bureau, Eurostat, Euromonitor,
Statista, Company disclosure, Bernstein analysis and estimates; Corporate Statista, Company disclosure, Bernstein analysis and estimates; Corporate
reports, Bernstein analysis and estimates reports, Bernstein analysis and estimates
EXHIBIT 9: Competitive risks are intensifying but unlikely to pose a significant headwind in the next 12months
Which of these online or mobile payment wallets have

you used at least once in the past year?
2019 vs. 2018 vs. 2017
80%
24%
20% 19% 17% 14% 12%
8%
2017 2018 2019
Source: Bernstein PayPal survey
EXHIBIT 10: We are now more constructive on gross EXHIBIT 11: Overall we estimate gross profits will grow
margins as margin drag from lower-margin businesses ~13% (18% ex-eBay) through 2023 and delta between
(e.g., Braintree, Venmo P2P, etc.) eases (as the growth revenue growth and gross profit eases as gross margin
decelerates) and higher margin businesses (e.g., OVAS, pressures moderate
ROW button) grow faster
2019 PayPal Gross Margins by Segment

(Bernstein Estimates)
PayPal Revenue and Gross Profit
~80%+ Growth CAGRs
~65-70%~65%
~60% 52% 56% (Adj. for credit divestiture related
~50%
items, and hedging gains/losses)
~15-20%
NM 18%
15%
ROW ex-Xoom, ex P2P
Total Transaction
Braintree, ex-eBay, ex
Xoom
eBay
OVAS
Braintree
Venmo and Other P2P
Total PayPal gross
13% 13%
US ex-Venmo, ex-
Revenues
margin
P2P
'15-'19 '19-'23E
Revenue Gross profit
Source: Corporate reports, Bernstein analysis and estimates Source: : Corporate reports, Bernstein analysis and estimates
EXHIBIT 12: eBay – we expect a more manageable transition vs. some bear estimates of a cliff in 2021. We expect
3-4ppt incremental revenue headwind from volume and pricing rolloff in 2021 (and 1ppt headwind in 2020)
eBay Contribution as % of PayPal Total

24%
20% 20%
17% 17%
14% 14% 14%
11% 11%
9%
7% 6% 7%
5%
4% 4% 4%
3% 2% 2%
2017 2018 2019E 2020E 2021E 2022E 2023E

eBay TPV eBay revenue eBay gross profit
Source: Company filings and Bernstein estimates
EXHIBIT 13: Venmo will likely continue to generate EXHIBIT 14: Against a backdrop of meaningfully reset
significant TPV expectations on Venmo monetization, we are now
more constructive on achievability of Venmo #s
Venmo Volumes ($B) Venmo Revenues ($M) ~$1400-

$299
$300 Venmo is likely ~5% of revenes 1500
Venmo is likely ~20%+ of TPV
by 2023 (vs. ~15% in 2019) $1,400 by 2023 (vs. ~2% in 2019)
$250 ~$1000-
$250 $1,200 1250
$200
$200 $1,000 ~$850-900
$148 $800
$150
~$600-650
$104 $600
$100 ~$350-400
$62 $400
$50 $35
$18 $200 ~$100
$1 $2 $8
$0 $0
Venmo P2P volumes Venmo monetization volumes Instant Transfer Venmo Debit Card Pay with Venmo
Source: Company reports, Bernstein estimates and analysis Source: Company reports, Bernstein estimates and analysis
EXHIBIT 15: We see valuation as more 'palatable' now at 31x NTM E (vs. 37x 6months ago and vs. MA at 33x) for a
20s EPS grower (& yes, we acknowledge the GAAP vs. non-GAAP reporting).
NTM P/E Multiples

>40x
31.3x 32.9x
28.8x
Non-GAAP
PayPal Clean Visa Mastercard
Source: Bloomberg, Bernstein estimates and analysis

Note: Clean financials include stock-based compensation expense and exclude non-recurring items
EXHIBIT 16: Based on our quality compounder screen published last year (see link), we find that PayPal offers
above average earnings growth for an average multiple (although non-GAAP) vs. a quality compounder peer set
Valuation vs. Growth Rate

As of 1/6/2020
45x Average Fwd 3yr ISRG LULU
EPS growth = 15%
40x
EW
MA ADBE
35x
Forw ard P/E
INTU CPRT
ZTS PYPL
30x MNST MSFT
BSX V
25x GOOGL Average Fwd P/E
FLT
multiple = 30x
20x FB BKNG
15x
8% 10% 12% 14% 16% 18% 20% 22% 24%
3 year EPS annual growth forecast

For more details on the above analysis, see our valuation note (V, MA: Are these stocks relatively expensive or still attractive at current valuation level? Quant
perspective - 1yr on) discussing our quality compounder 'factor' peer set – companies that offer similar earnings growth, superior margins, higher quality, ROIC vs.
peers on average; and trade at slightly elevated valuation to peers
4. COMPANY CONTEXT – A VIEW BY BUSINESS LINE

PayPal's reported overall economics (TPV, revenue, gross profits, etc.) is comprised of several business lines – the 'core' button
(in U.S. & ROW), Braintree, eBay, Venmo, Xoom, other value- added services (OVAS) – and now Honey. Further, the TAM, growth
rates & gross margins of these business lines vary widely. So, disaggregating & forecasting PayPal's performance by business
line is crucial to developing and sanity-checking forecasts for the company.
However, it is an incredibly difficult analysis to do given limited information/disclosures – we published our 1st attempt at this
analysis 3yrs ago. In the last 3 years, much has changed re the underlying drivers (e.g., related to eBay, Braintree, Venmo, OVAS,
etc.).
We recently published a note (PYPL: Our proprietary model to forecast growth & gross profits by business lines - and what it
means for 2020 & long-term outlook), in which we presented our proprietary model and bottoms-up forecasts on what we est.
as the TPV, rev & gross profit contribution by different segments (based on ad-hoc data points from filings, our TAM analysis,
input from industry experts & qualitative comments from company over the yrs. We provide our insights below
 The core checkout button remains the profit engine of the company and drives 2/3rd of company's gross profits – but is
growing slower vs. rest of the business. We estimate that PayPal core checkout button (i.e. ex-eBay, P2P, Braintree,
Venmo, Xoom) remains the profit engine of the company – and drives 50-60% of TPV but 60-65% of total revenue – and
65-70% of gross profits.
 The button volumes are likely growing at ~20-22% annually (organic cc) – vs. reported TPV growth of mid-20s. The core
button organic cc growth rate has decelerated from mid-20s rate in 2015 but appears to be largely stable vs. 2018.
We forecast that core-button grows at a ~18-20% CAGR through 2023 – and drives 65-70% of revenue and ~75% of
total gross profits by 2023.
 We estimate that PayPal's express checkout button has ~25-30% share of ecommerce in the U.S. (ex-bill pay and
Amazon; share is higher when Braintree is included) and 15-20% market share internationally (primarily in Europe). The
express checkout button has been steadily gaining market share of ecommerce (which is growing ~15% ex-Amazon
globally) and is at ~20% globally. See link to our work – PayPal: ~20% share of global eCommerce (ex-China, Amazon
and bill pay) - how high can it go? A short primer on TAM
 The ROW core button business is the core profit driver and is the single biggest upside optionality for PayPal
(counterintuitive – especially because PayPal's ROW business receives much less investor attention).
 We estimate roughly 50-50 split for US vs. ROW button TPV but ~40/60% split on gross-profits because ROW has
significantly higher gross margins (~60-65% vs. ~45-50% in the U.S.). This is primarily due to higher take rates in ROW
(due to higher cross-border mix) – and lower transaction expenses (e.g., due to interchange caps in Europe, etc.).
Further, PayPal button and services are underpenetrated in ROW – ~15% market share (vs. ~30% in the U.S.)
 We estimate the core U.S. button will grow ~15-20% through 2023 and will represent ~25-30% of revenues and
gross profits in 2023 (vs. ~25% in 2019) and ROW will grow ~20% through 2023 and will represent ~40-50% of
gross profits (vs. ~35% of revenues and ~40% of gross profits in 2019). Currently, the U.S. is likely growing <20%
organic cc and ROW growing at low-20s (vs. mid/high 20s growth 4 years ago).
 We see ROW expansion as the biggest optionality for PayPal.
 eBay is ~9% of TPV, ~14% of revenue and ~17% of gross-profits (Bernstein estimates). We estimate that eBay will drive 2%
of revenue and 2% of gross profit in 2023 due to headwind from contract roll-off starting next year.
 eBay (on PayPal) take rates are significantly higher vs. rest of PayPal (~4% for eBay vs. ~3% for PayPal ex-P2P) and is
only partially offset by higher costs associated with eBay (e.g., fraud, custom product development and customer
support, etc.). Of the ~$60B volumes on eBay (through PayPal) today, ~25-30% are likely unbranded (PayPal provides
white-label checkout services), and ~70-75% are the more profitable branded button volumes (users click on "Pay with
PayPal" button). Starting from mid-2020, the unbranded portion will likely move to the Adyen platform (driving
compression in volumes) – and also the branded portion of eBay volumes will move towards eBay's managed
payments offering (driving compression in take rates).
 We estimate eBay to be a 1% drag on revenue next year (in-line with company guidance), 3-4% drag in 2021, and 1%
headwind in 2022 and 2023. In a steady state, we think eBay contract loss is a ~10%+ earnings headwind for PayPal.
See details in our prior work - PayPal: 2020 Estimate Revisions - The Bull and Bear
 Braintree primarily remains a merchant acquisition engine rather than a standalone profitability driver.
 Braintree (ex gateway) likely drives ~8-12% of volumes for PayPal but ~5% of gross profits due to larger merchant mix,
and higher transaction expenses (due to higher mix of credit cards on an unbranded offering). The disparity in
Braintree's profitability vs. the core business illuminates how critical it is to PayPal's strategy to penetrate the PayPal
button onto Braintree customer's websites/apps.
 There are two different businesses within Braintree – gateway (not included in published TPV numbers and has
extremely low take rates but likely very high margins) and full payment processing (included in TPV). We believe that
~70% of current Braintree Volume to be gateway volume. Our reference to Braintree throughout this document
pertains to the non-Gateway volume i.e. full payment processing volume.
 After a meteoric growth over the last several years, Braintree's growth appears to have decelerated to ~25-35% more
recently. We expect some growth acceleration for Braintree in 2020 because of partnerships which largely impact
Braintree business vs. core buttons (e.g., Paymentus, Uber, etc.). We estimate that Braintree grows at a ~25% CAGR
through 2023 – and drives LDD/low-teens % of revenue and MSD % of total gross profits by 2023 vs. HSD % of
revenues and MSD/LSD % of gross profits in 2019.
 Venmo remains a deeply under-monetized asset and is likely a ~1% drain on gross profit margins today.
 The inclusion of Venmo in PayPal's overall business economics just generally muddies the overall picture for PayPal, as
Venmo P2P volumes are growing extremely fast (~55-60% estimated in 2019; ~85-90% CAGR over the last few
years), but are near-zero take rates and includes transaction expense, so arguably should simply be stripped out
entirely. Ex-Venmo P2P volumes, PayPal’s TPV growth rate was ~20% FX Neutral in 2019 (vs. mid 20s organic cc
growth), take rate was ~2.6% (vs. 2.22% reported YTD) and transaction expense rate was ~105bps (vs. 95bps
reported YTD).
 Management has disclosed ~$400m in annualized revenue for Venmo YTD in 2019. We estimate ~$300-500m in
transaction expenses and losses associated with in 2019 (primarily driven by P2P volumes which incur costs but are
not revenue generating). We estimate that Venmo gross profits will only just barely be positive in 2020 unless
management puts an accelerator on for monetization. We estimate that Venmo drives ~5% of revenue and LSD % of
gross profits by 2023.
 We are encouraged by management focus on using multiple levers for monetization (e.g., credit cards, merchant
funded rewards, debit) vs. focusing on Pay with Venmo (the traction of which has been below expectations). We believe
Venmo is an under-monetized asset e.g., Cash App (by Square) is currently generating >$500m revenue annualized
(vs. ~$400m annualized run-rate for Venmo) – despite Venmo likely having a larger footprint in # of active users.
 Other value-added services (OVAS) will continue to be a strong revenue driver through multiple levers of monetization which
have secular growth runway (e.g., off-balance sheet consumer credit, merchant working capital, partnerships, etc.).
 We estimate ~10% revenue but mid-teens gross profit contribution for OVAS (due to 80%+ gross margins). We note
that a significant portion of OVAS growth recently has been driven by growth in merchant working capital and
international consumer credit (a drag on FCF) – and also recent pricing increases on SYF portfolio. We believe faster
OVAS revenue growth is sustainable even on an organic basis. It is likely that PayPal divests the underlying receivables
of merchant working capital and international credit over the coming years (similar to U.S. consumer credit book sale to
SYF).
EXHIBIT 17: ~50-55% of TPV is made EXHIBIT 18: …which makes up ~60% EXHIBIT 19: …and a similar amount of
up of the core button volumes… of revenues… gross profits
PayPal 2019 TPV Breakdown PayPal 2019 Revenue Breakdown PayPal 2019 Gross Profit Breakdown
<3% (Bernstein estimates)
(Bernstein estimates) Venmo (Bernstein estimates) Xoom
<3% 2% Other (e.g. Venmo Debit Card,
<3% Other P2P Pay w / Venmo)
Xoom (ex. Xoom) Braintree 3%
~10-12% 3%
Other P2P
(ex. Xoom) ~8-12%
Braintree OVAS
~25-30% 14%
ROW ex- ~35%
~15%
Xoom, ex ROW ex- ROW ex-
Venmo ~10%
P2P Xoom, ex Xoom, ex
OVAS P2P
P2P
39%
<5%
Xoom eBay
16%
~8-12% ~25% ~14%
Braintree US ex- eBay US ex-
~25-30%
Venmo, ex- Venmo, ex-
Braintree,
US ex-
Braintree, ex-
ex-eBay, ex Venmo, ex- eBay, ex P2P
~9% P2P Braintree,
eBay 24%
ex-eBay,
ex P2P
Source: Company reports, Bernstein estimates and Source: Company reports, Bernstein estimates and Source: Company reports, Bernstein estimates and
analysis; Venmo & P2P take rates include annualized analysis; Venmo & P2P take rates include annualized analysis; Venmo & P2P take rates include annualized
monetization for 2019 monetization for 2019 monetization for 2019
EXHIBIT 20: TPV growth varies widely EXHIBIT 21: …so do take rates EXHIBIT 22: As a result - gross
by business line margins vary widely by business line
2019 Take Rates (% TPV) by
PayPal 2015-19 TPV Organic CC 2019 PYPL Gross Margins by Segment
Segment (Bernstein Estimates)
Growth CAGR (Bernstein estimates)
~80%+
93% ~4% ~3- ~2.5-3% ~65-70%
~2- ~65%
3.25% ~60% ~50% 52% 56%
2.25%
2.2%
~1.5-2% ~15-20%
~50% NM
~20-25% <0.5% <0.5%
eBay
Total Transaction Rev
Total PayPal
Braintree
Xoom
OVAS
ROW ex P2P
Venmo and Other P2P

26%
US ex P2P, Braintree
~25% 24%
~20%
Venmo*
Braintree
Other P2P*
eBay
Xoom
Total PYPL
RoW Core Button
U.S. Core Button
1%
Venmo
Other P2P
U.S. Core Button
Total TPV
RoW Core Button
Braintree
Xoom
eBay
Source: Company reports, Bernstein estimates and Source: Company reports, Bernstein estimates and Source: Company reports, Bernstein estimates and
analysis analysis analysis
5. OUR PERSPECTIVES ON KEY CONTROVERSIES
We recently hosted a webinar discussing our views on the key controversies for PayPal. Below we provide updated slides
(based on today's note) from the webinar.
EXHIBIT 23: Controversy #1: Can the mid-20s TPV growth sustain?
Controversy #1: Can the mid-20s TPV growth sustain?
 On one hand, PayPal benefits from a structurally high growth eCommerce and the market has the
potential to inflect as new categories of spend move online. PayPal’s pivotal partnerships and initiatives
to drive user engagement provide further optionality for market share gains.
Global eCommerce is growing at mid-teens rate eComm market has the potential to inflect as new
annually categories of spend move online
Global E-commerce Market 5Yr CAGR 2018 US Purchase PCE Split by

(PayPal Adressed Market, Ex-China Commerce, Addressability ($ B %)
constant currency growth, '13-'18) 100% = $9,315B
18% 248
16-19%
3%
16%
Mid teens
13-16% 1,377
14%
15%
12-15%
12% 3,960
42%
10%
3,730
8% Groceries 23% 40%
Gasoline 9%
6% Rental 16%
Healthcare 13%
4% Vehicle Serv. 8%
Food Serv. 2%
2% Prof. Services
5% Addressed
0% Personal Care
Global US Europe RoW (Ex-China) Potentially Addressable
4%
Unaddressable
Not Applicable
Sources: Bureau of Economic Analysis, Census Bureau, Eurostat, Euromonitor, Statista, Company disclosure, Bernstein analysis and estimates; Corporate
reports, Bernstein analysis and estimates
**Xoom acquisition completed November 12, 2015, CAGR based on reported 2015 contribution U.S. PAYMENTS | 13
Source: Bureau of Economic Analysis, Census Bureau, Eurostat, Euromonitor, Statista, Company disclosure, Bernstein analysis and estimates; Corporate reports,
Bernstein analysis and estimates
EXHIBIT 24: Controversy 1 (cont'd)
Controversy #1: Outlook for TPV (cont’d)

 That said, the core button is reaching maturity (~20% globally, ~30% U.S. eComm market share for
PayPal) and competition is intensifying
PayPal has reached ~30% market share in the U.S. Competition is also intensifying – as alternative wallets are
and ~20% globally… gaining traction
PayPal (excl. Braintree) market share within E-commerce

Which of these online or mobile payment wallets have
(excl. Bill Pay, China, Amazon)
you used at least once in the past year?
2019 vs. 2018 vs. 2017
1.2ppt 1.6ppt 1.0ppt
increase/yr increase/yr increase/yr 80%
30% 28%
25%
24%
20% 20% 19% 17%
18% 14% 12%
20% 8%
16%
15% 13%
10%
10%
5%
0%
Global U.S. RoW
2017 2018 2019
2013 2019
Source: Bureau of Economic Analysis, Census Bureau, Aite Research, Eurostat, Euromonitor, Statista, Company disclosure, Bernstein analysis and estimates;
Bernstein March 2018 Survey of ~1691 U.S. Adult Internet Buyers, Bernstein Analysis U.S. PAYMENTS | 14
Source: Corporate reports, Bernstein analysis and estimates
EXHIBIT 25: Controversy 1 (cont'd)
Controversy #1: Outlook for TPV – Our View

 Our view - we forecast ~20% TPV growth (22% ex-eBay) over the next 5years vs. 26% TPV growth
over the last several years
 The deceleration is driven by maturity of the core button, deceleration of Braintree, eBay roll off and
also deceleration of P2P
We forecast ~20% TPV growth over the next 4-5yrs (vs. mid-20s historically)
PayPal TPV ($T) Org. CC CAGRS

'15-'19 '19-'23
$1.5
+26% +20%
$1.4
$1.3 ROW ex-Xoom, ex P2P +24% +22%
$1.2
$1.1 US ex-Venmo, ex-Braintree, ex-
+20% +18%
$1.0 eBay, ex P2P
$0.9
Xoom **+20-25% ~15-18%
$0.8 $0.7
$0.6 Braintree ~50% ~25%
$0.6
$0.5
$0.4 Other P2P (ex. Xoom) +24% +20%
$0.4
$0.3
$0.2
Venmo +93% +30%
$0.2
eBay +1% -12%

$0.0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

**Xoom acquisition completed November 12, 2015, CAGR based on reported 2015 contribution U.S. PAYMENTS | 15
EXHIBIT 26: Controversy 2
Controversy #2: Can revenue and gross profit growth converge?

 We often get the question re different profitability drivers for PayPal (i.e. take rates, transaction
expenses, OVAS growth) and different gross profit margins by segment – and implications for gross
profit growth (which is the ‘true’ revenue for the company)
 Overall – we believe that after years of gross profit growth meaningfully lagging revenue – the two will
start to converge as take rates stabilize and OVAS grows
Overall we estimate gross profits will grow ~13%
PayPal’s gross margins vary by segment… through 2022 (in-line with historical ’15-’19 growth)
2019 PayPal Gross Margins by Segment

(Bernstein Estimates) PayPal Revenue and Gross Profit
~80%+ Growth CAGRs
~65-70%~65%
(Adj. for credit divestiture related
~60% 52% 56% items, and hedging gains/losses)
~50%
18%
~15-20% 15%
NM 13% 13%
ROW ex-Xoom, ex P2P
Total Transaction
Braintree, ex-eBay, ex
Xoom
eBay
OVAS
Braintree
Venmo and Other P2P
Total PayPal gross

US ex-Venmo, ex-
Revenues
margin
P2P
'15-'19 '19-'23E
Revenue Gross profit
Sources: Corporate reports, Bernstein analysis and estimates

**Xoom acquisition completed November 12, 2015, CAGR based on annualized 2015 contribution
U.S. PAYMENTS | 16
EXHIBIT 27: Controversy #3
Controversy #3: How much runway is there for operating margin

expansion?
 We are modestly more constructive re margin expansion given stabilizing gross profit drivers (e.g., take
rates, transaction expenses)
 We acknowledge that, PayPal’s ‘true’ operating margins (i.e. based on gross profits – which peers
define as revenue) are already in-line with other merchant acquirers on an apples-to-apples basis.
 That said, we believe there is room for modest (i.e. 20-30bps annually) margin expansion as gross
margins stabilize and PayPal squeezes efficiencies out of the fixed cost base.
Non-transaction related clean 2019 Operating Profit as % of

expense % YoY growth Gross Profits
(including stock based comp, (Revenues net of Transaction Costs)
M&A costs) 43% 44%
36%
32% 30%
27% 27%
12% 12% 12%
12%
9%
2015 2016 2017 2018 2019

YTD
**Represents 2018 metrics
Source: Corporate reports and Bernstein analysis
Note: Adjusted for credit divestiture related items, and hedging gains/losses U.S. PAYMENTS | 17
Controversy #4: eBay – a manageable transition or a cliff in 2021?

 Currently eBay is ~9% of TPV, ~14% of revenue and ~17% of gross-profits and we estimate eBay will
drive ~2% of revenue and gross profits by 2023
 We expect 3-4ppt revenue headwind from volume rolloff in 2021 (and 1ppt headwind in 2020) – which is
likely a more manageable transition vs. some bear estimates.
eBay Contribution as % of PayPal Total

24%
20% 20%
Potential for a longer transition (and
17% 17% less headwind in 2021) if eBay is slower
in its conversion to managed payments
14% 14% 14% offering
11% 11%
9%
7% 6% 7%
5%
4% 4% 4%
3% 2% 2%
2017 2018 2019E 2020E 2021E 2022E 2023E

eBay TPV eBay revenue eBay gross profit
Source: Company filings, Bernstein March 2018 Survey of ~1691 U.S. Adult Internet Buyers, Bernstein estimates and analysis; March 2019 Survey of ~1250 U.S.
Adult Internet Buyers representing ~60% of U.S. population and ~84% of Consumer Spend, Bernstein Analysis U.S. PAYMENTS | 18
Controversy #5: Venmo – has the sentiment swung too far into the
negative?
 Venmo remains a deeply under-monetized asset and is likely a ~1% drain on gross profit margins today.
After a seeming euphoria on Venmo monetization late last year, expectations have been reset significantly.
 We are now more constructive on achievability of Venmo #s – we expect Venmo to drive mid-single % of
revenue by 2023 due to multiple lever of monetization (vs. a single focus on the Pay-with-Venmo button)
Against a backdrop of reset expectations, we are now

Venmo will likely continue to generate significant TPV more constructive on achievability of Venmo #s
Venmo Volumes ($B) Venmo Revenues ($M) ~$1400-

$299
$300 Venmo is likely ~5% of revenes 1500
Venmo is likely ~20%+ of TPV
by 2023 (vs. ~15% in 2019) $1,400 by 2023 (vs. ~2% in 2019)
$250 ~$1000-
$250 $1,200 1250
$200
$200 $1,000 ~$850-900
$148 $800
$150
~$600-650
$104 $600
$100 ~$350-400
$62 $400
$50 $35
$18 $200 ~$100
$1 $2 $8
$0 $0
Venmo P2P volumes Venmo monetization volumes Instant Transfer Venmo Debit Card Pay with Venmo
Source: Company reports, Bernstein estimates and analysis

U.S. PAYMENTS | 19
Controversy #6: Honey – a game changing optionality or a defensive

move at a high price?
 Investor feedback on Honey has been mixed. Bulls are very excited about accretive
revenue growth and the likelihood of PayPal moving up the shopping funnel (and
implications of market share gains). Bears dislike the price tag and worry about capital
allocation.
 Our view: leaving aside the price tag of $4B for a moment, the transaction does offer good
optionality on driving greater user engagement and growing market share – and also some
accretive revenue growth.
 Honey gives PayPal more tools for driving engagement for users (e.g., through
deal/price notifications and rewards in the app) – and could also translate to greater
value for merchants (e.g., through more data).
 Bringing the PayPal checkout button at the beginning of a shopping journey (vs. at
the end at checkout) potentially enables PayPal to capture greater share of checkout.
 Access to web-browser extension also mitigates some competitive risks for the
button.
 We are closely watching execution given PayPal’s mixed track record in M&A.
 See our detailed perspectives on PayPal’s Honey acquisition: Quick Take: Our
perspectives on PayPal's latest (and biggest) $4B Honey acquisition
Source: Company reports, Bernstein analysis

U.S. PAYMENTS | 20
Controversy #7: M&A – whom can PayPal buy or vice versa?

 We believe PayPal is most likely to acquire one of the following types of assets:
 1) continental Europe or EM payments player
 2) expand into in-store payments or bill payments or fast-growing buy-now-pay-later
models
 3) expand into SMB eCommerce services
 PayPal is under-indexed in continental Europe (~20% of revenue vs. 10% of revenue from
the U.K. alone) and EM (likely <10% of revenue; has been historically very challenging for
PayPal to grow market share organically in EM)
 PayPal is almost non-existent in in-store payments, and also has a substantial opportunity
to grow user engagement (e.g., through more financial services, bill pay, etc.)
 Against that context, we believe the most synergistic assets for PayPal are PhonePe
(wallet owned by Walmart-Flipkart in India; PayPal may buy if it is spun out), Afterpay
(buy-now-pay-later checkout player; listed in Australia), Klarna (PayPal credit++ of
Scandinavia)
 Less likely (due to valuation reasons) but very synergistic candidates include: Square
(provides much needed in-store expansion) and Shopify (provides exposure to synergistic
ecommerce exposure to SMBs).
Source: Company reports, Bernstein analysis

U.S. PAYMENTS | 21
Controversy #8: Impact of partnerships
 PayPal has announced major partnerships (e.g. MELI, UBER, FB, Paymentus) which has
led to questions re potential acceleration of TPV and revenues in 2020 and 2021
 We expect Paymentus to provide a ~1-3ppt tailwind to TPV in 2020 (likely lower on
revenue due to lower takes rates). We expect minimal impact from Uber, Meli and
Instagram on 2020 #s.
 Longer-term, we note that is tough to look at partnerships in complete isolation and view
them as somewhat additive to base growth rates (because such deals have been a driver
of Braintree growth historically as well).
 We see the biggest optionality from Instagram partnership (likely in 2021 and beyond) if it
fundamentally accelerates the growth of discretionary eCommerce in the U.S. We note
that most partnerships for PayPal now are Braintree-centered – and likely lower margins
and take rates.
Source: Company reports, Bernstein estimates and analysis

U.S. PAYMENTS | 22
Controversy #9: Valuation
 Valuation is more palatable now at 31.5x earnings (now at a discount to MA vs. 2-3x
premium last year) – and also offers an attractive entry point to >20s earnings
compounder
 We acknowledge that valuation on a ‘clean’ like-for-like basis is >40x NTM earnings. But
we believe that in the near/medium term, PayPal will continue to be valued on non-GAAP
earnings.
 Our TP of $130 expects multiple stabilization.
NTM P/E Multiples NTM P/FCF Multiples

>40x
31.1x
31.5x 33.2x
29.2x 24.7x 25.0x
Non-GAAP
PayPal Clean Visa Mastercard
PayPal Visa Mastercard
Note that PayPal spends ~$1.1bln on stock-based compensation which is not included in FCF – therefore not an apples
to apples comparison to V and MA

Note: Clean financials include stock-based compensation expense and exclude non-recurring items U.S. PAYMENTS | 23
Controversy #10: Sensitivity in a downturn

 PayPal enjoys secular tailwinds of offline-to-online conversion which, along with cash generation
(potential accelerated buybacks), provides cushion against a weaker macro (e.g., secular ecomm
growth ~10-15ppt – in addition to 5ppt macro growth currently)
 That said, we expect PayPal's earnings to be somewhat less resilient (vs. V/MA) in a downturn (and
decelerate 10-15ppt) due to exposure to the more-discretionary ecommerce, and some gross-margins
pressures (leaving earnings more exposed if revenue decelerates)
 For e.g., in 2008-09, PayPal merchant services (i.e. ex-eBay volume) decelerated from ~50% to 34%,
take rates declines accelerated (due to weakness in highly lucrative cross-border business)
 FX is a big wildcard – not just for translation but for cross-border growth (highest margin business)
Merchant Services TPV YoY Net Transaction Payments Revenue PayPal Sensitivity in a Downturn
Growth YoY Growth 24%
25%
70% 60%
59% 59%
60% 47% 20%
50%
48% 49%
50% 40% +1-2%
42% 40% 15%
(7-8%)
40% 34% 36% 31% +2-3% ~11%
26% 28% (3-4%)
30% 23% 10%
~flat
30%
(5-7%)
20% 14% 5%
20%
10% 10%
0%
TPV
Expenses
Buybacks
trans.
Take rate
Downturn
OVAS
Volume
Opex
Non-
0% 0%
effected
Trans.
EPS
2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011
Note: merchant services and net transaction payments represents PayPal as part of eBay
Source: eBay, Company reports, Bernstein estimates and analysis U.S. PAYMENTS | 24
APPENDIX - FINANCIAL FORECASTS
EXHIBIT 35: Income Statement

Income Statement 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
TPV ($, bln) - recast 235 282 360 456 578 715 870 1,061 1,255 1,462
% YoY growth 26% 20% 28% 27% 27% 24% 22% 22% 18% 16%
Net revenues 8,012 9,237 10,842 13,094 15,451 17,731 20,989 24,395 28,136 31,994
% YoY Net revenue growth 19.1% 15.3% 17.4% 20.8% 18.0% 14.8% 18.4% 16.2% 15.3% 13.7%
% YoY Constant Currency growth 0.0% 21.0% 21.0% 18.2% 15.3% 20.3% 16.3% 15.3% 13.7%
Transaction revenues 7,094 8,117 9,490 11,402 13,709 16,020 18,783 21,662 24,925 28,301
% YoY growth 18.4% 14.4% 16.9% 20.1% 20.2% 16.9% 17.2% 15.3% 15.1% 13.5%
Other value added services 918 1,120 1,352 1,692 1,742 1,711 2,206 2,733 3,211 3,693
% YoY growth 24.9% 22.0% 20.7% 25.1% 3.0% -1.8% 28.9% 23.9% 17.5% 15.0%
Transaction based expenses

Transaction expense (2,170) (2,610) (3,346) (4,419) (5,581) (6,801) (8,175) (9,963) (11,731) (13,590)
Transaction and loan losses (689) (831) (1,088) (1,011) (1,274) (1,384) (1,688) (2,027) (2,322) (2,675)
Total Transaction Based Expenses (2,859) (3,441) (4,434) (5,430) (6,855) (8,185) (9,863) (11,990) (14,052) (16,264)
% YoY growth 22% 20% 29% 22% 26% 19% 20% 22% 17% 16%
GAAP Gross profit 5,153 5,796 6,408 7,664 8,596 9,547 11,127 12,405 14,084 15,729
% margin 64.3% 62.7% 59.1% 58.5% 55.6% 53.8% 53.0% 50.9% 50.1% 49.2%
Gross profit (excl. one-time items 5,153 5,796 6,408 7,342 8,596 9,547 11,127 12,405 14,084 15,729
% margin 64.3% 62.7% 59.1% 56.1% 55.6% 53.8% 53.0% 50.9% 50.1% 49.2%
Non-GAAP Gross profit 5,153 5,796 6,408 7,342 8,596 9,547 11,127 12,405 14,084 15,729
% margin 64.3% 62.7% 59.1% 56.1% 55.6% 53.8% 53.0% 50.9% 50.1% 49.2%
Non-transaction Based Operating expenses

Customer support and operations (1,004) (1,118) (1,158) (1,265) (1,407) (1,588) (1,776) (1,893) (2,040) (2,168)
Sales and marketing (894) (912) (966) (1,142) (1,314) (1,438) (1,616) (1,794) (1,942) (1,951)
Product development (747) (792) (1,547) (1,740) (1,831) (2,024) (2,214) (2,342) (2,645) (2,943)
General and administrative (739) (876) (1,151) (1,258) (1,541) (1,718) (2,058) (2,223) (2,579) (2,992)
Depreciation and amortization (532) (616) - - - - - - - -
Restructuring - (21) - (132) (309) (111) (42) (44) (46) (49)
GAAP Non-Transaction Based Expenses (3,916) (4,314) (4,822) (5,405) (6,093) (6,768) (7,664) (8,251) (9,205) (10,054)
Total Operating Expenses (6,775) (7,755) (9,256) (10,835) (12,948) (14,953) (17,526) (20,241) (23,258) (26,318)
GAAP Operating income/(loss) 1,237 1,461 1,586 2,127 2,194 2,668 3,421 4,110 4,832 5,627
% Operating margin 15.4% 15.8% 14.6% 16.2% 14.2% 15.0% 16.3% 16.8% 17.2% 17.6%
Operating income/(loss) (without one time events) 1,238 1,511 1,719 1,994 2,429 3,036 3,725 4,429 5,168 5,980
Adjusted Operating margins 15.5% 16.4% 15.9% 15.2% 15.7% 17.1% 17.7% 18.2% 18.4% 18.7%
Non-GAAP Operating income 1,617 1,952 2,174 2,755 3,349 4,143 4,984 5,820 6,743 7,771
% Non-GAAP Operating margin 20.2% 21.1% 20.1% 21.0% 21.7% 23.4% 23.7% 23.9% 24.0% 24.3%
Other income (expense), net (7) 27 45 73 182 229 (43) (78) (127) (127)
GAAP Income before income taxes 1,230 1,488 1,631 2,200 2,376 2,865 3,250 3,904 4,578 5,373
Income tax expense 839 257 230 405 319 282 560 671 786 922
GAAP effective income tax rate 68.2% 17.3% 14.1% 18.4% 13.4% 9.8% 17.2% 17.2% 17.2% 17.2%
GAAP Net income 391 1,231 1,401 1,795 2,057 2,583 2,691 3,233 3,792 4,451
Net income w/o non-recurring items 1,005 1,240 1,474 1,694 2,153 2,721 3,056 3,611 4,184 4,858
Non-GAAP Net income 1,315 1,568 1,825 2,318 2,913 3,650 4,123 4,787 5,513 6,366
% margin 18.5% 19.3% 19.2% 20.3% 21.2% 22.8% 21.9% 22.1% 22.1% 22.5%
GAAP Diluted EPS 0.32 1.00 1.15 1.47 1.71 2.17 2.32 2.84 3.42 4.12
% YoY growth -59% 214% 15% 28% 16% 27% 7% 23% 20% 21%
Non-GAAP Diluted EPS 1.07 1.28 1.50 1.90 2.42 3.07 3.55 4.21 4.97 5.89
% YoY growth 11% 19% 17% 27% 27% 27% 16% 19% 18% 19%
Source: Company reports, Bernstein analysis and estimates
EXHIBIT 36: Balance Sheet

Balance sheet 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Current assets:
Cash and cash equivalents 2,201 1,393 1,590 2,883 7,575 7,541 8,239 8,543 7,557 7,328
Short-term investments 29 2,018 3,385 2,812 1,534 3,585 3,585 3,585 3,585 3,585
Accounts receivable, net 65 137 214 283 313 345 394 450 518 585
Loans and interest receivable, net of allowances 3,586 4,184 5,348 1,314 2,532 3,651 4,381 5,038 5,794 6,663
Funds receivable and customer accounts 10,612 12,261 14,363 18,242 20,062 22,736 23,873 25,067 26,320 27,636
Notes and receivables from eBay 694 - - - - - - - - -
Prepaid expenses and other current assets 378 655 833 713 947 1,075 1,075 1,075 1,075 1,075
Total current assets 17,565 20,648 25,733 32,645 32,963 38,934 41,547 43,758 44,849 46,872
Non-Current Assets
Long-term investments 31 2,348 1,539 1,961 971 2,771 2,771 2,771 2,771 2,771
Property and equipment, net 922 1,344 1,482 1,528 1,724 3,088 5,842 8,648 11,494 14,352
Goodwill 3,189 4,069 4,059 4,339 6,284 6,328 6,628 6,928 7,228 7,528
Intangible assets, net 156 358 211 168 825 629 629 629 629 629
Other assets 54 114 79 133 565 1,196 1,196 1,196 1,196 1,196
Total non-current assets 4,352 8,233 7,370 8,129 10,369 14,012 17,066 20,172 23,318 26,476
Total Assets 21,917 28,881 33,103 40,774 43,332 52,945 58,613 63,930 68,167 73,348
Current liabilities:
Accounts payable 115 145 192 257 281 196 173 149 149 146
Funds payable and amounts due to customers 10,612 12,261 15,163 19,742 21,562 24,611 31,340 36,310 40,258 44,635
Notes and payables to eBay 1,093 - - - - - - - - -
Accrued expenses and other current liabilities 1,434 1,179 1,459 1,781 1,998 2,116 2,358 2,573 2,811 3,006
Income taxes payable 29 32 64 83 61 29 35 40 47 54
Total current liabilities 13,283 13,617 16,878 22,863 25,904 26,952 33,905 39,072 43,264 47,841
Non-current liabilities:
Deferred tax liability and other long-term liabilities 386 1,505 1,513 1,917 2,042 2,463 2,631 2,832 3,068 3,345
Total non-current liabilities 386 1,505 1,513 1,917 2,042 7,427 7,595 7,796 8,032 8,309
Total liabilities 13,669 15,122 18,391 24,780 27,946 34,379 41,500 46,869 51,296 56,150
Equity:
Additional paid-in capital - 13,100 13,579 14,314 14,939 15,566 16,825 18,216 19,792 21,583
Retained earnings - 668 2,069 3,823 5,880 11,118 12,406 15,764 19,757 24,493
Accumulated other comprehensive (loss) income 110 (9) 59 (142) 78 (52) (52) (52) (52) (52)
Treasury stock - - (995) (2,001) (5,511) (8,066) (12,066) (16,866) (22,626) (28,826)
Total equity 8,248 13,759 14,712 15,994 15,386 18,567 17,114 17,062 16,871 17,198
Total liabilities and equity 21,917 28,881 33,103 40,774 43,332 52,945 58,613 63,930 68,167 73,348
ROA 1.78% 4.26% 4.23% 4.40% 4.75% 4.88% 4.59% 5.06% 5.56% 6.07%
ROE 4.74% 8.95% 9.52% 11.22% 13.37% 13.91% 15.72% 18.95% 22.47% 25.88%
ROIC 6.14% 12.95% 14.43% 17.50% 27.99% 21.35% 26.61% 32.46% 34.50% 37.65%
EXHIBIT 37: Cash Flow Statement

Cash Flow Statement 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E
Net income (loss) 419 1,255 1,401 1,795 2,057 2,583 2,691 3,233 3,792 4,451
Adustments: - - - - - - - - - -
Transaction and loan losses 646 809 1,088 1,011 1,274 1,384 1,688 2,027 2,322 2,675
Depreciation and amortization 516 608 724 805 776 924 1,045 1,197 1,385 1,613
Stock-based compensation 299 346 438 733 853 1,036 1,259 1,391 1,576 1,792
Deferred income taxes 680 127 52 (1,299) (171) (122) - - - -
Accounts receivable (13) (22) (77) 12 (59) (31) (49) (56) (68) (67)
Accounts payable 42 12 11 62 26 (48) (23) (24) (0) (3)
Payable to eBay (2) (217) - - - - - - - -
Net cash provided by (used in) operating activities 2,220 2,573 3,158 2,531 5,483 4,484 5,687 6,586 7,666 8,851
Cash flows from investing activities

Purchase of property and equipment (492) (722) (669) (667) (823) (806) (1,099) (1,303) (1,531) (1,771)
Proceeds from sales of property and equipment - 26 - - - 17 - - - -
Changes in principal loans receivable and goodwill, net (1,023) (819) (1,523) (920) 3,121 (1,435) (1,030) (957) (1,056) (1,169)
Purchases of investments (76) (7,542) (21,041) (19,418) (22,381) (19,808) - - - -
Maturities and sales of investments 409 3,318 18,429 18,450 21,898 17,390 - - - -
Acquisitions, net of cash acquired (2) (1,225) (19) (323) (2,124) (3,000) (3,000) (3,000) (3,000) (3,000)
Notes and receivable from eBay (362) 575 - - - - - - - -
Net cash used in investing activities (1,546) (6,389) (4,999) (5,358) 837 (9,159) (6,266) (6,453) (6,840) (7,256)
Cash flows from financing activities

Issuance of common stock - 75 109 144 144 78 - - - -
Excess tax benefits from stock-based compensation 41 26 40 - - - - - - -
Contribution from (to) eBay (71) 3,858 - - - - - - - -
Tax withholdings related to net share settlements of
restricted stock units and restricted stock awards - (18) (118) (166) (419) (473) - - - -
Repayments borrowings under financing arrangements (21) (862) (21) 820 960 2,962 - - - -
Funds receivable and customer accounts (1,335) (1,649) - - - - - - - -
Funds payable and amounts due to customers 1,335 1,649 3,023 4,292 1,573 2,976 6,728 4,971 3,948 4,377
Share buy backs - - (995) (1,006) (3,520) (2,606) (4,000) (4,800) (5,760) (6,200)
Net cash provided by (used in) financing activities (51) 3,079 2,038 4,084 (1,262) 2,937 2,728 171 (1,812) (1,823)
Effect of exchange rate changes on cash and cash equivalents (26) (44) - 36 (113) - - - - -
Net increase (decrease) in cash and cash equivalents 597 (781) 197 1,293 4,945 (1,737) 2,149 304 (986) (229)
Cash and cash equivalents at beginning of period 1,604 2,201 1,420 1,590 2,883 7,828 6,090 8,239 8,543 7,557
Cash and cash equivalents at end of period 2,201 1,420 1,617 2,883 7,828 6,090 8,239 8,543 7,557 7,328
FCF (As defined by the company) 1,728 1,851 2,489 1,864 4,660 3,678 4,588 5,284 6,136 7,079
DISCLOSURE APPENDIX
BERNSTEIN TICKER TABLE

6 Jan 2020 TTM EPS Adjusted P/E Adjusted
Closing Target Rel.
Ticker Rating Price Price Perf. 2018A 2019E 2020E 2018A 2019E 2020E
PYPL O USD 110.17 130.00 (0.6)% USD 2.42 3.07 3.55 45.50 35.92 31.02
OLD M 115.00
SPX 3,246.28 158.48 160.28 174.77 20.48 20.25 18.58
RATING CHANGE / TARGET PRICE CHANGE IN BOLD O - Outperform, M - Market-Perform, U - Underperform, N – Not Rated
VALUATION METHODOLOGY
PayPal Holdings Inc
We value PayPal using a discounted cash flow approach. Our DCF model is based on annual cash flow forecasts over 10
periods, combined with a continuing value component intended to capture the firm's value into perpetuity. We use the WACC
method for calculating annual discount rates. Our assumptions assume a risk free rate equal to the current 10 Year Treasury
Yield, an implied market risk premium and a tax rate in line with company guidance. Our explicit period assumptions are based
on annual projections for Net Income, Depreciation, Working Capital and Capital Expenditure. We take the sum of all future FCF
and terminal values discounted to today and add back excess cash while removing total debt to arrive at total Equity value. We
use total Equity Value divided by total number of shares outstanding to arrive at our target price.
RISKS
PayPal Holdings Inc
Downside risks to our price target include:
 Macro – sensitivity for both revenue and multiple
 FX and resulting impact on cross-border volumes
 Steeper than expected deceleration of the core volumes due to competition, market maturity
 Execution hiccups in partnership implementation,
 eBay roll-off occurring faster vs. expectations
 Greater pricing pressures
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 Accounts over which Bernstein and/or their affiliates exercise investment discretion own more than 1% of the outstanding common stock of the
following companies PYPL / PayPal Holdings Inc.
12-Month Bernstein Rating History as of 01/06/2020

Ticker Rating Changes
PYPL M (IC) 03/27/18
Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change
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7 January 2020

Harshita Rawat, CFA

PYPL 130.00 USD (115.00 OLD)

PayPal: Upgrading to OP on likelihood of positive revisions, reset

EV/EBITDA (x) 38.81 31.41 26.08

Links to our recent relevant research:

1. Stock context ......................................................................................................................................................................................................... 2

2. Our Outperform Thesis......................................................................................................................................................................................... 3

3. Key exhibits ............................................................................................................................................................................................................ 7

4. Company context – a view by business line .................................................................................................................................................. 14

5. Our perspectives on key controversies .......................................................................................................................................................... 16

Appendix - Financial Forecasts ............................................................................................................................................................................ 29

2. OUR OUTPERFORM THESIS

2.1. Likelihood of 2020 positive revisions from..

2.2. More manageable eBay roll-off

2.4. Optionality for growth acceleration

2.6. What we are watching for and risks to our forecasts

 eBay roll-off occurring faster vs. expectations

PayPal, V, MA, and S&P 500 Yearly Price Performance, 2016-2019

Source: Bloomberg, Bernstein analysis

2016 2017 2018 2019 1/6/2020

PYPL MA V FIS FISV GPN S&P 500

Source: Bloomberg, Bernstein analysis

PayPal Growth 2020E Non-GAAP EPS Growth

(2%) (2%) (1.5%)

Source: Bernstein analysis and estimates.

EXHIBIT 4: We are 1.5ppt ahead of consensus on 2020 revenue

PayPal 2020E Revenue Growth

Source: Bernstein analysis and estimates.

EXHIBIT 5: We are 2% above consensus EPS in 2020

Source: Bernstein analysis and estimates, Bloomberg

PayPal TPV ($T) Org. CC CAGRS

eBay +1% -12%

Source: Bernstein estimates and analysis

Which of these online or mobile payment wallets have

2017 2018 2019

Source: Bernstein PayPal survey

2019 PayPal Gross Margins by Segment

Venmo and Other P2P

Total PayPal gross

eBay Contribution as % of PayPal Total

2017 2018 2019E 2020E 2021E 2022E 2023E

Source: Company filings and Bernstein estimates

Venmo Volumes ($B) Venmo Revenues ($M) ~$1400-

NTM P/E Multiples

Source: Bloomberg, Bernstein estimates and analysis

Valuation vs. Growth Rate

Source: Bloomberg, Bernstein estimates and analysis

4. COMPANY CONTEXT – A VIEW BY BUSINESS LINE

Total Transaction Rev

Venmo and Other P2P

U.S. Core Button

U.S. Core Button

5. OUR PERSPECTIVES ON KEY CONTROVERSIES

Controversy #1: Can the mid-20s TPV growth sustain?

Global E-commerce Market 5Yr CAGR 2018 US Purchase PCE Split by

EXHIBIT 24: Controversy 1 (cont'd)

Controversy #1: Outlook for TPV (cont’d)

PayPal (excl. Braintree) market share within E-commerce

Source: Corporate reports, Bernstein analysis and estimates

EXHIBIT 25: Controversy 1 (cont'd)

Controversy #1: Outlook for TPV – Our View

PayPal TPV ($T) Org. CC CAGRS