Alex Chriss, Paypal CEO, interview

1. Why did Alex joined PayPay and what surprised him?

Alex joined because of the opportunity to serve Small Businesses and Consumers and the largest possible scale given Paypal's scale. In Alex's opinion, the best opportunity PYPL 0.00%↑ has is to create a functioning flywheel leveraging the existing network.

This ties well with what surprised Alex. Alex joined 1.5 years ago and essentially recruited a new, external management team. What surprised him the most when entering was that Paypal was working in silos. Why?

First, the acquisitions were not fully integrated into a single ecosystem / tech stack. For example, instead of consuming a single API to get access to all of the features and functionalities PYPL 0.00%↑ has, the merchant had to develop multiple integrations consuming individual APIs for the different products.

• Right now, this already changed and the merchant only needs to do a single integration. This was the focus of the last year.

Second, go-to-market strategy was also based on the silos. This means that before, PYPL 0.00%↑ had individual teams that were selling their product to the exact same merchant to which another team from PYPL 0.00%↑ was also selling their product. This sounds crazy, I am glad Alex is transparent about this! Needless to say, this is really inefficient. Not only you got duplicate sales teams, you also limit bundling of different products for customers.

• Right now, go-to-market is focused in the complete PYPL 0.00%↑ value proposition and the merchant has a single point of contact.

Instead of having the silo-approach, the current focus right now is to have a unique value proposition for consumers so that they choose Paypal in checkout, not only online but also in-store, which helps merchants improving coversions and their business overall.

2. Fastlane adoption.

In Alex opinion, Fastlane is a game-changer feature.

So, what is Fastlane specifically? Fastlane is a checkout feature that is based on the Paypal's consumers profiles. To set up checkout, a consumer (a) enters email, (b) receives a confirmation code, and (c) is ready to place the order. This is especially strong for guest checkout experience, in which the consumer does not need to enter all of the payment method details and is fast tracked in checkout.

There are 2 positive effects that Fastlane generates:

• Conversion improvement for merchants.

• Second, new consumer PYPL 0.00%↑ adoption through Fastlane. This is the flywheel effect Alex refers to with Paypal positioning as the largest data store of profile and consumer data in the world.

Right now, Fastlane still needs to be rolled out to all Paypal's merchants, since initially Paypal targeted the largest TPV merchants. Also, interestingly, the roll out "reduced friction on monetization", which means PYPL 0.00%↑ has not monetized the feature yet. The main reason for this is that Alex wants to move really fast since he believes that Guest Checkout will be a Winner Takes All Market. Different from branded checkout where it makes sense to have mutiple choices, he believes that in guest checkout it does not make sense to have multiple diffrent choices. Given that Paypal has the largest set of profiles, consumer ecosystem, and breadth of merchants, PYPL 0.00%↑ is moving the fastest they can to implement Fastlane. Alex believes it will take an additional 1-2 years to get the penetration they need to be the leader and then, with that dominance position, PYPL 0.00%↑ will tap more into how pricing looks like for this feature (and fully monetize it). Also, with PYPL 0.00%↑ leading the guest checkout space, the ability to create a new value proposition (e.g. loyalty and rewards) will be stronger.

This reflects Paypal's movement from solving payments checkout to the full commerce experience.

3. Advertising

This ties again on how PYPL 0.00%↑ can leverage its strong commerce ecosystem.

When talking with merchants, the main challenge they have is getting (a) both more and right customers, and (b) get them to convert and engage. Given PYPL 0.00%↑ user information achieved through both Paypal and Venmo, PYPL 0.00%↑ has the target demographic that the merchants are looking for.

Additionally, Alex then emphasizes on how PYPL 0.00%↑ is aligned with merchants. While the merchant will pay for the ad dollar spend, Paypal will monetize when the user checkout and spend with the merchant, generating a win-win situation (and also "no-lose" situation for Paypal!).

While advertising right now is mostly done in Paypal's ecosystem, in the future, we should expect that the ads will expand outside of Paypal's app, leveraging PYPL 0.00%↑ shopper profiles. Once again, this is the difference between solving payments vs. solving end-to-end commerce.

4. Crypto and Stablecoin

Through Paypal's Xoom, crypto and stablecoins will be integrated to cross-borders transactions which are very expensive, allowing to settle transactions in a fast, secure, and less expensive way.

Also on B2B, Alex mentions that the majority of the transactions are still being done through checks which take 45-90 days to clear, given the fees involved with credit cards or friction with other payment methods. This allows stablecoins/crypto to have an opportunity to move these dollars.

End of the day, it is all about reducing costs and putting money back in the pockets of consumers and merchants. While it does not seem that this is an immediate growth lever for Paypal, it is still good to hear that is being considered and is part of the roadmap.

5. Transaction Margin Growth

While PYPL 0.00%↑ has been able to consistently grow revenues, when Alex assumed his role Transaction Margin was declining 3-5%, meaning that growth was not healthy/profitable. Alex refers to this revenue growth as "empty calories". However, in 2024 there was an inflection point on the Transaction Margin, growing +5% YoY and hence adding 8-10% YoY growth. I think Alex is right on taking credit for this! This turnaround is a reflection of great execution and I believe Transaction Margin growth is the right success metric. Based on the Investor Day, the target for 2027 is high single digit growth and in the long term 10%+. While not available on the slide, it is also good to remember OPEX is expcted to grow at less than half the rate of Transaction Margin growth, signaling strong operating leverage.

6. Alex style

I appreciate Alex style. A couple of quotes from the end of the interview:

"When we say something, we got line of sight to it and we're going to go execute against it".

"The best thing we can do is deliver for customers, execute out plan, provide as much transparency as possible, and high a very high say-do ratio".

"If you're looking for everything to turn around in two months this probably isn't the right stock for you. This is a business that we are building a flywheel to become the leader in commerce the next decade and beyond, and that may take a few quarters or a couple of years".

"I won't apologize from having price to value conversations. We are now having healthy relationships with merchants that are building the foundation of growth for the future. We've been as transparent as we can in saying our revenues are absolutely slowing for a couple of quarters and then it will inflect and grow back. I would rather have the hard decisions and build the company for the long term, than grab a couple more quarters of increasing 'empty calories revenues' that is not delivering anything for the company for the long term but it looks really good".

(edited for simplicity)

Final Comments

As an investor, I prefer a management team that is a result of internal promotion rather than external hires. The main reasons are that (a) they will usually have more skin in the game (think Jassy in AMZN 0.00%↑) and (b) is a symptom of a healthy culture.

As a reminder, PayPal’s senior leadership was completely changed starting with Alex Chriss' appointment in September, 2023, formerly at Intuit, where he spent 19 years of his career. One thing I did not love was the compensation package. For example, Alex Chriss had a $42M compensation package, of which (a) $10M of restricted stock that vests within the first 2 years, (b) $33.8M of restricted stock vesting in 3 years and (c) $1.25M of annual base salary, plus up to 200% bonus. I am aware that part of the package is due to what Alex forgone from Intuit, but considering 4 years is the standard vesting period, I don't like 2-3 years vesting periods. Other members of the management got sign-on cash bonuses.

That made me hesitant on making PYPL 0.00%↑ a long term holding. I bought at $57 in July, 2024 and sold at $73 just 2 months later for a quick profit. The stock kept rising (reached $90 in January 2025), but has declined again to $60-61. However, we've seen already 1.5 years from Alex leadership and I believe that (a) we are again at a very attractive valuation and (b) we have now seen this management is capable of delivering healthy, organic growth. Very insightful interview!

On valaution, tl;dr PYPL 0.00%↑ seems pretty attractive with 5-10% Transaction Margin growth scenario offering 15-20% growth long term, ignoring potential multiple expansion from current 15 P/E.