PayPal CEO: AI will lower costs for 'years to come'

David Paul Morris/Bloomberg

PayPal's recovery from 2022's slump will rely on spotting opportunities to use innovation in machine learning to expand the company's share of merchant relationships. 

"With new advanced generative AI, we can accelerate our productivity initiatives," said Dan Schulman, president and CEO of PayPal, during Thursday evening's earnings call. "We expect AI will allow us to lower costs for years to come." 

For the quarter ending March 31, PayPal reported revenue of $7.04 billion, up from $6.48 billion the prior year. Earnings per share were $1.17, up from $0.88 per share the prior year. That beat analysts' estimates of $6.98 billion and $1.10. PayPal projected full year earnings of $4.95 per share, up from the company's earlier 2023 estimate of $4.87.

Schulman stressed the utility of generative artificial intelligence as a way to speed product development, improve efficiency and reduce overhead. Boston Consulting Group defines generative AI as a set of algorithms that can generate new content, such as text, images or audio. ChatGPT, for example, is considered generative AI.

PayPal's competitors, including Block and Stripe, are both developing use cases for ChatGPT and generative AI, such as customer service and blockchain-related products, in the case of Block. At PayPal, generative AI will aid in data management, among other tasks. PayPal has more than 433 million users, and the company plans to use transaction and other information that these users produce to inform improvements in services.  

"AI, combined with a unique set of data, will drive efficiencies and a set of value propositions," Schulman said. "Despite the fact that today's environment is difficult to forecast, we are positioned to reap the investments in our products into 2024." 

AI will also contribute to PayPal's strategy to compete in payment processing, or acting as a payment facilitator for merchants, which Shulman called an "orchestration layer." Payment facilitators enable merchants or other clients to route transactions through a variety of mobile wallets and other payment options. 

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PayPal is developing its payment processing strategy through its Braintree subsidiary and a product called PayPal Complete Payments, a small-business service that supports PayPal, Venmo, and PayPay's buy now/pay later lending service. Additional products include non-payment related services such as risk management and foreign exchange, a key product as PayPal plots an international expansion for Complete Payments. 

"These services will provide a stream of data that will fuel AI and help develop next-generation payment products," Schulman said. In a research note, JPMorgan Chase said unbranded growth is "strong" with a 30% increase in total payment volume, though lower margins could challenge growth going forward. 

Like other payment-focused fintechs, PayPal is attempting to recover growth this year after slower results in 2022 following a record breaking performance during the pandemic. Late last year PayPal promised a "transformation."  

PayPal cut about 2,000 jobs and retooled its product development strategy. PayPal's stock fell 62% in 2022, and has risen about 5% in 2023. PayPal's stock price reached a record high of $310.16 per share in August 2021, and the company is currently trading at about $74 per share, up from a low of $66 per share earlier this year. 

"This work is beginning to reflect in our results," Schulman said. 

In a research note, Jeffries analyst called PayPal's results "mixed," noting PayPal is projecting higher revenue, but the firm lowered PayPal's margin outlook to 100 basis points from 125 bps. 

"Even with this strong start, there are many challenges," Schulman said. "The macroeconomic and geopolitical environment are complex." 

Schulman, who plans to retire at the end of 2023, said PayPal has formed a committee and has consulted with a search firm, and expects to name his successor before the end of the year.