PayPal：数字资金市场 - [Business Breakdowns，第113期]

Thank you for joining us. I'm really excited about this one. We're talking about PayPal, and I think everyone will be familiar with the business in some capacity.

I thought a useful starting place would be the company's history. There are various parts to this: you've got the PayPal Mafia, eBay, plenty of M&A, and activist shareholders. There have been a number of interesting twists that I think will help us set the scene for the rest of the discussion. Could you give us a quick run-through of the important milestones as you see them, so we can make some sense of PayPal?

Thanks for having me. I'm excited to be here. One of the interesting things is that PayPal wasn't founded as PayPal. It was 2 separate companies: Peter Thiel and his crew founded Confinity, and Elon Musk founded X.com. Their founding dates were about a year apart, and then they were merged, spearheaded by the venture capitalists behind the companies, in 2000.

Even then, they still weren't called PayPal, and they didn't really have an exact vision of what their product would be. The 2 teams were working on somewhat similar, overlapping, but different angles. Elon Musk and his crew wanted to build a kind of supermarket of banks in the digital space. That's when Citibank was being built publicly as the supermarket of banks, and that was all the rage. Obviously, the internet was a new platform to do this, so Musk wanted to attack things from that angle.

Peter Thiel and his crew had this vision for the digitization of money. They had this idea—one little experiment turned into sending money to your friends through the PalmPilot. Who remembers those things? The PalmPilot was like the iPhone before there was an iPhone, before the BlackBerry, anything like that. It turned out that this little way to send money to your friends was actually somewhat valuable.

After the merger, I think it's important to point out that Elon Musk was actually leading the company, not Peter Thiel. They found this early use case with eBay, incidentally, and it was somewhat by accident. It wasn't really a deliberate effort to say, "Hey, we see this online marketplace, we see a problem, and we have the solution." Some users started using it for those purposes, and they were able to solve one of the biggest bottlenecks for marketplace adoption, which was trust in payments.

How do I know that when I buy something off eBay—and back then maybe I was buying a used record and I wanted to pay who knows who, some random name out in the middle of nowhere—do I really want to send them a check and hope that a record shows up at my door? I wanted something that had built-in trust, and PayPal was able to solve that problem.

eBay didn't necessarily want PayPal to be that solution. eBay actually tried to build its own offering, and they had Wells Fargo as their partner to do so. There were several different times along the way that they tried to disintermediate PayPal from the flow that people were using it in. It was not built into the platform.

Interestingly, Elon Musk didn't even want to use PayPal as the core product. He actually didn't like the product. He thought it was ancillary to his broader vision and a little small of a solution. The Thiel team really liked PayPal. They had developed it at Confinity, and they were pushing it forward.

There was then this boardroom coup where Thiel and his crew arranged for Sequoia, the venture capital backers, to kick Musk out as CEO and reinstall Peter Thiel as the leader of the combined company. That was a critical moment where they finally coalesced around, "Hey, we have this great product, we found a killer app, we found a use case—let's go all in on making that happen."

There were other problems along the way. You mentioned the PayPal Mafia and some of the names involved in that—obviously Elon Musk, Max Levchin, and Roelof Botha, now the head of Sequoia and one of PayPal's early backers. There's Reid Hoffman, who founded LinkedIn.

Levchin was a critical player in this because, in the Wild West of the internet, when it was just getting started, even with PayPal, they had a problem with trust. They had a problem understanding what were fraudulent activities and who was using it with the right intentions. Levchin started building these really robust fraud-detection algorithms and trying to understand what was a legitimate transaction or transfer and what was not.

One other critical point I should make, which is, I guess, 2 points in 1, about the early days of PayPal is this idea that you could send money to your friends digitally. That was a critical piece in building network effects. The more people you had on it, the more valuable it was to have PayPal and be able to send money to your friends.

PayPal was one of the more innovative companies in thinking about growth hacks. They literally would give away money to people to sign on to PayPal and bring their friends in. They gave you $20 to create an account, and every friend you brought in, they gave you $20. I remember I was in college at the time. People were making a couple thousand dollars just by getting all their peer group to sign up. It was pretty wild.

Musk pegged the total amount spent somewhere between $60 million and $70 million purely on customer acquisition.

You go back thinking about 2020 and 2021, and people are talking about crazy spending in some of these tech companies seeking growth without products, without revenue. Well, $60 million to $70 million is pretty wild. But they did something very serious and very real. This was the height of the dot-com boom. Was it just before that all ended?

It was in the ending stages of it and the early stages of the bust. PayPal actually took the name PayPal in 2001, and then they IPO'd in 2002. Most of that $60 million to $70 million was spent in 2000 and 2001, but that's still, I think, in most people's assessment of when the dot-com bubble happened, after the peak, not the lead-up to the frenzy.

It didn't last long as a public company, did it? eBay came in and ended up taking the business over. Maybe if you can take us into that period. It spent, I guess, half of its life as a subsidiary of eBay, so talk about how that came to be and how its time within eBay has shaped the business that we know today.

I mentioned that when eBay first saw a lot of PayPal activity, they tried to make their own solution and disintermediate PayPal. PayPal's efforts kept competition at bay, no matter which angle it came from, and that showed that there was something really interesting and unique to the product.

Like you said, they IPO'd in February of 2002, and by the summer of 2002—it was, I think, July—eBay offered to acquire the company for $1.5 billion. So they lasted as a public company for a pretty short period of time. I'd imagine there was a bit of gamesmanship, where eBay had some leverage: they could keep saying, "Hey, sell to us, or we'll keep throwing everything at you."

This was again the aftermath of the dot-com era. It was dot-bomb, basically. Who knew, from PayPal's perspective, what things would look like? I think there was some degree to which the founders didn't necessarily want to sell, but they saw the writing on the wall and an opportunity. It was pretty good money, so they took it.

Under eBay, I think one of the really important formative points for where things are today is that the imperative of eBay was to drive marketplace transactions. It was not to build the world's best payment app. It was not to build a digital wallet. Everything was geared toward, "How do we drive marketplace volume? How do we drive conversion? How do we make this better for our merchants?" That's a very different essence from what PayPal today is geared for.

In a lot of ways, I've said PayPal existed upside down within eBay, and it made sense because, so long as eBay owned PayPal—especially in the earlier years—PayPal was much smaller than eBay itself in terms of its revenue pool. The opportunity was theoretically about creating a really big marketplace, verticalizing, and owning the payments piece to drive more margin.

The consequence of having trust centralized in whoever owns the marketplace was that, from eBay's perspective, instead of giving users a PayPal choice as to which funding instrument they should use for a transaction, they preferred ACH, because ACH gave much better economics to eBay's transactions.

eBay was this hyper-optimized financial organization, which was very helpful for them coming through the dot-com era. I'd say they came through relatively unscathed. In 2003, they were already making new highs when everything else was still making lows.

That was, I think, a big problem. They also built up a lot of tech debt because they weren't building what were necessarily the best features of a payment service. Their imperative was, "Let's build the best features of a marketplace."

But they did a couple of things pretty right during that time. The marketplace actually brought in a lot of users, so PayPal crossed 100 million users while it was part of eBay. Then they made this acquisition in, I think, 2012 or 2013.

It was $800 million that they paid for Braintree. What was important was that, at the time, everything that eBay and PayPal had built was geared toward desktop, but Braintree brought in a mobile piece. They also brought in a great leader in Bill Ready, who ended up becoming a critical figure in the early days of PayPal once it was split off.

Ten years of tech debt, 10 years of building for a specific purpose without its own corporate imperative—it was a pretty tough place to be. PayPal was growing faster than eBay. eBay's growth hit a stalling point, but PayPal's growth had not stalled, despite the fact that they didn't have this proper gearing.

In 2014, Carl Icahn took a stake in the business, and we know Icahn's history. He started agitating for them to be split into 2 companies: PayPal on its own and eBay on its own. He got his way, and then PayPal came public again.

Yeah, it was a fascinating summary, and the cast of characters in PayPal's history is also very interesting. Bring us up to date now in terms of the size and scope of the business. We're sitting here in mid-2023. How big is it in terms of revenue, user base, and any other metrics that can set the scene?

There are now 435 million users at PayPal. That's divided between 400 million actual end consumers and 35 million merchants. Recently, they started giving the number of people who use the app per month: 190 million monthly active users, which I think is a pretty nice number.

One of the important metrics is engagement. At the time of the spin, the average user transacted with PayPal 21 times a year, so that's less than every other week. Now they're closing in on once every week: 51.4 transactions per active account as of the end of last year.

Braintree is a pretty big piece of the business now, too. They do $1.4 trillion in total payment volume today, versus $288 billion at the time of the split from eBay. About 30% of that is Braintree today, or $400 billion. That was next to nothing at the time of the split.

In aggregate, PayPal did almost $28 billion of revenue last year and $5 billion of free cash flow. That's versus $9 billion of revenue and $1.8 billion in free cash flow at the time of the split.

One of the other interesting things to think about is how many of the large merchants accept PayPal. Eighty-three percent of the largest 475 digital merchants accept PayPal, according to Morgan Stanley's tracker. The next most has 48%, and that's Apple Pay. Branded checkout is the most important piece of PayPal. It's one-third of the transaction volume, so about $400 billion is done through what we call the PayPal button.

At the time of the split, eBay was 17% of transaction volume. It's down to 2%. It was 40% of profits at the time of the split; it's 2% now, if not less. They do a really large cross-border business, so $180 billion or so is cross-border transactions. Those have different economics and are more favorable to PayPal.

Then one of my favorite stats is the balances of customer transaction deposits that are stored on PayPal. That went from $12 billion at the time of the split to $40 billion today. That's how much people just leave in their wallet, or how much friction there is between a transaction being done and people paying themselves out. It's something that lends itself to becoming more of a digital bank and creates interesting potential for the business itself.

Then Venmo is a piece of PayPal. They have 90 million active accounts, and that's becoming something pretty big. One hundred million was a really big milestone for PayPal when it was part of eBay, not long before the split. To put that in context, Venmo is about that scale today. Those are some of my favorite numbers when we think about the business.

We've also looked at a number of different payment firms on Business Breakdowns. We've looked at Adyen, Block, Wise, and a few others, and we'll get to who PayPal competes with more directly a bit later. But can you explain where this business fits within the overall payments ecosystem and the value chain? It's a vast ecosystem, so pinpoint exactly where we're operating here.

PayPal is really interesting because they're what I call a chameleon of sorts. No matter which angle you look at, if you name anyone in the payments business, PayPal does something that they do. Whether it be merchant acquiring, issuing credit cards themselves, providing credit for both merchants and users alike, buy now, pay later, remittance services, or cross-border payments, they do all of it. They're a bank in Luxembourg, so they even do the banking piece.

It's really hard to say what they are and where they fit. I think that's one of the biggest problems that people have with them. It's worth pointing out where they're most unique. PayPal's most unique feature is having a direct relationship with merchants and consumers globally, on both sides.

Theoretically, Visa and Mastercard have a relationship with merchants and consumers, but they're intermediated on both sides by the issuers and merchant acquirers. PayPal is both in some cases—not in many cases, but in the most valuable cases to them, they're both. It's a little like American Express in that sense, where they have both sides of their network, but they do a whole lot more than AmEx does.

I think American Express is the company that I've said is closest to what PayPal is. They're very different, and there are critical differences. One of the really interesting pieces about PayPal is neutrality. When you think about the platforms, they in some ways compete with Apple, compete with Google, and compete with Shopify, depending on who you're thinking about.

But PayPal is neutral. They have no one way in which they fit. If you're someone who has an iPhone but uses a Windows PC, you could use PayPal on both exactly the same. It's not exactly the same to use Apple Pay on both. That's the simplest way to describe it.

From an issuer perspective, a merchant-acquirer perspective, and a merchant's perspective, this neutrality is incredibly valuable. It's something that PayPal serves the ecosystem with, and it's been a critical piece of Dan Schulman's strategy in leading the business forward. Scale on both sides—merchant and consumer—alongside neutrality and being a chameleon are the most succinct ways to describe how PayPal fits in the ecosystem.

On the merchant side, do they serve all sizes of merchant, or do they really hone in on a particular category?

They serve everyone. It's upwards of 80% of the largest merchants on the internet, but they also have one of the most important roles in the long tail of smaller merchants who do digital transactions. They're heavily geared toward e-commerce in particular, so they do not have a very robust presence in brick-and-mortar. That's something that differentiates Apple Pay, for example.

It's a point I'd make on the competitive landscape. When people talk about PayPal losing transaction share to digital-wallet firms, they're not doing so when it comes to desktop transactions. They're not doing so when it comes to e-commerce purchased through a mobile phone. The pie is just growing so much bigger, with people now paying with Apple Pay or Google Pay at the point of sale in a physical presence. That's something that gets a little lost in the narrative.

It might be an interesting exercise if we try to bring our business model to life with an example. There aren't any typical transactions here, given that they do everything, but as typical as you can think of it, let's say, for round numbers, a $100 purchase of something like a pair of shoes. How does it work with PayPal, and what's happening in the business? What are the take rates, and where are they taking money from in that transaction?

Everything is different. Is that a cross-border transaction, or is it a purely domestic transaction? They do a lot of both. Is there branded checkout? Did they check out with the PayPal button, or did they simply check out with someone who accepts PayPal as a merchant or who uses Braintree? Large merchants are charged less than smaller merchants, so they make much better economics on small merchants than they do on large merchants.

In aggregate, if you look across PayPal, peer-to-peer transactions are included in their TPV, so their transaction-level take rate is almost 1.9%. That means, out of that $100 transaction, they'd be taking $1.90 on average across all transactions.

It's skewed toward branded checkout. If someone uses the PayPal button to check out at a merchant, their stated rate is 3.49% plus a fixed fee. That fixed fee varies depending on the geography. In the U.S., it's 49 cents, so PayPal would be taking about $4 out of that transaction made on the PayPal button.

Then you have to consider what the customer used to actually make that payment. If they used some of that $40 billion stored on PayPal, all $4 of that goes to PayPal. They capture both sides of that transaction. But if they used ACH, then PayPal has about a 5-cent network charge against that. That's the next-best transaction in terms of how much PayPal gets to keep.

Let's remember, if it's a large merchant, they're not paying 3.49% and 49 cents. They're probably paying something like 2.75%. Keep that in mind as I go down. If someone used their Visa card—if they used a Chase credit card, for example—probably one-third of the economics have to get split with the issuer in the transaction case.

The issuer would be someone like Chase if I used a Chase credit card. Chase is going to get a piece of that action as the issuer, and so will the network. Visa is not going to get nothing out of that, but they're going to get a much smaller piece than the others.

One other wrinkle is Braintree. Braintree is an increasingly large piece of PayPal, and its economics are very different from those of the PayPal button. They charge 2.59% plus a 49-cent-per-transaction fee when they do what's called full stack. Full stack means they act as the merchant acquirer in addition to being the gateway.

Braintree started as just a gateway, and I can explain that once we talk more about Braintree. If Braintree is just the gateway, then they're only getting 10 cents for that transaction. I'll give you an example of what that looks like.

Let's say someone like Uber is a Braintree customer. If Uber uses Chase for merchant acquiring—they're the largest merchant acquirer in the U.S., JPMorgan Chase—of that, call it, 2.6%, only 10 cents would go to Braintree. The rest of the economics would be split between the merchant acquirer, which is Chase, and, if I used a Chase credit card, it would be Chase on both sides.

There are many different kinds of transactions. I think those are the most important ones that cover the vast majority of the economics for the business.

Just before we go on, at the outset you talked a bit about security and fraud as an early use case, particularly in the early days of the internet. People were a bit hesitant, particularly on eBay, about sending money to strangers, whereas PayPal handled all of that for them and said, “We'll secure the transaction if you like.” Is that still a big piece on the consumer side, or has that shifted quite a lot? Then, on the merchant side, what does PayPal offer these people in terms of its value proposition?

It's huge on both sides of the network. One of the important things about paying with PayPal is that, if I were to pay with PayPal at Home Depot—and I'm using Home Depot because it's really what got me to use PayPal more as a consumer myself—my credit card got caught up in the Home Depot hack. I had these random charges at CVS stores in Rhode Island, and I was like, “What the hell is going on?” So I started using PayPal more.

If I pay with PayPal, Home Depot doesn't get my actual credit card number. That number is stored only in one place, at PayPal. They've effectively built this trusted ecosystem on both sides. They had tokenization before it was called tokenization, whereby the merchant and issuer side trust that the transaction is a valid and legitimate one.

The integrity of my credit card number, which could be really valuable to a fraudster anywhere on the internet, remains only in one place. There's only 1 point of exposure. If I put my credit card number into my browser and check out at a random merchant, there have become many points of exposure. That's really important from a consumer's perspective.

From a merchant's perspective, PayPal is also able to better identify potential fraudulent transactions. If PayPal is the acquirer for the merchant, they're way better at doing that. That's really important from a merchant's perspective because a fraudulent transaction is actually charged by the networks to the merchants. The merchants foot the cost of fraud.

The less fraud there is across the payment ecosystem, the lower the cost a merchant has to spend on payments in aggregate. Beyond that, it's also important from a merchant's perspective to understand whether the funds are legitimate, whether there's honest, true intent, and what the approval rates are.

Because PayPal is much better at identifying fraud, they also reject fewer transactions with legitimate intent. They have the highest approval rates of any of the processors, and that's been something that Braintree has been using to start taking share. They've been a little more aggressive in rolling out Braintree and starting to take incremental share from Adyen and Stripe, which I think is a pretty important accomplishment and one of the key drivers of the business going forward.

One of the striking things when you look at their accounts is that the financial model is pretty straightforward. They earn the vast majority of their money from transaction fees, and we've already talked about the take rate. But when you look at the products on both sides of the marketplace—we've mentioned some of them, Braintree, et cetera—it's an extraordinarily complex ecosystem that they've built.

This is particularly true post-eBay. You talked earlier about how PayPal was servicing eBay and now, as a separate financial entity, has been piecing these 2-sided ecosystems together in a more robust fashion. Can you walk us through the fundamental business equation here and how all these pieces fit together? What are they trying to do when it comes to making money?

At the simplest level, it's how many users use PayPal, how many times each user transacts, and what piece of the economics PayPal can capture in each transaction.

Strategically, what they'd say is that they view cash as their most formidable competitor, and their goal is to drive forward the digitization of the economy. They want to do this in any way possible, and they want to work with their partners to encourage digitization.

This was critical in one of Dan Schulman's initial initiatives. One of the very first things he did when Schulman took over PayPal upon the split from eBay was deal with Visa. With Charlie Scharf's leadership, Visa was going to go nuclear on PayPal. They were going to do everything they could to try to blow up PayPal's economics and destroy its presence with customers.

Under eBay, historically, the company had steered users to check out with ACH. They had a vision and mission under eBay to drive transaction economics. The pivot in mission to drive digitization of money helped align with Visa and changed the strategy to empowering consumer choice.

This was part of the neutrality. They could then say, “We could work with all the issuers in the ecosystem. Give incentives to your users to add their Chase credit card or their Citibank credit card as top of wallet in PayPal. We'll help you drive more economics to your credit card and help make credit cards a bigger piece of the ecosystem.”

Their business strategy is geared toward getting people comfortable using digital money and working with regulators to do so. That's one of the things they've said they've done really well over the last few years. They've built a lot of trust with regulators, which helps them do more in crypto.

Early on, they took a slow but measured approach to crypto, and they now feel a little more comfortable. They were the first place where you could use Bitcoin as an actual funding instrument for a transaction through the traditional financial ecosystem, if you will. Anything that leads to money taking digital form is what their strategy is geared toward, in a nutshell.

I guess engagement, then, is key. You want people to be using these services as much as possible, and obviously that's how you're earning money. Do they have any interesting ways that you could share for how they drive customers to use PayPal? I'm thinking on the customer side here rather than the merchant side.

This has been, in some ways, my biggest frustration. I do think they lost their way a bit during the pandemic, where instead of trying to drive engagement, they tried to grow the scale of the network. They have 2 nice levers they can pull: how many people are transacting with PayPal and how frequently each user transacts with PayPal.

I view engagement as one of the most critical elements of this business. The way I've summarized it is that the more people engage, the more value they're getting out of PayPal, and the more other people will want to use PayPal. It's also critical for bringing merchants in, because the more people use PayPal, the more valuable it is to merchants, and the more merchants simply have to accept it.

Strategically, what they've done in terms of driving engagement is somewhat lacking. We are trained through our credit cards to expect some degree of reward for use. Early on, PayPal had a problem whereby, if I bought something at Home Depot through my credit card, the rewards didn't transfer pari passu to what it was like using my credit card. That's no longer a problem. You do get your rewards using your credit card through PayPal.

They've done interesting things with rewards, and this is one way to drive engagement. They created liquidity, so I could use my Chase rewards as currency through PayPal to buy from a merchant who might not accept them. Normally, through your credit card, you could get a gift card to buy something at a particular place. Through PayPal, you could get true financial liquidity for it.

They've tried to create currency in ways where you would not have had it. Creating a way for merchants to be able to accept PayPal creates ways for users to create opportunities to spend. In some ways, it's hard to talk about opportunities for users without adding in this merchant overlay.

Now that they're driving engagement as a strategy, they're starting to do more with rewards. I think they should go much further. Think about it: the average user is doing it 50 times a year. The average person has 3 to 5 subscriptions. If you get 4 subscriptions on PayPal alone, there's your engagement per active user. Any incremental transactions are huge.

From a subscription perspective, there's major value as a user in having your subscriptions done through PayPal. I'll give you one big example. I subscribe to The New York Times. To cancel The New York Times, you have to pick up your freaking phone, call a person, wait on hold, and say, “I want to cancel.” Then you have to deal with their whole spiel: “If we offer you this, will you stay? What if we offer you that?” You're like, “God, what a pain.”

In the PayPal app, you could go to Manage Your Wallet and cancel your subscription with the tap of your finger. I think they should be a little more vocal about the ways in which they make things simpler for people. They're starting to do it. They're starting to get religion.

I think buying Honey was something that was very important. Honey has built a rewards ecosystem on PayPal. It's valuable for merchants because they're able to exchange funnel visibility for rewards for their customers. They're trying to leverage both sides of their network.

The problem is they probably severely overpaid for Honey, and it's taken a lot longer to build out these capabilities. But now that they're focused on engagement, I do think you'll see some creativity. I think Venmo is a really interesting wrinkle in this, where you could add in a social overlay.

I paid for Chipotle with Venmo, and it should share with my friends that I went to Chipotle. That's valuable from a merchant's perspective, and it's fun and quirky from a user's perspective. Engagement is going to be the key piece going forward.

I want to add one more piece on engagement that I think is really important. When you think about engagement in contrast to adding 1 transaction from a new user, 1 transaction from an existing user has 1.5 to 2 times the value because you have no customer-acquisition cost against it.

Driving engagement is way more valuable from a bottom-line perspective, and it should be the focus of the business because of how it ties into the moat.

You mentioned that they've got a big pool of cash sitting within the PayPal ecosystem from customers who are just holding funds there. Do they do anything with that? Do they earn interest on it, or do they pass any of that back to the user?

A lot of that is frictional, insofar as they've said it has an average duration of 9 to 12 months. They're able to invest it in short-term Treasuries. When you think about it from the perspective that we had 0% interest rates for most of its newly public existence, they're now able to drive a decent amount of earnings.

It won't show up in EBITDA because the interest piece isn't there, but that's pure cash flow to the business, and it's pretty damn valuable. They've started to do some smart things. At Chase Bank—and sorry to keep picking on Chase; I could say Citibank, too—they're still paying me next to 0% on even my money-market account there.

PayPal has started offering 4% savings accounts. They work with a financial partner as well: Synchrony Bank is their financial partner for that. Because short-term rates are higher, they're able to start offering savings accounts and try to capture a bigger piece of anyone's digital-banking needs.

I think that's pretty interesting when you think about what's gone on with some of these banks over the last month and a half. We're recording this at the end of April, but a lot of these banks are facing significant stresses because they're not able to pay enough interest. They're encumbered by having invested in assets at much lower rates.

PayPal can say, “We will indeed pay you 4%. Just move more of your banking to us.”

Yeah. I think this is probably the right time to look at their acquisition strategy. You've already mentioned a bunch of them—Venmo, Honey, and Braintree—and it seems that this has been the path Dan Schulman has been on in terms of building out the service for consumers and merchants.

Maybe we can go deep on one of them. Braintree seems like the right one. What is Braintree? What do they do? Why were they bought? Then talk a bit more broadly about the acquisition strategy.

One of the interesting things I should point out is that Braintree was an acquisition before Schulman was there. It was not part of their publicly articulated acquisition strategy, but it does fit the template of what they looked for since then.

Braintree has been a resounding success in a way that nothing they've done since has come close. A key part of the reason is that Braintree helped move PayPal from a purely desktop presence to a mobile presence. It also brought in a great leader in Bill Ready, who's now the CEO of Pinterest.

Braintree competes with Stripe and Adyen. It was originally just a gateway, so it was capturing a very small piece and helping merchants accept transactions in mobile form while working with an incumbent acquirer. Some of its earliest customers that put Braintree on the map were Uber and Airbnb.

Braintree was the way that helped those companies gain the capability to accept payments through a mobile device. It's about $400 billion in TPV right now. That compares with Stripe and Adyen, both at around the $800 billion level, and it's growing at 40%-plus. It is faster than Adyen because Adyen's 40% was in euros, and they benefited from foreign-exchange translation. It has almost doubled off Stripe's in the last year.

The company is a little reluctant to shed light on it because the economics of a Braintree transaction are not as good as those of a PayPal button transaction. But I think it's going to be increasingly important going forward, and they shouldn't shy away from that.

One of the critical pieces of Braintree was that its tech stack solved the tech-debt problem PayPal had accumulated during the eBay period. One of the more important early initiatives that Schulman spearheaded was taking this big, monolithic tech stack and building something modern. They used the guts of Braintree to do that.

That helped the company develop and deploy new innovations and features far more rapidly. They were able to take buy now, pay later and roll it out to their entire network within a couple of weeks. They were able to launch crypto and roll it out almost instantly. Formerly, they were not able to do something like that.

One of the beautiful pieces that came with Braintree—and, at the time, no one really knew it would be much of anything—was Venmo. Braintree had bought Venmo 1 year before PayPal bought Braintree, so Venmo came in with the acquisition. It was not an acquisition by PayPal directly; it was something they got through Braintree, and it gradually took on a life of its own.

Venmo is no longer thought of as a piece of Braintree, though it very much was. It was part of Bill Ready's vision to be able to say to their merchants, “We do have a customer side.” It's taken a lot longer than any of us had hoped to see the merchant services come through with it.

One of the wrinkles is that, in the early days of PayPal, you had marketplace transactions. It was quite easy to say, “I know this transfer of money was not peer-to-peer. It happened on eBay, so I will therefore charge for that.” Now it's more like I take a tennis lesson and pay someone with Venmo. How do they know whether or not that is a transaction?

They do have really good data, and they're starting to force that into the transaction flow. Braintree is the tech stack that now underlies just about all of PayPal, except for its prowess in fraud detection.

PayPal was able to take its secret sauce in fraud detection and overlay that on top of Braintree's really strong elements. It was able to make Braintree that much better. In the conversations I've had with merchants, the reason Braintree has won a lot of share in the last couple of years is that it has much higher approval rates and much lower instances of fraud. They're able to work together in that way.

One of the questions I ask myself is whether Braintree should even be part of PayPal anymore. What's the value of Braintree being part of PayPal? Why can't they find a way to split these businesses and make Braintree a standalone entity on its own? Have Braintree compete with Stripe and Adyen, and, in some sense, create a degree of neutrality.

I've said that neutrality is the moat for PayPal, but maybe giving Braintree a degree of neutrality—where it's not part of PayPal and some merchants might not think of it as part of PayPal—could be advantageous. That's the question hanging out there. If you've spoken to the company, what have they said with regard to that? If you haven't, what would you anticipate them saying?

They give the example of Venmo, whereby Braintree merchants are able to get Venmo first. That's a way they're able to drive adoption of Braintree from a merchant who might not be on Braintree but badly wants to accept Venmo and get access to that demographic.

It's a way to push out Venmo, which I'd theoretically keep with PayPal rather than Braintree, and give it a much bigger merchant installed base. Having both sides of the network increasingly means that Braintree is taking the merchant side of PayPal.

Even PayPal's merchant services, which formerly had a lot of the long tail of the internet, are increasingly moving to Braintree. In some ways, you could say this moat of having both sides would go away a little bit if they were 2 separate companies. But I think there are ways in which you could keep a lot of the benefits without having them under the same financial umbrella.

Just to finish off the financial model before we move on to some other points, you mentioned the 1.9% take rate. How does that flow through to the bottom line? Finish off the financial model for us. How does revenue split down into cash flow and profits?

The biggest investments that PayPal makes beneath its revenue line are customer service and R&D. Customer service is one of the really interesting ones because that went from well into the double-digit percentages of revenue to now the single digits.

That was enabled by the initiative from Schulman to facilitate customer choice. No longer steering people to ACH meant that a lot of people who called in to say, “I wanted to pay with my credit card. Why did this go through ACH?” no longer had a reason to call.

R&D is going to continue to take a pretty big piece of the economics beneath revenue for PayPal because they need to keep innovating and developing. That's where they invest in their fraud capabilities. I should have said that fraud is something that comes above take rates. That's something that flows through into their revenue.

Sales and marketing is an area where they went a little crazy in the last few years. They drove it up as a bigger piece of their revenue, started acquiring more people, did brand development, and bought stadium rights in Arizona, for example. But sales and marketing should take on less prominence as things go on.

One of the big questions about PayPal in general is that the $1.88 out of every $100 transaction they take had been closer to $2.80 when they started their split from eBay. There are 2 big forces behind that. The rise of Venmo is predominantly peer-to-peer, so peer-to-peer flows through to that take rate. At the same time, there's a general narrowing of transaction take rates from every merchant acquirer.

It's happening across the ecosystem. Merchants don't like that someone has to take a piece of their hard-earned revenue. The idea for PayPal and for any payments company is that you make it up with engagement.

One of the examples I like using is that American Express started with over a 5% take rate, and they're down to nearly 2%. Every year that they've existed, that number has gone down. You make it up with engagement. The more you can pull people into digitizing their payments, the more you're able to do that.

PayPal has been in the mid-teens margin range. They had been driving that margin steadily upward every single year of their newly public existence until last year. Things took a big step backward because they made this massive investment. Rather than saying, “We love being a digital wallet,” they said, “Let's become a super app.”

They started investing even more into R&D and expected to increase that investment. Then suddenly they realized that e-commerce growth had stalled and revenue was not going up, but they had committed to growing their expense base based on expected nearly 20% revenue growth. They were stuck with a deleveraging of margins.

They're now committed to significant cost cuts. They're laying off, I think, a high-single-digit percentage of their employee base, and they're cutting back on certain kinds of experimental spending. They're also cutting back on customer acquisition, so they should get back to the high teens.

I've always felt their incremental margins in the mid-20s to 30% range should be where margins go longer term. They should have even more upside because, when you think about what drives this business, it's predominantly a fixed-cost structure. The costs are largely a choice, much like with a lot of other Silicon Valley companies.

They do have to fight the headwind of getting less and less from a transaction every year, but they are making it up with volume. They should be able to easily get back to this recipe. This year, they expect another point of margin improvement at least. That should be able to play out over the next 5 years, where they're able to squeeze out most of the top line flowing through to the bottom line.

They're not alone in walking back some of the spending from the last few years. A few other companies are on that list.

Exactly. As you think about this business from an overall perspective, what differentiates PayPal from its competitors? What enables them to earn excess returns? They've grown really nicely since they split off. What is the moat here?

They have a frequently transacting digital-wallet user base, and every platform has been trying to build that out. They have a large merchant population as well, so there's a chicken-or-egg problem for anyone who's trying to get anything like that going.

In order for your users to transact, you need merchants. In order for your merchants to want to accept you, you need users. No one else has really been able to ignite this to the same degree as PayPal. Apple Pay gets a lot of attention for adoption, but its merchant side pales in comparison to PayPal.

Then there's the peer-to-peer network. Basically, anyone who's handing money to their friends digitally is going to use PayPal or Venmo. To a lesser degree, there's Block's Cash App. I think that's critically important, and it's valuable to leverage the neutrality of PayPal.

I'm green, which means I have an Android phone, for those who don't know. If I wanted to send money to my friend who has an Apple phone, I'm not going to be able to do that with Apple Pay. There's no way Apple Pay could ever get to the same degree of relevance as a truly open peer-to-peer platform.

The banks are trying to build something with Zelle. Anyone who's banked is able to use Zelle and transfer money with anyone else through an app. But Venmo and PayPal were much earlier adopters in getting out there, have network effects on both sides, and fraud detection is a true differentiator.

People don't like saying that being a first mover is an advantage, but every year you've worked on fraud detection puts you, if not 1 year, perhaps even more, ahead of what others are able to do. Anyone who's starting from scratch will have an incredibly tough time keeping up with you.

That's what enables things like one-touch checkout. There's no other wallet that's able to do one-touch checkout in the same way and across the open internet. It's not just in pieces of their ecosystem where you're using their platform. They're able to do passwordless login now, too.

If you see that for yourself, you don't have to use your password anymore to use PayPal because they have such a long history of how consumers transact with it and how you yourself might transact with it. They can trust putting you on without a password. By the way, the cost of fraud in that would be theirs.

They're able to roll out products like buy now, pay later because they know fraud better and know consumer behavior better. They know how to handle the allocation of credit, so people who have used PayPal for longer get more credit than those who just signed on to do 1 BNPL transaction.

They're able to offer that as a service to their merchants at the same cost as traditional merchant acquiring, whereas a company like Afterpay needs to charge more to account for the cost of fraud in its standard transaction rate. That's really advantageous for merchants and consumers alike.

Everything I'd say is unique about PayPal is something that can simultaneously advantage its merchant base and its customer base.

This is a big business now and older than most of the competitors we've discussed to this point. What are the frontiers of competition for them today, and who are the big competitors they would point to? I know that eBay is swapping PayPal for Adyen, so it's adding capacity. We've got firms like Stripe and Block that we've talked about, and Apple Pay and Apple Wallet are things you often read about when you read about PayPal's digital wallet as well.

It goes back to my point about PayPal being a chameleon. They compete with everyone, and they're partnered with everyone in various ways. It goes back to Visa. The nicest word they would use about Visa was that they were frenemies, and now Visa is actually partnering with PayPal to build its own peer-to-peer capabilities because it sees the value of PayPal's network.

Adyen directly competes with Braintree to get merchants to accept its services. Square on the merchant side is not a competitor insofar as it predominantly has a brick-and-mortar presence, but it is a competitor insofar as Square is trying to move its model online. PayPal made an acquisition of iZettle and is trying to do more of what Square does. It's a dongle that, in theory, works the same way.

Then there are competitors with Block on the digital-wallet side. Cash App is absolutely competing more with Venmo than with traditional PayPal. In some ways, both Apple and Google are competitors but also partners.

Google was one of the first to start a way to pay with funds stored at PayPal at brick-and-mortar merchants. They've done things together to help one another, and they've done things that compete. When you think about a company like Facebook, it's interesting as well because PayPal powers payments on Instagram.

At times, Facebook has been trying to build some of its own vertical capabilities on the payment side. They're a little bit friend and enemy with everyone. They've partnered with everyone in various ways. Zelle from the banks is a competitor, but PayPal works with banks in so many ways that are advantageous to both.

Merchants get to accept the PayPal button, but at the same time, PayPal has to compete with them for some of the business. They're a little bit of everything. They have a remittance service, Xoom, which was the first acquisition Schulman made as CEO. It competes with the likes of Western Union and Remitly.

I think one of the areas where they face the least competition is cross-border transactions. For a merchant who wants to sit in a foreign country but sell to the U.S., PayPal is probably the best way to do that. That's very complicated as well, as I understand it.

What's the relationship like with Apple? They partner in some areas, but I have to imagine PayPal would love to be part of Apple's wallet. I can also imagine that Apple would be keen to keep them off that page.

It's an area that's tough for PayPal because, in an ideal world, it would start calling antitrust attention to how Apple will not open up its near-field communication chip to anyone other than Apple Pay. Apple is using its position of dominance to keep others out. They say it's in the interest of protecting consumers, but consumer choice is a big piece of what antitrust law was built around.

Europe is the first to move on this. It seems a little more keen on trying to find ways to force Apple to open things up. That's something I'd expect to happen in some way over the next 5 years.

But PayPal is also one of the most-used payment sources for Apple products. If you're buying a new computer or a new phone, you're more likely to pay with PayPal than with just about any other instrument. Those are big-ticket items, so PayPal has an important role to play.

Everywhere you go, there's this blurring of lines. PayPal has to play nice because, on the one hand, it really wants to get into NFC, but it doesn't want Apple to turn on it in another arena.

Before we started recording, we talked a bit about management in general. Dan Schulman is leaving at the end of this year, and you said they've gone with an interim CFO, so there are some open questions in terms of the board and what management looks like going forward.

Before we get to that specific question, just on capital allocation: they've often bought versus built. How much innovation comes from within the business? What's the strategy going forward, and how else do they use their cash flow?

One of the frustrating things I'd say is that they've spent more than $13 billion on acquisitions and partnerships in their newly public state. I'd say the vast majority of their growth and value has come not from these acquisitions, but from actually innovating and creating new products. Buy now, pay later took no capital allocation; it took R&D and initiative.

Something like Xoom added nominal revenue, but in the grand scheme of things, who knows how much value they got for the $800 million they spent. They bought something called TIO Networks, which they had to write down 100% of the value of. It was supposed to find a way for people to put cash into PayPal and had a big store presence, but they found critical failings in their capabilities to detect fraud and avoid being defrauded.

They wrote that down. Something like iZettle gave them point-of-sale capabilities and gave them a little bit of scale in a couple of countries in Europe, and they're using it to roll out that product in the U.S. But it got throttled a bit by antitrust settlements they had to make in the U.K. in particular.

Hyperwallet may be one of their more valuable acquisition pieces. They had been really good at accepting payments for merchants in marketplaces, but they had not been good at payouts in 3-sided networks. For example, I could pay Uber, but could Uber pay the driver with PayPal? They could not until they had Hyperwallet.

Uber had to build 2 separate systems, and that's really important for the likes of Airbnb. There are many of these kinds of networks emerging now. Honey was the biggest acquisition they made, at $4 billion. It's still to be determined whether they get value from it.

More recently, their second-biggest acquisition was Paidy, which is a BNPL service in Japan. They'd say it wasn't about getting buy now, pay later. It was the fact that Japan, of the developed economies, is the least penetrated with digital payments, and Paidy has the largest installed base of any player there.

They bought these stakes in Uber and Mercado Libre: Uber at its IPO, Mercado Libre during one of their big fundraises to expand more into payments, because Mercado Libre started as an eBay marketplace.

One of the things that I laugh about is that eBay had the same size stake in Mercado Libre that PayPal ended up buying. eBay took that stake in the split and ended up selling it in the market, and PayPal bought it at higher prices a few years later. They could have reversed that decision, because it had tax consequences for eBay, too. That was kind of goofy.

Netting against this $13 billion, they received $7 billion of proceeds from creating a capital-light, consumer-facing credit partnership with Synchrony. They sold their credit book, so they didn't have to have that on their balance sheet. That was very helpful for investors early on.

They got the $7 billion and entered a long-term partnership with Synchrony. If I, as a consumer, used one of PayPal's credit products, PayPal gets a revenue piece off that loan, but Synchrony is the one using its balance sheet to support the loan. It helps PayPal keep very high returns on its own invested capital.

In terms of capital allocation, I'd argue they should be selling these stakes in Uber and Mercado Libre. Mercado Libre was supposed to have come with a partnership within 1 year. We're about 5 years later, and there's still no partnership in any way that we can see. What's the value in having either of these pieces? That's nearly $2 billion.

I think there's an opportunity to say, “Xoom was supposed to have created more scale.” Xoom is the remittance service. It was supposed to be a situation where, if I sent money to relatives in Brazil, my relatives would keep that money in PayPal and spend it. That hasn't really taken off for a variety of reasons.

Why not combine Xoom with Remitly and do something interesting there? Who knows, but there are a lot of different potential opportunities.

The other big pillar of their capital allocation, which took even more than their M&A strategy, was $16 billion of share repurchases. I think that shows it's a really capital-light business. The fact that they were able to do all this while driving really impressive growth since their spin shows just how little cash they need to drive this growth and how much they're able to spit off every year.

Of the $5 billion in free cash flow this year, basically all of it is going to go to share repurchases. Now they're going to focus a little less on acquisitions, and I think that's partly due to things really starting to turn down for them when it was speculated that they might acquire Pinterest.

They have this activist presence with Elliott Management—Elliott with 2 Ts, not 1, like me. They're way better investors than I am. Having them in there to steward the business and make sure the company does right by shareholders means they're going to refrain from some of this acquisition activity.

Can you talk a little bit about Elliott's involvement and what they've been asking the business to do? What were they calling for, and is it coming to fruition?

They've been pretty tight to the vest about it, but you could guess some of the pieces. After Elliott came in, there were very strong commitments to reducing some of the excess expenses that had been put on during the COVID period.

I draw this contrast with someone like Amazon, which built too much fulfillment capacity. Amazon spent too much in the near term, but one day it will grow into it and find utility from it. PayPal's investments in the super app are literally worthless. It's not an investment they'll grow into. I'm being a little facetious—there are some things they will have learned along the way, and maybe they'll stumble into something—but it doesn't have the same value as overinvesting in fulfillment.

Expense reduction was a really big one. The quarter after Elliott's involvement was made public to the market, PayPal adopted this strategy of disciplined capital allocation. They were very public in their commitment to no big M&A. They had not done that before Elliott's involvement.

If I had to speculate, I'd say Schulman's retirement can directly be traced to Elliott's involvement. I expect them to play an important role in identifying, interviewing, and appointing a successor to Schulman.

Let's talk about that. What does the decision-making team look like now? When does Schulman leave, or when is he supposed to leave? Have they found a replacement yet, or what does that bench look like?

That's one of the harder questions. For years after the spin-off from eBay, I thought Bill Ready would be the natural successor to Schulman, but he left to go to Google because Schulman wasn't ready to retire at that time.

John Rainey, as CFO, was an airline guy who came in as CFO and brought a lot of discipline to PayPal. One of the pieces I could have mentioned earlier is that PayPal still has a lot of pricing levers because of all the different ways transactions are run through the system.

Rainey was really smart in building out a team, understanding pricing, and developing better strategies for where they add value and what they could charge people. Rainey left for Walmart last year, around this time. They hired a successor who never really took over, so Gabrielle Rabinovitch, who has run investor relations very confidently, has been their interim CFO for the better part of a year now.

Now you basically have unclear leadership at the top. It's not clear who an internal candidate would be to take the role. I have my stalking-horse bet, and my bet is Cameron Zacky, who is the CEO of Adyen and was critical in building the U.S. business for Adyen.

One of the interesting things about Zaki is that, literally the day before PayPal released its fourth-quarter earnings, in which it announced Schulman would be stepping down and retiring, Adyen announced in its fourth-quarter report that Cameron Zacky, who was CEO for basically their whole public existence, would be stepping down and retiring.

He was a PayPal guy for a decade before he went to Adyen, so he knows the business through and through. He also competed with PayPal, and, as Braintree has taken prominence as a growth factor, he has a much better sense of how Braintree needs to fend off perhaps its most formidable competitor, Adyen.

If I had to make a bet right now, I'd make Cameron Zacky the odds-on favorite, though this is purely speculation on my part.

Full circle. We'll see when that comes true. If you think about whoever this person may or may not be, what are the opportunities for them as they take the helm into the next phase of this business?

There's almost a nice line in the sand this year as their eBay partnership winds down. That's the end of 1 chapter and the beginning of a new one. What does growth look like going forward, and where do the opportunities lie?

One of the things that came following the Elliott announcement was trying to create a better vision for what their growth algorithm looks like to investors. Coming out of the spin, they'd formerly had this expectation of high-teens TPV growth, which flowed through to mid- to high-teens revenue growth.

More recently, they've had to revisit that after COVID. There's a debate about whether COVID pulled forward growth or how that looks. I think everyone listening to this has probably seen the chart of e-commerce penetration in the U.S. that went parabolic during COVID. We're now almost back to what formerly would have been trend growth for e-commerce.

What PayPal has said is that they expect to grow at or above the rate of e-commerce in revenue terms. Given that they have bloat in their cost structure and given that there's natural operating leverage to any payments platform, the bottom line should grow in excess of the top line.

More near term, they've only been willing to put out 1 year at a time. Right now, they expect 18% bottom-line growth, but that comes with an expectation of mid- to upper-single-digit revenue growth. There's going to be a pulling forward of some of that operating leverage.

I think e-commerce growth is a very fair way to put it. They're heavily leveraged to e-commerce growth, and there's incredible optionality if they could get anything that gives them more relevance to brick-and-mortar.

I think that comes from a combination of this blurring of the lines. If I buy something from Home Depot online but pick it up in the store, that might look like e-commerce, but it's brick-and-mortar. More of those kinds of transactions are taking shape, so there's upside to their growth algorithm.

There's also upside if they're able to get a near-field presence from Apple. There's incremental upside if they're able to take some of the Venmo transactions that are currently, “I pay my babysitter,” and make them into a commercial transaction of sorts.

That would create liquidity for new markets in digital form. Paying a babysitter very much used to be a cash transaction historically, and now it's very much a digital transaction. That's just 1 example, but you could do dozens. I know people who split their rent or pay rent through Venmo. That's all incremental opportunity above and beyond the core growth rate of e-commerce.

I don't think they've done enough to highlight their degree of optionality and what they expect their core growth driver to be, but I think it's very much there.

On the flip side, we talk about risks on this show and what keeps you up at night as a shareholder. What are you worrying about? Is it execution, competition, or the constant decline of the take rate? Where would you focus people's minds?

The take rate is one of the things I worry about. I've studied the history of payments platforms, and every single one of them has had take rates fall over time.

The problem, and where it falls into what keeps me up at night, is that if you're not able to make it up with volume—with adding new use cases and new utility—then you're not going to be able to maintain your margins or keep driving profitable growth. Profitable growth is more important than merely growth.

Competition is the biggest headwind to increasing engagement and adoption. If someone transacts with PayPal 50 times through their desktop, but every time they then go for in-store transactions and that happens on Apple Pay or Google Pay, you're not going to be able to drive incremental adoption in the same way.

Competition for Braintree is coming from Adyen and Stripe, which offer different kinds of value. Stripe is just a lot easier for a long-tail merchant to take on. Long-tail merchants have better margins than really large merchants.

Adyen has done a phenomenal job building the most robust global capabilities for multinational merchants. It has a very unique value proposition for a merchant that might be situated in 100 different countries. That's challenging for Braintree to compete with, but it should be able to do that because PayPal is such a global business.

Competition is definitely a big part of what keeps me up at night, as is a vacuum of leadership. They've had a bit of churn at the top, and it's unclear who the next leader of PayPal is going to be. Leadership will play a critical role in what the vision for this business is going forward.

I do think that's part of what's kept investors on the sidelines despite better-than-expected financial performance early this year. The board of directors has no real payments people on it. They need better stewardship in that sense.

The last thing I'd add to that list—and I know it's a bit long—is value-destructive M&A. I don't feel great about the M&A they've done thus far. I don't think they should be engaged in large M&A that takes them in a different direction than being a digital wallet.

At the end of the day, you don't have to be a super app. You can do more to become someone's central online bank than being something that's like a social platform or whatever else it may be.

Often less is more. On that point, we could close these conversations out with the same question: What have you learned, and what could you share with both investors and operators from your study of PayPal?

I've learned so much about sentiment, emotion, and myself through this experience. The first time I was ever mentioned in The Wall Street Journal was the day after the Visa deal was struck in 2016. I'm sure it's because I was the only person who was dumb enough to make a positive spin on it, but I was right in that sense.

At the time, there were a ton of specialists who felt Visa would kill PayPal. Specifically with PayPal, no one was sure whether it should be technology analysts or payments analysts who covered the company.

One of the things I think I got right was that it was a big advantage to be a generalist and not have to wear the specialist hat. You don't have to view it through the prism of one or the other. You can appreciate where and how it fits into the ecosystem and what drives value.

On the flip side, I really did not handle my own investment in this very well. The stock went parabolic during the pandemic, and it would have taken a whole lot more growth to sustain the valuation it had during the most euphoric days of the COVID bubble.

It led to the company veering from what I thought was its most important driver of value: engagement. I joked about a tweet that said every time Schulman at PayPal's investor day in early 2021 said “super app,” I should just drink because it was so stupid.

It was a company moving a little too far from its core mission, in my view. Be critically focused on what the core drivers of value are, and be focused on whether management is sharing the same North Star that you are.

I've been very vocal. I've spoken about PayPal publicly at least a handful of times, and each time I've said, “Engagement, engagement, engagement.” So long as engagement is going up, that's what's important. Even if engagement is going up but management doesn't view that as important, that's a problem.

Make sure you're aligned with the direction in which the company is being steered. I'm happy to say it's back on track. I've joked that when I first bought the stock, I wanted to get a double within 5 to 10 years. I'm there, but the path has sucked.

Be disciplined, stay true to yourself, and don't get caught up in things when they're going really well. Make sure your vision is aligned.

Excellent. Well, Elliott, thank you so much for breaking down PayPal with us. It's a business that has ripple effects throughout the economy, both in what it does and through the people who launched it and what they've gone on to do. It's a fascinating business, so thank you very much for joining us.

Thank you for having me, Dom. I love the podcast and was really excited to be a part of it.