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Listener Question: "Would you share your thoughts on PayPal's, Venmo and Amazon partnership?"

Max Friedrich: "Yesterday PayPal released their Q3 earnings and while they missed on several metrics, they did announce a big partnership together with Amazon. In the words of Dan Schulman, PayPal's CEO, this is the start of the journey that they will have together with Amazon.

What they announced is that starting next year, over 80 million Venmo active users can purchase products on Amazon using the Venmo pay checkout button on Amazon. And while this itself is a pretty significant monetization event or kind of coming strategy for Venmo, there also is, you can put that into a broader context around PayPal.

First, just as I touched on the monetization opportunity for Venmo, I think in all fairness, you probably have to mention that from a takeaway perspective, Amazon does have a lot of leverage in these kinds of discussions. So it's probably fair to say that PayPal or Venmo probably is not able to monetize transactions on Amazon at as high a rate as some other pages, but again, it's still a significant event.

But to the broader point, actually, this plays really into the strategy that Dan Schulman, the PayPal CEO has laid out on PayPal's last investor day, which is around the integration of commerce into both the Venmo app, but also into PayPal's recently launched super app. This is bringing together the merchant base of PayPal with the consumer base of PayPal. And this could be one of the beginning of that and as well, the beginning of a partnership between Amazon and PayPal.

I guess that on the one hand it's probably significant for Venmo from a monetization perspective, but a broader point really is around PayPal's efforts around building out the commerce part of their digital wallet. We're going to follow this very closely and it's going to be interesting where it leads with Venmo and PayPal's broader plans to really build commerce into their digital wallets."

Phil here... Even given this partnership announcement ARK did not buy back into PayPal after having drastically scaled out over the past six months...

Cathie Wood: "I'll just add that some people might be surprised that PayPal is down so much today on when it makes such an announcement with Amazon...

But it also reported last night and maybe Max, you want to talk about some of the results there."

Max Friedrich: "I would first make a broader point about the dynamic that we see in, especially I think this quarter, but also to some extent, last quarter in the earnings of e-commerce stocks. These companies that really benefited from the COVID pandemic kind of from work from home and all these trends is that I think there was kind of the spotlight over the past 12, 18 months now was really on them.

Analysts have looked at them very closely and have had high expectations. And the companies themselves obviously were benefiting from the situation as well. So they also had high expectations, which they communicated as relative to higher guidance and so forth.

So I think you had kind of a situation where different dynamics were coming together that were maybe creating little bit unrealistic expectations and those factors are now married with the global supply chain situation that these companies reference. We think that it has contributed to these companies such as PayPal, but also Shopify to some extent, Square to some extent as well missing expectations and in some cases also missing their own guidance.

If we want to quickly touch on PayPal, I think you can say this played out to some extent, they missed on several metrics and as well saw their revenue in the fourth quarter and for the full year below the consensus as well as on the new active user additions.

They also came in just at or below--if you subtract some of the users that they got through recent acquisitions--their previously stated guidance. I think those were kind of the factors that were playing into more mixed results yesterday from PayPal. But as we just discussed on the other hand, they had this big Amazon win, which is good for Venmo and opens up to further opportunities they have in regards to bringing in commerce into their apps and to their digital wallets."

Cathie Wood: "Just one more thing you might want to touch on, Max, which is at least the way we've been perceiving it, many of PayPal's actions recently have seemed somewhat defensive relative to Square, which is especially from a marketing point of view, very creative. And you might want to add more color there."

Max Friedrich: "I think if you look at the two companies, they were founded 10 years apart. PayPal is a much bigger company than Square. It's a much more mature company than Square. It's probably fair to say that processes differ, culture differs.

I think it's very consistent with what we have talked about over the last few years is that we still see Square really being the leader in innovation in the fintech space, in the public markets, and in the digital wallet space, really across public and private markets. So we continue to see Square as the leader and Venmo and others as the followers.

You can look at that from different kinds of perspectives, from a marketing perspective where Square and Cash App has very savvy marketing strategies, has really embedded itself into urban culture, youth culture.

And in a way, Venmo also had a head start to be honest. It was starting a few years earlier and still obviously has very strong momentum, but many would say that they have missed really building on top of that.

There are also other things you can look at if you look at the app, Venmo itself and compare it to Cash App. From a user experience, there's more latency sometimes when using features. You can maybe suspect that the underlying technological infrastructure might be a little bit older than Cash App's.

So yeah, I think there are multiple things you can point to. If you look at the product innovation, Venmo was purely a P2P product for a number of years, has slowly built up a debit card, slowly built up a credit card. But it's nowhere near right now where Cash App is from a product perspective where you have multiple products with very high engagement across the kind of proprietary boost program that Cash App has, Bitcoin purchases and so forth.

We can look at it from a number of perspectives and still can say in our opinion that Cash App continues to be the leader and others, including Venmo continue to be the followers."

For a full transcript of this month's ARK webinar along with notes of the webinar from the author, Phil Andrews, sign up for the Cathie's Ark Trading Floor.