Gabrielle Rabinovitch
Acting Chief Financial Officer and SVP, Investor Relations and Treasurer at PayPal
Thanks, Dan. I'd like to start off by thanking our customers, partners and global team for helping us to deliver a great quarter. The strong results we're reporting today demonstrate the continued execution of our strategy to deliver long-term sustainable growth. Our teams are proving our ability to navigate a dynamic operating environment, while also staying focused on our key priorities. We once again demonstrated our results, combining execution and focus with growth in our core business. Our results reflect our operating discipline, diversification and resilience. The Power of PayPal is the scale of our global franchise. Our investments in innovation are making us stronger and we are excited about what we see as we execute against our growth opportunities.
I share Dan's enthusiasm for our growing relationship with Apple and the rollout of Pay with Venmo on Amazon. We believe we will continue to extend and reinforce our leadership in payments and we are confident that our competitive positioning, with unparalleled scale across our two-sided network, will allow us to emerge from this period of economic uncertainty stronger. We're proud of the quarter we delivered. We surpassed the third quarter financial targets we shared with you in early August and delivered on our commitment of sequential acceleration in our revenue and earnings growth.
We're also on track to build upon our operating margin performance in Q3 to deliver non-GAAP operating margin expansion in the fourth quarter on both a year-over-year and sequential basis. Our teams are energized by the progress we have made and by the increased operational rigor we're bringing to running our business and investing in our priorities. At the same time, the macroeconomic backdrop continues to be complex and we're focused on taking an appropriately prudent approach to managing our business for profitable growth at scale. This year, we will process nearly $1.4 trillion of payment volume, an increase from $1.25 trillion last year and a 25% compound annual growth rate from $288 billion in 2015. At this massive scale, we're not immune to macro headwinds.
As we close out 2022 and prepare for the year ahead, we're intensely focused on doing everything within -- within our control to anticipate and mitigate ongoing macro risks and drive robust earnings growth. Given the breadth of our two-sided platform and our strong balance sheet and free cash flow generation, we believe we are well-positioned and have the levers available to successfully navigate an economic cycle. We remain committed to meaningful non-GAAP operating margin expansion in 2023 and a significantly stronger non-GAAP earnings growth profile.
Before discussing our outlook for the remainder of the year, I'd like to highlight our third quarter performance. As Dan mentioned, revenue increased 12.4% on a currency-neutral basis and 10.7% at spot to $6.85 billion, with each of these metrics exceeding our guidance. The dramatically strengthening dollar has been an increasing headwind as we move through the year and we expect this condition to persist in the fourth quarter. Transaction revenue grew a 11.2% to $6.23 billion, driven primarily by Braintree and Venmo. Other value-added services revenue grew 6.4% to $612 million. This performance relative to last year resulted from higher interest income on customer-stored balances, offset by lower credit revenue as we lapped higher-than-normal loan servicing fees.
In the third quarter, US revenue grew 14.4%, while international revenue increased 6% at spot. On a currency-neutral basis, international revenue increased 9.4%, and excluding eBay, a 11.7%. Additionally, eBay marketplaces revenue declined 38% to $145 million and represented 2% of our total revenue. Our take rate performance was very strong with both transaction and total take rate improving approximately 4 basis points. Transaction take rate was 1.85% and total take rate was 2.03%. Both transaction and total take rate benefited from gains from foreign currency hedges recorded as international transaction revenue, as well as Venmo monetization. Interest income also benefit our -- benefited our total take rate.
Transaction expense came in at 89 basis points as a rate of TPV, relative to 83 basis points as a rate last year. This result was largely driven by the increase in the contribution of Braintree volumes, which are predominantly card funded to our overall mix of payment volume. To a lesser extent, funding mix also contributed to higher transaction expenses from more normalized debit card usage relative to 2021. Transaction loss as a rate of TPV was 8 basis points versus 9 basis points in Q3 last year.
In addition, credit losses were $113 million or 3 basis points as a rate of TPV. As a reminder, in the third quarter of 2021, we released $63 million of credit reserves, which benefited transaction margin and operating margin performance in the prior period by 100 basis points. We ended Q3 with $6.5 billion in gross receivables, reflecting sequential growth of 4%. The growth in global Pay Later receivables was the largest driver of loan originations. The mix of shorter duration originations from our Pay Later products and strong performance of our loan receivables portfolio resulted in a reserve coverage ratio of 7.4%, compared to 7.3% last quarter and a 11.6% in third quarter last year.
Transaction margin dollars grew 4%, a reversal from year-over-year declines in the first and second quarters of 2022. Excluding the benefit from the reserve release last year, transaction margin dollars increased 6%. This quarter, we began seeing benefits to our transaction expense from leveraging our scale across the network ecosystem. We expect this trend to continue in Q4 and into 2023. In addition, we're making progress in rationalizing non-transaction related expense growth. In the third quarter, on a non-GAAP basis, these expenses grew 4% year-over-year, relative to 17% growth last year, driving a 180 basis points of operating leverage.
Non-GAAP operating income also grew 4% year-over-year to $1.53 billion. Importantly, this is the first quarter since Q2 2021 in which we delivered operating income growth. Our operating margin was 22.4%, which was approximately 2 points better than our outlook provided at Q2 earnings. We're particularly pleased by this operating margin outperformance and look forward to building on this track record of cost prudence as we enter 2023 and beyond. For the third quarter, non-GAAP EPS was a $1.08, nearly 15% stronger than our outlook. [Technical Issues] pretax benefits in Q3, 2021 of approximately $0.10 per share created a headwind to EPS growth. Our outperformance relative to our expectations was predominantly driven by the actions we took to increase efficiencies within non-transaction related operating expenses and improved transaction loss performance.
We ended the quarter with cash, cash equivalents and investments of $16.1 billion. During the quarter, we generated $1.8 billion in free cash flow, bringing year-to-date free cash flow to $4.1 billion. Relative to last year, Q3 free cash flow grew 37%. We consider our balance sheet and cash flow to be competitive differentiators, which provide us with significant optionality for value creation. In the third quarter, we completed an additional $939 million in share repurchases. Year-to-date, we have now returned $3.2 billion to shareholders, representing 78% of the free cash flow we have generated.
Given our conviction in our business, relative to its valuation today and as long-term competitive advantages and ability to deliver sustainable value creation, we've taken a more aggressive approach to our capital return program this year. We believe that share repurchase remains an optimal use of capital for our shareholders, while allowing us to retain the flexibility to continue investing opportunistically in our business. We now expect to complete an additional $1 billion in share repurchases in the fourth quarter. As I discussed during our earnings call last quarter, we've been assessing opportunities for additional credit externalization. We have made progress on this initiative and are committed to securing off-balance sheet funding for a portion of our global Pay Later portfolio next year.
Before I cover our guidance, I'd like to discuss the incremental disclosure that we are sharing this quarter to disaggregate our TPV. In our Investor update, we're providing additional information related to our volume mix and how it has evolved over time. We believe sharing this detail is helpful for investors to better understand our business trends. I'd now like to discuss our outlook for the remainder of the year and our preliminary thoughts for 2023.
First, some context on the trends we're seeing and how these are shaping our outlook. As Dan mentioned, overall, we saw US e-commerce growing in the low-single digits in Q3, with deceleration into the close of the quarter. This trend persisted in October. On our platform as well as in third-party data, we've not seen the early start to the US online holiday season that we saw in 2021. Our guidance contemplates holiday e-commerce ramping through November. Overall, our expectations for holiday e-commerce are consistent with the recent spending forecast from Adobe, Mastercard and Salesforce with growth in the low-single digits.
We are also closely monitoring channel mix between in-store and online, as well as the mix of services and good spending. From a market perspective, the US continues to outperform international and we are seeing weaker performance in the UK, our second largest market. These factors combined with the broader macro trends have been incorporated into our revised outlook. We are lowering our full-year currency neutral revenue expectations by 1 point, and at the midpoint, raising our non-GAAP EPS expectations by $0.16. Given the current uncertainty in the global macroenvironment, we believe this is an appropriately sensible and prudent approach to our revenue outlook. That said, our earnings guidance reflects the resilience and power of our franchise.
In raising our EPS outlook again, we are demonstrating our control over operating expenses, the diversification of our business and the benefits from scale to our operating model. We believe that our ability to raise our earnings guidance in this environment is especially distinguishing relative to other public company guidance we've seen for Q4. For the full year, we now expect revenue to grow approximately 10% on a currency-neutral basis and approximately 8.5% at spot. For the fourth quarter, we expect revenue growth of approximately 9% on a currency-neutral basis and approximately 7% at spot. We believe our Q4 and full year revenue growth guidance is strong given our scale and the macro backdrop. We also expect to deliver non-GAAP operating margin of at least 21% this year. For the first three quarters of 2022, our operating margin has declined year-over-year. Importantly, in the fourth quarter, we expect this trend to inflect and to deliver non-GAAP operating margin expansion.
Our guidance contemplates Q4 operating margin of approximately 22.5%. In addition, we're raising non-GAAP EPS to $4.07 to $4.09 for the year. As we noted entering the year, discrete tax benefits and reserve releases last year in the aggregate benefited 2021 non-GAAP EPS by approximately $0.54 and our headwind to our EPS growth profile this year. Based on our expectations for revenue and operating margin in the fourth quarter, we expect non-GAAP EPS of approximately $1.18 to $1.20. We expect to finish 2022 in a stronger position than we've started it, with greater operating discipline and focus.
Dan and I are pleased with our improving execution and we're confident there'll be room for continued improvement. However, with our most important weeks in the holiday season ahead of us, as well as ongoing macroeconomic uncertainty, we believe it is too early to provide a detailed outlook for 2023 on this call. That said, as we're planning for the year ahead, our framework currently includes the following assumptions.
First, that our overall volumes will continue to grow faster than e-commerce across our core markets and that we will continue to take market share. At the same time, we expect -- expect inflationary pressures alongside slowing global growth to weigh on discretionary e-commerce spending, which could continue to be pressured in 2023. Second, that we will deliver at least 100 basis points of non-GAAP operating margin expansion next year, an improvement from our 50 basis point commitment when we reported results last quarter. And third, our commitment to drive solid growth in earnings per share.
Taken together, we believe that our cost savings initiatives and benefits from higher interest rates will enable us to deliver non-GAAP earnings growth of at least 15% next year. We believe this outlook for next year contemplate a sufficiently wide range of revenue outcomes. We're firmly committed to executing on the operational initiatives we discussed last quarter and are highly confident that we will deliver on our 2023 framework. Finally, from a capital allocation standpoint, we plan to take a similarly aggressive approach to share repurchases in 2023 as we have this year.
In closing, despite the many challenges of today's environment, we believe that we are well-positioned to navigate the road ahead. We could not have more confidence in our people and in the priorities we're executing against. We are just beginning to scale several of our newer consumer and merchant experiences and work with several important strategic partners in the ecosystem. For our shareholders, we continued to achieve significant growth, while returning capital in the form of share repurchases. And we're confident that our earnings power and strong free cash flow generation will allow us to continue to invest in our business and extend our leadership position. We're completely focused on delivering for all of our stakeholders and look forward to updating you on our progress.
With that, I'd like to turn the call back to the operator for questions. Briana, please go ahead.
