Thanks, Dan. I want to start off by thanking our customers, partners, and employees for helping us deliver an outstanding year. 2019 was another great year for PayPal and I'm pleased with our team's accomplishments. The results we're reporting today demonstrate the consistent execution of our strategy to realize long-term sustainable value creation. We're entering 2020 ready to build on our momentum, focused on our key initiatives and excited about the year ahead.
Now to our fourth quarter results, revenue in the fourth quarter increased 17% on a spot basis and 18% on a currency neutral basis to $4.96 billion. The translation effect from the stronger dollar negatively impacted revenue by $35 million. This impact was more than offset by $58 million in hedge gains. Relative to the fourth quarter of 2018 U.S. revenue grew 19% and international revenue grew 17% on a currency neutral basis.
Transaction revenue grew 18% and revenue from other value added services grew 14%. Strength across core PayPal, Braintree, and Venmo all contributed to transaction revenue growth. Other value added services revenue growth reflected solid performance of our credit business offset by the lapping of interim servicing revenue from Synchrony.
As a reminder, this headwind will continue through the second quarter of this year. In the fourth quarter, transaction take rate was 2.27% and total take rate was 2.49%. Compared to Q4 2018, this was a decline of 8 basis points and 9 basis points respectively, which is the lowest level of decline we've reported.
Strong P2P growth continues to be the largest driver of the year-over-year decline for both transaction and total take rate.
In addition, on a sequential basis, both transaction and total take rate improved. The diversification of our business and our pricing initiatives allowed us to deliver these results.
Volume-based expenses increased 20% in the fourth quarter to $2.3 billion. Transaction expense was 96 basis points as a rate of TPV, consistent with the fourth quarter of 2018. Transaction loss was 15 basis points as a rate of TPV, an improvement of 3 basis points from Q4 2018.
Continued improvements in our risk management capabilities contributed to the strong performance in our loss rate. Loan losses were 4 basis points as a rate of TPV, an increase of 1 basis point from Q4 last year. This increase primarily resulted from growth in both our merchant and international consumer loan portfolios.
Transaction margin dollars grew 16% to $2.7 billion in the fourth quarter. Transaction margin as a rate was 53.8%, a decline of approximately 90 basis points versus Q4 '18.
Non-transaction related expenses grew 7% versus last year, and increased only $0.13 for every incremental dollar of revenue. On a non-GAAP basis, operating income in the fourth quarter grew 28% to $1.2 billion.
Our operating margin was 23.6%, expanding 204 basis points from last year as we delivered leverage across all of our non-transaction related expenses. This represents our strongest performance ever, demonstrating our sustainability to scale at a low incremental cost.
Other income in the fourth quarter declined by $33 million relative to last year. Net interest expense resulting from our debt issuance in September, as well as lower net unrealized gains from our strategic investments contributed to this result.
As we disclosed in our 8-K issued on January 9th, in the fourth quarter, on a per share basis, net unrealized gains contributed $0.02 to EPS versus $0.04 last year.
Starting in 2020, we're updating our non-GAAP methodology to exclude the impact of gains and losses on our strategic investments. We believe this presentation will provide a better understanding of our operating performance and a more meaningful comparison of our results between periods. With this change, we no longer will issue an 8-K following quarter end, disclosing the effect of net unrealized gains and losses on our results.
In the fourth quarter, our non-GAAP effective tax rate was 17.2% versus 17.7% last year. Non-GAAP EPS for the fourth quarter grew 24% to $0.86. Adjusting for net unrealized gains non-GAAP EPS grew 28%. We ended the quarter with cash, cash equivalents and investments of $13.6 billion.
In addition, we generated more than $1 billion of free cash flow or approximately $0.22 of free cash flow for every dollar of revenue.
During the quarter, we've returned $305 million in capital to shareholders through share repurchases.
I'd now like to discuss our guidance for the full year and the first quarter. Relative to the preliminary outlook for 2020 that we provided in October, we raising our revenue expectations.
We are also raising our earnings outlook excluding the dilutive effect of acquisitions announced in 2019.
The guidance we're providing has been updated to reflect the impacts from our recent acquisitions of Honey and GoPay, the adoption of CECL, the new accounting standard for recognizing credit losses and our expectations for currency movements.
For the full year, we expect TPV to grow in the mid 20 percentage range.
We expect to generate revenue between $20.8 billion and $21 billion. This range represents currency neutral growth of 18% to 19%, an increase from our initial outlook of 17%.
Our guidance includes about 1.5 points of growth from the acquisition of Honey at the midpoint of the range.
Consistent with our preliminary outlook, this revenue guidance includes an approximate 1 point headwind to growth from the lapping of our acquisitions of iZettle and Hyperwallet as well as an approximate 1 point headwind from eBay's managed payments transition.
In 2019 revenue from eBay's Marketplaces business declined 4% and represented 14% of our revenue, and approximate 300 basis point decline from 2018. Since the end of 2015, eBay's annual contribution to our revenue has consistently declined from 26% of our total to 14% today and has grown at a compound annual rate of 2%.
Over the same period, the rate of growth for the rest of our business has been 22% or 10 times eBay's growth rate.
As a result, we remain confident in our ability to successfully navigate eBay's continued transition to its managed payments program.
I would now like to turn to our EPS guidance. On our third quarter call, we indicated that our preliminary outlook for EPS growth in 2020 was 17% to 18%. Since then our expectations for core earnings growth have improved.
Before incorporating the impact of the two acquisitions we recently closed, we now expect our EPS to grow between 18% and 20%. This growth rate of 18% to 20% incorporates a 1 point headwind to earnings growth from CECL, while reflecting our underlying business strength.
In addition, we expect $0.08 to $0.10 in dilution or about a 3 point headwind to earnings growth from our acquisitions of Honey and GoPay.
As a result, we now expect non-GAAP earnings per share to grow 15% to 17% and be in the range of $3.39 to $3.46.
While we expect the acquisition of Honey to be diluted this year, we expect this transaction to be accretive to earnings in 2021. Honey is an exciting addition to our platform and this year we will be accelerating investments to develop a truly integrated and differentiated wallet experience for our customers. We're also realizing dilution in 2020 from funding this acquisition with cash.
In addition in 2020 following our acquisition of GoPay, we're investing in our local Chinese infrastructure and capabilities and building upon our new partnership with China UnionPay to strengthen the foundation of our cross-border platform for small and medium sized Chinese businesses and develop a cross-border shopping experience for Chinese consumers.
We will also be investing to enable in-store shopping experiences for non-Chinese consumers visiting China.
I'd also like to provide some context for our expectations related to our operating margin performance. In 2019, we expanded our operating margin by approximately 160 basis points or nearly 3 times the average annual rate of expansion contemplated by our medium-term guidance. In 2020, we expect our operating margin to remain essentially flat as a result of absorbing acquisition-related dilution, while continuing to invest in our other key strategic initiatives. This year as Dan just discussed, in addition to prioritizing spending on our recent acquisitions, we're also investing in Venmo, our new partnerships, international expansion and our in-store point-of-sale strategies.
We expect to deliver operating margin performance consistent with the highest in our history, while investing in these significant growth opportunities.
We anticipate our non-GAAP effective tax rate will be between 16% and 18%.
For 2020, we expect free cash flow to exceed $4 billion, as we continue to generate approximately $0.20 of free cash flow for every dollar of revenue. In 2019, we returned more than $1.4 billion in cash to shareholders through stock repurchases and announced approximately $4.1 billion of acquisitions. In 2020, we will continue to balance return of capital with growth investments while maintaining an efficient capital structure.
Our acquisition pipeline is healthy and our balance sheet gives us the flexibility to be opportunistic. At the same time, we plan to continue to return cash to shareholders, consistent with our stated commitment for long-term capital return.
For the first quarter, we expect revenue in the range of $4.78 billion to $4.84 billion or 17% to 18% growth on a currency-neutral basis.
We expect non-GAAP earnings per share to be in the range of $0.76 to $0.78, representing growth of 15% to 18%.
Excluding the impact of acquisitions, our earnings guidance represents 19% to 22% growth.
We expect our acquisitions announced in 2019 to have a more dilutive impact on earnings in the first half of 2020 than in the back half of the year.
As a result, the $0.08 to $0.10 per share of expected non-GAAP earnings dilution is more heavily weighted to the first and second quarters of 2020.
In summary, we're pleased with our performance in 2019. We delivered strong revenue growth, our highest operating margin and record operating margin expansion and free cash flow generation. At the same time, we advanced our strategic priorities in our core and developing markets, strengthened our consumer and merchant value propositions, and launched new partnerships that are expanding our total addressable market. We're committed to our medium-term financial targets and are confident that the strength of our diversified platform, flexibility of our balance sheet and execution capabilities will allow us to continue delivering value to our stakeholders.
With that, I'll hand it back over to the operator for questions. Thank you.