What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-08-03 compared with 2022-04-28 · 160 added, 127 removed, 242 unchanged (54% of the section changed)

28 unchanged sentences

We are unable to reasonably estimate the total potential financial impact that may ultimately result from this situation.

In the three months ended March 31, 2022 and the year ended December 31, 2021, our total net revenues related to Russia and Ukraine were not material.

In the three and six months ended June 30, 2022 and the year ended December 31, 2021, our total net revenues related to Russia and Ukraine were not material.

For additional information regarding the risks related to the Russia and Ukraine conflict and its potential negative impacts on our business, see Part II, Item 1A, Risk Factors of this Form 10-Q.

The coronavirus (“COVID-19”) pandemic has resulted in government authorities and businesses throughout the world implementing numerous measures intended to contain and limit the spread of COVID-19, including travel restrictions, border closures, quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and shutdowns.

The spread of COVID-19 and increased variants has caused, and may continue to cause us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences, and imposing restrictions on employee travel.

During the first quarter of 2022, we reopened many of our physical offices in locations where permitted by the government authorities.

Employees in these locations have been allowed to return to the office on a voluntary basis.

The spread of COVID-19 and increased variants caused, and may continue to cause us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences, and imposing restrictions on employee travel.

During the first half of 2022, we reopened many of our physical offices in locations where permitted by the government authorities.

We will continue to actively monitor the situation and may take further actions that alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.

1 unchanged sentence

contactless payment methods, buy online and pick up in store) and a significant increase in online spending in certain verticals that have historically had a strong in-store presence.

While our business has experienced some benefits from these behavioral shifts, as pandemic-related restrictions have decreased and consumers have begun reverting to pre-COVID-19 behaviors, the growth in our results of operations has been, and may continue to be, adversely impacted.

While our business had experienced some benefits from these behavioral shifts, as pandemic-related restrictions have decreased and consumers have largely reverted to pre-COVID-19 behaviors, the growth in our results of operations has been, and may continue to be, adversely impacted.

The rapidly changing global market and economic conditions as a result of the COVID-19 pandemic have impacted, and are expected to continue to impact, our operations and business.

The broader implications of the COVID-19 pandemic and related global economic unpredictability on our business, financial condition, and results of operations remain uncertain.

For additional information on how the COVID-19 pandemic has impacted and could continue to negatively impact our business, see below for specific discussion in the respective areas, and also refer to Part I, Item 1A, Risk Factors in our 2021 Form 10-K.

The United Kingdom (“U.K.”) formally exited the European Union (“EU”) and the European Economic Area (“EEA”) on January 31, 2020 (commonly referred to as “Brexit”) with the expiration of the transition period on December 31, 2020.

12 unchanged sentences

and EU (excluding the U.K.) for the periods presented:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net revenues generated from the U.K.

8 % 9 % 8 % 10 %

Net revenues generated from the EU (excluding the U.K.) 17 % 20 % 18 % 20 %

3 unchanged sentences

The change in the percentage of gross loans and interest receivable due from customers in the U.K.

and EU as of March 31, 2022 compared to December 31, 2021 was primarily attributable to expansion of our installment credit products in the EU, particularly in Germany where we have increased our product offerings.

and EU as of June 30, 2022 compared to December 31, 2021 was primarily attributable to expansion of our installment credit products in the EU, particularly in Germany where we have increased our product offerings.

MACROECONOMIC ENVIRONMENT

The impacts of the macroeconomic environment, including uncertainty around the duration and severity of the COVID-19 pandemic, the Russia and Ukraine conflict, supply chain shortages, higher inflation rates, and other related global economic conditions, remain unknown.

A deterioration in macroeconomic conditions could increase the risk of lower consumer spending, merchant bankruptcy, insolvency, business failure, higher credit losses, foreign currency fluctuations, or other business interruption, which may adversely impact our business.

The impacts of the macroeconomic environment, including uncertainty around the duration and severity of the COVID-19 pandemic, the Russia and Ukraine conflict, supply chain shortages, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown.

A deterioration in macroeconomic conditions could increase the risk of lower consumer spending, consumer and merchant bankruptcy, insolvency, business failure, higher credit losses, foreign currency fluctuations, or other business interruption, which may adversely impact our business.

If these conditions continue or worsen, they could adversely impact our future operating results.

OVERVIEW OF RESULTS OF OPERATIONS

The following table provides a summary of our condensed consolidated financial results for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31, Percent Increase/(Decrease)

The following table provides a summary of our condensed consolidated financial results for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

2022 2021 2022 2021

(In millions, except percentages and per share data)

6 unchanged sentences

Effective tax rate 796 % 13 % ** 75 % (2) % **

Net income $ 509 $ 1,097 (54) %

Net income per diluted share $ 0.43 $ 0.92 (53) %

Net income (loss) $ (341) $ 1,184 (129) % $ 168 $ 2,281 (93) %

Net income (loss) per diluted share $ (0.29) $ 1.00 (129) % $ 0.14 $ 1.92 (92) %

Net cash provided by operating activities $ 1,466 $ 1,306 12 % $ 2,708 $ 3,064 (12) %

2 unchanged sentences

** Not meaningful.

THREE MONTHS ENDED MARCH 31, 2022 AND 2021

Net revenues increased $450 million, or 7%, in the three months ended March 31, 2022 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 13%.

Total operating expenses increased $781 million, or 16%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in transaction and credit losses, general and administrative expenses, and technology and development expenses, partially offset by a decline in restructuring and other charges.

Operating income decreased by $331 million, or 32%, in the three months ended March 31, 2022 compared to the same period of the prior year due to growth of operating expenses outpacing growth in net revenues.

Our operating margin was 11% and 17% in the three months ended March 31, 2022 and 2021, respectively.

Operating margin for the three months ended March 31, 2022 was negatively impacted primarily by an increase in transaction expense due to unfavorable changes in product, funding, and merchant mix, as described below under “Operating Expenses”.

Net income decreased by $588 million, or 54%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to the decrease in operating income of $331 million as discussed above, and an increase in income tax expense of $345 million driven primarily by a decrease in discrete tax benefits associated with stock-based compensation deductions.

These factors contributing to the decline in net income were partially offset by improvement year-over-year in other income (expense), net of $88 million driven primarily by net gains on strategic investments in the current period.

THREE MONTHS ENDED JUNE 30, 2022 AND 2021

Net revenues increased $568 million, or 9%, in the three months ended June 30, 2022 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 9%.

Total operating expenses increased $931 million, or 18%, in the three months ended June 30, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in transaction and credit losses.

Operating income decreased by $363 million, or 32%, in the three months ended June 30, 2022 compared to the same period of the prior year due to growth of operating expenses outpacing growth in net revenues.

Our operating margin was 11% and 18% in the three months ended June 30, 2022 and 2021, respectively.

Operating margin for the three months ended June 30, 2022 was negatively impacted primarily by increases in transaction expense and transaction and credit losses, as described below under “Operating Expenses”.

Net loss of $341 million in the three months ended June 30, 2022 reflects a $1.5 billion, or 129%, decrease from net income of $1.2 billion in the three months ended June 30, 2021 due primarily to the decrease in operating income of $363 million as discussed above, a decline in other income (expense), net of $944 million driven primarily by higher losses on strategic investments, and an increase in income tax expense of $218 million driven primarily by higher tax expense related to the intra-group transfer of intellectual property, partially offset by an increase in discrete tax benefits associated with net losses on strategic investments.

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

Net revenues increased $1.0 billion, or 8%, in the six months ended June 30, 2022 compared to the same period of the prior year driven primarily by growth in TPV of 11%.

Total operating expenses increased $1.7 billion, or 17%, in the six months ended June 30, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, increases in transaction and credit losses and technology and development expenses.

Operating income decreased by $694 million, or 32%, in the six months ended June 30, 2022 compared to the same period of the prior year due to growth of operating expenses outpacing growth in net revenues.

Our operating margin was 11% and 18% in the six months ended June 30, 2022 and 2021, respectively.

Operating margin for the six months ended June 30, 2022 was negatively impacted primarily by increases in transaction expense and transaction and credit losses.

Net income decreased by $2.1 billion, or 93%, in the six months ended June 30, 2022 compared to the same period of the prior year due to the previously discussed decrease in operating income of $694 million, a decrease of $856 million in other income (expense), net driven primarily by higher losses on strategic investments, and an increase in income tax expense of $563 million, driven primarily by higher tax expense related to the intra-group transfer of intellectual property and a decrease in discrete tax benefits associated with stock-based compensation deductions, partially offset by an increase in discrete tax benefits associated with net losses on strategic investments.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

1 unchanged sentence

The strengthening or weakening of the United States (“U.S.”) dollar versus the British pound, Euro, Australian dollar, and Canadian dollar, as well as other currencies in which we conduct our international operations, impacts the translation of our net revenues and expenses generated in these foreign currencies into the U.S.

We generated approximately 43% and 49% of our net revenues from customers domiciled outside of the U.S.

in the three months ended March 31, 2022 and 2021, respectively.

We generated approximately 43% of our net revenues from customers domiciled outside of the U.S.

in both the three and six months ended June 30, 2022 as compared to 48% in both the three and six months ended June 30, 2021.

Because we generate substantial net revenues internationally, we are subject to the risks of doing business outside of the U.S.

3 unchanged sentences

Gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues in the same period the forecasted transactions impact earnings.

In the three months ended March 31, 2022, year-over-year foreign currency movements relative to the U.S.

In the three and six months ended June 30, 2022, year-over-year foreign currency movements relative to the U.S.

dollar had the following impact on our reported results:

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

(In millions)

6 unchanged sentences

We also use foreign currency exchange contracts designated as net investment hedges to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries.

Gains and losses associated with these instruments will remain in accumulated other comprehensive income until the underlying foreign subsidiaries are sold or substantially liquidated.

Gains and losses associated with these instruments will remain in accumulated other comprehensive income (loss) until the underlying foreign subsidiaries are sold or substantially liquidated.

Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign currency exchange rates daily, and may face financial exposure if we incorrectly set our foreign currency exchange rates or as a result of fluctuations in foreign currency exchange rates between the times that we set our foreign currency exchange rates and when transactions occur.

8 unchanged sentences

Accordingly, a user may have more than one active account.

The number of active accounts provides management with additional perspective on the growth and overall scale of our platform.

The number of active accounts provides management with additional perspective on the overall scale of our platform, but may not have a direct relationship to our operating results.

• Number of payment transactions are the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

• Number of payment transactions per active account reflects the total number of payment transactions within the previous 12-month period, divided by active accounts at the end of the period.

The number of payment transactions per active account provides management with insight into the average number of times a customer account engages in payments activity on our payments platform in a given period.

The number of payment transactions per active account provides management with insight into the average number of times an account engages in payments activity on our payments platform in a given period.

• TPV is the value of payments, net of payment reversals, successfully completed on our payments platform, or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

17 unchanged sentences

Net revenue analysis

The components of our net revenues for the three months ended March 31, 2022 and 2021 were as follows (in millions):

The components of our net revenues for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Transaction revenues

Transaction revenues grew by $377 million, or 7%, in the three months ended March 31, 2022 compared to the same period of the prior year driven primarily by growth in Braintree products and services and, to a lesser extent, Venmo products and services in each case driven by strong growth in TPV and the number of payment transactions on our payments platform.

Additionally, during the three months ended March 31, 2022 transaction revenues benefited from net gains from our foreign currency exchange contracts as compared to net losses in the prior period.

These factors, which favorably impacted growth in transaction revenues in the current period, were partially offset by a decline in TPV and revenue generated from our core PayPal products and services, due primarily to a decrease in revenue earned on eBay’s marketplace platform.

We expect the decline in revenue earned on eBay’s marketplace platform to continue to negatively impact revenue growth trends, most significantly in the first half of 2022.

The graphs below present the respective key metrics (in millions) for the three months ended March 31, 2022 and 2021:

Transaction revenues grew by $475 million, or 8%, and $852 million, or 7%, in the three and six months ended June 30, 2022 compared to the same periods of the prior year driven primarily by growth in our unbranded card processing volume, which consists primarily of our Braintree products and services, and to a lesser extent, Venmo products and services, in each case driven by growth in TPV and the number of payment transactions on our payments platform.

Additionally, during the three and six months ended June 30, 2022 transaction revenues benefited from an increase in contractual compensation from accounts that violate our user agreement.

This growth in transaction revenues in the three and six months ended June 30, 2022 was partially offset by declines in TPV and revenue generated from our core PayPal products and services, including foreign exchange fees revenue, due primarily to a decrease in revenue earned on eBay’s marketplace platform.

We expect the decline in revenue earned on eBay’s marketplace platform to continue to negatively impact revenue growth trends to a lesser extent in the second half of 2022.

The graphs below present the respective key metrics (in millions) for the three and six months ended June 30, 2022 and 2021:

* Reflects active accounts at the end of the applicable period.

Active accounts as of March 31, 2022 include 3.2 million active accounts contributed by Paidy, Inc.

Active accounts as of June 30, 2022 include 3.2 million active accounts contributed by Paidy, Inc.

(“Paidy”) on the date of acquisition in October 2021.

Number of payment transactions

The following table provides a summary of related metrics:

Three Months Ended March 31, Percent Increase/(Decrease)

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended

June 30, Percent Increase/(Decrease)

2022 2021 2022 2021

Number of payment transactions per active account 48.7 43.5 12 % 48.7 43.5 12 %

1 unchanged sentence

** Not meaningful

We had active accounts of 429 million and 392 million as of March 31, 2022 and 2021, respectively, an increase of 9%.

Our number of payment transactions was 5.2 billion and 4.4 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of 18%.

TPV was $323 billion and $285 billion for the three months ended March 31, 2022 and 2021, respectively, an increase of 13%.

Transaction revenues grew more slowly than TPV and the number of payment transactions in the three months ended March 31, 2022 compared to the same period in the prior year due primarily to a decline in TPV attributable to eBay’s marketplace platform, where we had historically earned higher rates, a decline in foreign exchange fees, and a higher portion of TPV generated through Braintree by bill pay partners, large merchants, and other marketplaces, which generally pay lower rates with higher transaction volumes, partially offset by a favorable impact from hedging.

Changes in prices charged to our customers did not significantly impact transaction revenue growth for the three months ended March 31, 2022.

We had active accounts of 429 million and 403 million as of June 30, 2022 and 2021, respectively, an increase of 6%.

Our total number of payment transactions was 5.5 billion and 4.7 billion for the three months ended June 30, 2022 and 2021, respectively, an increase of 16%.

Our total number of payment transactions was 10.7 billion for the six months ended June 30, 2022, compared to 9.1 billion in the six months ended June 30, 2021, an increase of 17%.

TPV was $340 billion and $311 billion for the three months ended June 30, 2022 and 2021, respectively, an increase of 9%.

TPV was $663 billion for the six months ended June 30, 2022 compared to $596 billion in the six months ended June 30, 2021, an increase of 11%.

Transaction revenues grew more slowly than TPV and the number of payment transactions in the three and six months ended June 30, 2022 compared to the same periods in the prior year due primarily to a decline in foreign currency exchange fees and a decline in TPV attributable to eBay’s marketplace platform, where we had historically earned higher rates, substantially offset by an increase in revenue from our Venmo products and services and a favorable impact from hedging.

Revenues from other value added services

Revenues from other value added services increased $73 million, or 18%, in the three months ended March 31, 2022 compared to the same period in the prior year primarily attributable to increases in our revenue share with Synchrony Bank and, to a lesser extent, an increase in interest and fee revenue on our merchant loans receivable portfolio.

Revenues from other value added services increased $93 million, or 21%, and $166 million, or 19%, in the three and six months ended June 30, 2022, respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share with Synchrony Bank and, to a lesser extent, increases in interest and fee revenue on our merchant loans receivable portfolio and interest earned on certain assets underlying customer account balances resulting from higher interest rates.

Growth in revenues from other value added services in the current period was partially offset by the impact of fee revenue from the servicing of loans facilitated under the U.S.

Government’s Paycheck Protection Program in the three and six months ended June 30, 2021, for which revenue was de minimis in the current period.

OPERATING EXPENSES

The following table summarizes our operating expenses and related metrics we use to assess the trends in each:

Three Months Ended March 31, Percent Increase/(Decrease)

Three Months Ended June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

2022 2021 2022 2021

(In millions, except percentages)

15 unchanged sentences

Transaction expense

Transaction expense for the three months ended March 31, 2022 and 2021 was as follows (in millions):

Transaction expense increased by $542 million, or 24%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to the increase in TPV of 13% and a higher proportion of TPV from Braintree products, which generally have higher expense rates than other products and services.

The increase in transaction expense rate for the three months ended March 31, 2022 compared to the same period of the prior year was also impacted by an increase in transaction expense rates associated with both our Braintree and core PayPal products driven by unfavorable changes in funding and merchant mix.

For the three months ended March 31, 2022 and 2021, approximately 36% and 40% of TPV, respectively, was generated outside of the U.S.

Transaction expense for the three and six months ended June 30, 2022 and 2021 was as follows (in millions):

Transaction expense increased by $520 million, or 21%, and $1.1 billion, or 22%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 9% and 11% for the three and six months ended June 30, 2022, respectively, and a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and services and unfavorable changes in funding mix.

The increase in TPV from unbranded card processing volume also increased the transaction expense rate for the three and six months ended June 30, 2022 compared to the same periods of the prior year.

For the three and six months ended June 30, 2022, approximately 35% and 36% of TPV, respectively, was generated outside of the U.S.

For the three and six months ended June 30, 2021, approximately 39% and 40% of TPV, respectively, was generated outside of the U.S.

Our transaction expense rate is impacted by changes in product mix, merchant mix, regional mix, funding mix, and fees paid to payment processors and other financial institutions.

3 unchanged sentences

Transaction and credit losses

The components of our transaction and credit losses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Transaction and credit losses increased by $96 million, or 35%, in the three months ended March 31, 2022 compared to the same period of the prior year.

Transaction losses were $322 million in the three months ended March 31, 2022 compared to $281 million in the three months ended March 31, 2021, an increase of $41 million, or 15%.

Transaction loss rate (transaction losses divided by TPV) was 0.10% for both the three months ended March 31, 2022 and 2021.

The increase in transaction losses in the three months ended March 31, 2022 was primarily due to an increase in losses related to our Venmo product as compared to the prior year resulting from a higher volume of losses from fraud schemes and an increase in goods and services transactions, which are now eligible for coverage by our protection programs.

Credit losses increased by $55 million in the three months ended March 31, 2022 compared to the same period of the prior year.

The components of credit losses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Three Months Ended March 31,

The components of our transaction and credit losses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Transaction and credit losses increased by $279 million, or 165%, and $375 million, or 85%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year.

Transaction losses were $380 million in the three months ended June 30, 2022 compared to $273 million in the three months ended June 30, 2021, an increase of $107 million, or 39%.

Transaction losses were $702 million in the six months ended June 30, 2022 compared to $554 million in the six months ended June 30, 2021, an increase of $148 million, or 27%.

Transaction loss rate (transaction losses divided by TPV) was 0.11% for both the three and six months ended June 30, 2022 and 0.09% for both the three and six months ended June 30, 2021.

The increase in transaction losses in the three and six months ended June 30, 2022 was primarily attributable to a $114 million loss related to an ongoing merchant insolvency proceeding.

This increase was partially offset by recoveries attributable to enhancements in our fraud recoupment capabilities.

The increase in transaction losses in the six months ended June 30, 2022 was also attributable to an increase in losses related to our Venmo products and services resulting from fraud schemes and an increase in goods and services transactions, which are now eligible for coverage by our protection programs.

Credit losses increased by $172 million, or 165%, and $227 million, or 203%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year.

The components of credit losses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Net charge-offs (1)

$ 60 $ 52 $ 112 $ 128

Reserve build (release) (2)

8 (156) 3 (240)

Credit losses $ 68 $ (104) $ 115 $ (112)

1 unchanged sentence

(2) Reserve build (release) represents change in allowance for principal receivables excluding foreign currency remeasurement.

The provision in the three months ended March 31, 2022 was attributable to originations during the period, partially offset by improvements in the credit quality of loans outstanding, and a reduction in the volatility of model inputs representing current and projected macroeconomic conditions, including unemployment rates, relative to the same period in the prior year.

The benefit in the three months ended March 31, 2021 was attributable to the reduction of our allowance for loans and interest receivable due to improvements in both current and projected macroeconomic conditions at that point in time and the credit quality of loans outstanding, partially offset by an increase in the provision due to new originations.

During both of these periods, allowances for our merchant and consumer portfolios included qualitative adjustments which took into account uncertainty with respect to macroeconomic conditions, historical loss rates when applicable, and uncertainty around the financial health of our borrowers and effectiveness of loan modification programs made available to merchants.

The consumer loans and interest receivable balance as of March 31, 2022 and 2021 was $4.1 billion and $2.2 billion, respectively, representing a year-over-year increase of 83% driven by the expansion of our installment credit products, including the entry into new international markets in the fourth quarter of 2021.

Approximately 48% and 75% of our consumer loans receivable outstanding as of March 31, 2022 and 2021, respectively, were due from consumers in the U.K.

The provision in the three and six months ended June 30, 2022 was attributable to originations during the period, partially offset by improvements in the credit quality of loans outstanding.

The benefit in the three and six months ended June 30, 2021 was attributable to the reduction of our allowance for loans and interest receivable due to improvements in both current and projected macroeconomic conditions at that point in time and the credit quality of loans outstanding, partially offset by an increase in the provision due to new originations.

During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments which took into account uncertainty with respect to macroeconomic conditions, historical loss rates when applicable, and uncertainty around the financial health of our borrowers and effectiveness of loan modification programs made available to merchants.

The consumer loans and interest receivable balance as of June 30, 2022 and 2021 was $4.5 billion and $2.5 billion, respectively, representing a year-over-year increase of 77% driven by the expansion of our installment credit products, including additional offerings in Germany as well as the entry into new international markets in the fourth quarter of 2021.

Approximately 43% and 68% of our consumer loans receivable outstanding as of June 30, 2022 and 2021, respectively, were due from consumers in the U.K.

The decline in the percentage of consumer loans receivable outstanding in the U.K.

at March 31, 2022 compared to March 31, 2021 was due to overall growth in the consumer loan receivables portfolio, particularly from installment credit products in other markets including Germany, Japan, and the U.S.

at June 30, 2022 compared to June 30, 2021 was due to overall growth in the consumer loan receivables portfolio, particularly from installment credit products in other markets including Germany, Japan, and the U.S.

The following table provides information regarding the credit quality of our consumer loans and interest receivable balance:

5 unchanged sentences

We offer access to merchant finance products for certain small and medium-sized businesses, which we refer to as our merchant finance offerings.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of March 31, 2022 were $1.5 billion, compared to $1.2 billion as of March 31, 2021, representing a year-over-year increase of 31%.

The increase in merchant loans, advances, and interest and fees receivable outstanding was due primarily to growth in our PPBL product in the U.S.

Approximately 83% and 7% of our merchant receivables outstanding as of March 31, 2022 were due from merchants in the U.S.

and U.K., respectively, as compared to 79% and 11%, respectively, as of March 31, 2021.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of June 30, 2022 were $1.7 billion, compared to $1.3 billion as of June 30, 2021, representing a year-over-year increase of 33%.

The increase in merchant loans, advances, and interest and fees receivable outstanding was due primarily to growth in our PayPal Business Loan products in the U.S.

Approximately 84% and 6% of our merchant receivables outstanding as of June 30, 2022 were due from merchants in the U.S.

and U.K., respectively, as compared to 80% and 10%, respectively, as of June 30, 2021.

The following table provides information regarding the credit quality of our merchant loans, advances, and interest and fees receivable balance:

Percent of merchant loans and interest receivable current 92.6 % 82.1 %

Percent of merchant loans and interest receivable > 90 days outstanding (1)

Percent of merchant loans, advances, and interest and fees receivable current 93.2 % 87.7 %

Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding (1)

Net charge-off rate (2)

1 unchanged sentence

(2) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the period.

The increase in the percent of current merchant receivables, decrease in percent of merchant receivables greater than 90 days outstanding, and decrease in the net charge-off rate for merchant receivables at March 31, 2022 as compared to March 31, 2021 were primarily due to the charge-off of accounts that experienced financial difficulties as a result of the COVID-19 pandemic in the prior year as well as improved credit quality of our merchant loan portfolio due to modifications to the acceptable risk parameters, including stricter eligibility requirements, as discussed below.

The increase in the percent of current merchant receivables, decrease in percent of merchant receivables greater than 90 days outstanding, and decrease in the net charge-off rate for merchant receivables at June 30, 2022 as compared to June 30, 2021 were primarily due to the charge-off of accounts, in the prior period, that experienced financial difficulties as a result of the COVID-19 pandemic as well as improved credit quality of our merchant loan portfolio due to modifications to the acceptable risk parameters, including stricter eligibility requirements, as discussed below.

Modifications to the acceptable risk parameters of our credit products in 2020 in response to the impacts of the COVID-19 pandemic resulted in the implementation of a number of risk mitigation strategies, including a reduction in maximum loan size, stricter eligibility terms, and a shift from automated to manual underwriting of loans and advances, all of which resulted in a decrease in originations as compared to pre-pandemic levels.

We continue to evaluate and modify our acceptable risk parameters in response to the changing macroeconomic environment, and changes to our acceptable risk parameters in 2021 resulted in a gradual increase in originations, and thus a higher merchant receivable balance as of March 31, 2022 as compared to March 31, 2021.

While the impact of the COVID-19 pandemic on the economic environment remains uncertain, the longer and more severe the pandemic, the more likely it may have a material adverse impact on our borrowing base, which is primarily comprised of small and medium-sized merchants.

1 unchanged sentence

Customer support and operations

Customer support and operations expenses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Customer support and operations expenses increased by $16 million, or 3%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to increases in third-party credit processing fees and customer onboarding and compliance costs, partially offset by a decline in contractors and consulting costs.

Customer support and operations expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Customer support and operations expenses increased by $15 million, or 3%, and $31 million, or 3%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year due primarily to increases in expenses related to software that supports our consumer loan products, other operating charges, and employee-related expenses, partially offset by a decline in contractors and consulting costs.

The increase in the six months ended June 30, 2022 was also attributable to increases in third-party credit processing fees and customer onboarding and compliance costs.

Sales and marketing

Sales and marketing expenses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Sales and marketing expenses decreased by $8 million, or 1%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to lower spending on marketing campaigns and contractor and consulting costs, partially offset by an increase in expense related to targeted user incentives and an increase in amortization of acquired intangible assets.

Sales and marketing expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Sales and marketing expenses decreased by $33 million, or 5%, and $41 million, or 3%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year due primarily to lower spending on marketing campaigns, partially offset by an increase in amortization of acquired intangible assets.

Technology and development

Technology and development expenses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Technology and development expenses increased by $74 million, or 10%, in the three months ended March 31, 2022 compared to the same period of the prior year due primarily to increases in cloud computing services utilized in delivering our products and services, costs related to contractors and consultants, and, to a lesser extent, amortization expense associated with internally developed software.

Technology and development expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Technology and development expenses increased by $69 million, or 9%, $143 million, or 10%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year due primarily to increases in cloud computing services utilized in delivering our products and services and employee-related expenses.

To a lesser extent, the increase in the six months ended June 30, 2022 was also driven by an increase in costs related to contractors and consultants and amortization expense associated with internally developed software.

General and administrative

General and administrative expenses for the three months ended March 31, 2022 and 2021 were as follows (in millions):

General and administrative expenses increased by $83 million, or 16%, in the three months ended March 31, 2022 compared to the same period of the prior year which was primarily attributable to increases in employee-related expenses driven mainly by growth in stock-based compensation.

General and administrative expenses for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

General and administrative expenses decreased by $8 million, or 2%, and increased by $75 million, or 7%, in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year.

The decrease in the three months ended June 30, 2022 was attributable to a decline in employee-related expenses.

The increase in the six months ended June 30, 2022 was primarily attributable to an increase in employee-related expenses driven mainly by growth in stock-based compensation.

Restructuring and other charges

Restructuring and other charges for the three months ended March 31, 2022 and 2021 were as follows (in millions):

Restructuring and other charges decreased by $22 million in the three months ended March 31, 2022 compared to the same period of the prior year.

Restructuring and other charges for the three and six months ended June 30, 2022 and 2021 were as follows (in millions):

Restructuring and other charges increased by $89 million and $67 million in the three and six months ended June 30, 2022 compared to the same periods of the prior year.

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency.

As part of this effort, we are focusing on the reduction of redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three months ended March 31, 2022 were $20 million.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs.

Additionally, we are continuing to review our facility needs due to our new work models.

As part of this effort, we are focusing on reducing redundant operations and simplifying our organizational structure.

The associated restructuring charges during the three and six months ended June 30, 2022 were $71 million and $91 million, respectively.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs.

This strategic action and cash payments associated with this plan are expected to be substantially completed by the fourth quarter of 2022.

3 unchanged sentences

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters.

It resulted in restructuring charges of $32 million during the three months ended March 31, 2021.

We primarily incurred employee severance and benefits costs, as well as other associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

The associated restructuring charges for the three months ended June 30, 2021 were de minimis and for the six months ended June 30, 2021 were $27 million.

We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

For information on the associated restructuring liability, see “Note 17—Restructuring and Other Charges” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Additionally, in the three months ended March 31, 2022 and 2021, we incurred asset impairment charges of $16 million and $26 million, respectively, due to exiting certain leased properties which resulted in a reduction of certain right of use lease assets and related leasehold improvements.

Additionally, we are continuing to review our facility needs due to our new and evolving work models.

We incurred asset impairment charges of $19 million and $35 million in the three and six months ended June 30, 2022, respectively, and nil and $26 million in the three and six months ended June 30, 2021, respectively, due to exiting certain leased properties which resulted in a reduction of right of use lease assets and related leasehold improvements.

Other income (expense), net

Other income (expense), net of ($82) million during the three months ended March 31, 2022 decreased $88 million, or 52%, as compared to ($170) million in the same period of the prior year due primarily to net gains on strategic investments in the current period compared to net losses in the prior period partially offset by an increase in foreign currency exchange losses, resulting primarily from actions taken in connection with our decision to suspend transactional services in Russia.

Other income (expense), net decreased $944 million and $856 million in the three and six months ended June 30, 2022, respectively, compared to the same periods of the prior year due primarily to net losses on strategic investments in the current periods compared to net gains in the prior periods.

Additionally, the six months ended June 30, 2022 was impacted, to a lesser extent, by an increase in foreign currency exchange losses, resulting primarily from actions taken in connection with our decision to suspend transactional services in Russia.

Income tax expense (benefit)

Our effective income tax rate was 19% and (26)% for the three months ended March 31, 2022 and 2021, respectively.

The increase in our effective income tax rate for the three months ended March 31, 2022 compared to the same period of the prior year was primarily due to a decrease in discrete tax benefits associated with stock-based compensation deductions and, to a lesser extent, a new requirement to capitalize and amortize previously deductible research and experimental expenses.

Our effective income tax rate was 796% and 13% for the three months ended June 30, 2022 and 2021, respectively, and 75% and (2)% for the six months ended June 30, 2022 and 2021, respectively.

The increase in our effective income tax rate for the three and six months ended June 30, 2022 compared to the same periods of the prior year was primarily due to tax expense related to the intra-group transfer of intellectual property with no comparable activity in the three and six months ended June 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES

We require liquidity and access to capital to fund our global operations, including customer protection programs, our credit products, capital expenditures, investments in our business, potential acquisitions and strategic investments, working capital, and other cash needs.

We believe that our existing cash, cash equivalents, and investments, cash expected to be generated from operations, and our expected access to capital markets, together with potential external funding through third-party sources, will be sufficient to meet our cash requirements within the next twelve months and beyond.

We require liquidity and access to capital to fund our global operations, including our customer protection programs, credit products, capital expenditures, investments in our business, potential acquisitions and strategic investments, working capital, and other cash needs.

SOURCES OF LIQUIDITY

Cash, cash equivalents, investments, and restricted cash

The following table summarizes our cash, cash equivalents, and investments as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

The following table summarizes our cash, cash equivalents, and investments as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

(In millions)

1 unchanged sentence

$ 12,950 $ 12,981

(1) Excludes assets related to funds receivable and customer accounts of $37.0 billion and $36.1 billion at March 31, 2022 and December 31, 2021, respectively.

(2) Excludes total restricted cash of $27 million and $109 million at March 31, 2022 and December 31, 2021, respectively, and strategic investments of $3.2 billion as of both March 31, 2022 and December 31, 2021, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $8.1 billion at March 31, 2022 and $7.4 billion at December 31, 2021, or 68% and 57% of our total cash, cash equivalents, and investments as of those respective dates.

(1) Excludes assets related to funds receivable and customer accounts of $37.2 billion and $36.1 billion at June 30, 2022 and December 31, 2021, respectively.

(2) Excludes total restricted cash of $22 million and $109 million at June 30, 2022 and December 31, 2021, respectively, and strategic investments of $2.6 billion and $3.2 billion as of June 30, 2022 and December 31, 2021, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $9.2 billion at June 30, 2022 and $7.4 billion at December 31, 2021, or 71% and 57% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2021, all of our cash, cash equivalents, and investments held by foreign subsidiaries were subject to U.S.

7 unchanged sentences

The following table summarizes our condensed consolidated statements of cash flows:

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

6 unchanged sentences

Operating activities

We generated cash from operating activities of $1.2 billion in the three months ended March 31, 2022 due primarily to operating income of $711 million, as well as adjustments for non-cash expenses including stock-based compensation of $429 million, provision for transaction and credit losses of $369 million, and depreciation and amortization of $328 million.

Net income was also adjusted for changes in other assets and liabilities of $375 million, primarily related to actual cash transaction losses incurred during the period.

We generated cash from operating activities of $1.8 billion in the three months ended March 31, 2021 due primarily to operating income of $1.0 billion, as well as adjustments for non-cash expenses including stock-based compensation of $368 million, depreciation and amortization of $300 million, and provision for transaction and credit losses of $273 million.

Net income was also adjusted for net losses on our strategic investments of $120 million, changes in accounts receivable of $97 million, and changes in other assets and liabilities of $287 million, primarily related to actual cash transaction losses during the period.

In the three months ended March 31, 2022 and 2021, cash paid for income taxes, net was $47 million and $87 million, respectively.

We generated cash from operating activities of $2.7 billion in the six months ended June 30, 2022 due primarily to operating income of $1.5 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $817 million, stock-based compensation of $741 million, and depreciation and amortization of $661 million.

Net income was also adjusted for net losses on our strategic investments of $658 million, changes in deferred income taxes of $457 million, and changes in other assets and liabilities of $194 million, primarily related to actual cash transaction losses incurred during the period partially offset by an increase in other liabilities.

We generated cash from operating activities of $3.1 billion in the six months ended June 30, 2021 due primarily to operating income of $2.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $758 million, depreciation and amortization of $616 million, and provision for transaction and credit losses of $442 million.

Net income was also adjusted for net gains on our strategic investments of $163 million, changes in accounts receivable of $112 million, changes in deferred income taxes of $103 million, and changes in other assets and liabilities of $793 million, primarily related to actual cash transaction losses during the period.

In the six months ended June 30, 2022 and 2021, cash paid for income taxes, net was $444 million and $380 million, respectively.

Investing activities

The net cash used in investing activities of $751 million in the three months ended March 31, 2022 was due primarily to purchases of investments of $8.6 billion, purchases and originations of loans receivable of $5.5 billion, changes in funds receivable from customers of $239 million, and purchases of property and equipment of $191 million.

These cash outflows were partially offset by maturities and sales of investments of $8.8 billion and principal repayment of loans receivable of $5.1 billion.

The net cash used in investing activities of $1.6 billion in the three months ended March 31, 2021 was due primarily to purchases of investments of $11.0 billion, purchases and originations of loans receivable of $2.1 billion, purchases of property and equipment of $221 million, and changes in funds receivable from customers of $180 million.

The net cash used in investing activities of $4.7 billion in the six months ended June 30, 2022 was due primarily to purchases of investments of $13.2 billion, purchases and originations of loans receivable of $12.3 billion, changes in funds receivable from customers of $882 million, and purchases of property and equipment of $366 million.

These cash outflows were partially offset by maturities and sales of investments of $11.1 billion and principal repayment of loans receivable of $10.9 billion.

The net cash used in investing activities of $2.7 billion in the six months ended June 30, 2021 was due primarily to purchases of investments of $20.2 billion, purchases and originations of loans receivable of $4.9 billion, acquisitions (net of cash acquired) of $469 million, and purchases of property and equipment of $468 million.

These cash outflows were partially offset by maturities and sales of investments of $18.7 billion, principal repayment of loans receivable of $4.6 billion, and changes in funds receivable from customers of $127 million.

Financing activities

The net cash used in financing activities of $695 million in the three months ended March 31, 2022 was due primarily to the repurchase of $1.5 billion of our common stock under our stock repurchase program, tax withholdings related to net share settlement of equity awards of $244 million, and repayment of borrowings under the Prior Credit Agreement (as defined below under “Available credit and debt”) of $104 million, partially offset by changes in funds payable and amounts due to customers of $863 million and borrowings under our Paidy credit agreements of $286 million.

We generated cash from financing activities of $827 million in the three months ended March 31, 2021 due primarily to changes in funds payable and amounts due to customers of $3.0 billion, partially offset by the repurchase of $1.3 billion of our common stock under our stock repurchase program, and tax withholdings related to net share settlement of equity awards of $863 million.

The net cash generated from financing activities of $750 million in the six months ended June 30, 2022 was due primarily to borrowings under financing arrangements of $3.3 billion (including proceeds from the issuance of fixed rate debt in May 2022 and borrowing under our Paidy credit agreements) and changes in funds payable and amounts due to customers of $1.6 billion.

These cash inflows were partially offset by the repurchase of $2.3 billion of our common stock under our July 2018 stock repurchase program, repayment of borrowings under financing arrangements of $1.7 billion (including the repurchase and redemption of certain fixed rate notes and repayment of borrowings under a prior credit agreement, both described further below under “Available credit and debt”), and tax withholdings related to net share settlement of equity awards of $275 million.

We generated cash from financing activities of $630 million in the six months ended June 30, 2021 due primarily to changes in funds payable and amounts due to customers of $3.0 billion, partially offset by the repurchase of $1.5 billion of our common stock under our July 2018 stock repurchase program, and tax withholdings related to net share settlement of equity awards of $940 million.

Effect of exchange rates on cash, cash equivalents, and restricted cash

Foreign currency exchange rates for the three months ended March 31, 2022 and 2021 had a positive impact of $18 million and a negative impact of $42 million, respectively, on cash, cash equivalents, and restricted cash.

The positive impact on cash, cash equivalents, and restricted cash in the three months ended March 31, 2022 was due primarily to the favorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar, partially offset by the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Russian ruble and Japanese yen.

The negative impact on cash, cash equivalents, and restricted cash in the three months ended March 31, 2021 was due primarily to fluctuations in the exchange rate of the U.S.

dollar to the Euro, Australian dollar, and Swedish krona.

Foreign currency exchange rates for the six months ended June 30, 2022 and 2021 had a negative impact of $136 million and $34 million, respectively, on cash, cash equivalents, and restricted cash.

The negative impact on cash, cash equivalents, and restricted cash in the six months ended June 30, 2022 and 2021 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar and, to a lesser extent, the Euro and Swedish krona.

The negative impact on cash, cash equivalents, and restricted cash in the six months ended June 30, 2022 was also attributable to unfavorable fluctuations in the exchange rate of the U.S.

dollar to the Japanese yen.

Available credit and debt

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provides for an unsecured revolving credit facility of ¥60.0 billion (approximately $493 million as of March 31, 2022).

In March 2022, ¥32.8 billion (approximately $269 million) was drawn down under the Paidy Credit Agreement.

Accordingly, at March 31, 2022, ¥27.2 billion (approximately $224 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

In May 2022, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $3.0 billion.

Proceeds from the issuance of these notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses or assets or strategic investments.

We used a portion of the proceeds to repurchase and redeem $1.6 billion in notes from our prior debt issuances in September 2019 and May 2020.

As of June 30, 2022, we had $10.4 billion in fixed rate debt outstanding with varying maturity dates.

In the six months ended June 30, 2022, ¥37.8 billion (approximately $277 million) was drawn down under the Paidy Credit Agreement.

Accordingly, at June 30, 2022, ¥22.2 billion (approximately $162 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Prior Credit Agreement”).

The Prior Credit Agreement provided for a secured revolving credit facility of approximately ¥22.8 billion (approximately $198 million at acquisition).

The Prior Credit Agreement provided for a secured revolving credit facility of approximately ¥22.8 billion (approximately $198 million at the time of acquisition).

In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid outstanding borrowings.

6 unchanged sentences

The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement.

As of March 31, 2022, we had a total of $4.5 billion in cash withdrawals offsetting our $4.5 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

As of June 30, 2022, we had a total of $4.2 billion in cash withdrawals offsetting our $4.2 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

As of March 31, 2022, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

As of June 30, 2022, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

We expect that these credit rating agencies will continue to monitor our performance, including our capital structure and results of operations.

6 unchanged sentences

Growth in our portfolio of loan receivables increases our liquidity needs and any inability to meet those liquidity needs could adversely affect our business.

We continue to evaluate partnerships and third-party sources of funding for our loans receivable portfolio.

We are currently evaluating partnerships and third-party sources of funding for our credit products.

In June 2018, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 35% of European customer balances held in our Luxembourg banking subsidiary to be used for European and U.S.

credit activities.

As of March 31, 2022, the cumulative amount approved by management to be designated for credit activities aggregated to $2.7 billion and represented approximately 27% of European customer balances that have been made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

We may periodically seek to designate additional amounts of customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements.

While our objective is to expand the availability of our credit products with capital from external sources, there can be no assurance that we will be successful in achieving that goal.

During the second quarter of 2022, an additional $300 million was approved to fund such credit activities.

As of June 30, 2022, the cumulative amount approved by management to be designated for credit activities aggregated to $3.0 billion and represented approximately 28% of European customer balances that have been made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

We may periodically seek to designate additional amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements.

Under certain exceptional circumstances, corporate liquidity could be called upon to meet our obligations related to our European customer balances.

While our objective is to expand the availability of our credit products with capital from external sources, there can be no assurance that we will be successful in achieving that goal.

Customer protection programs

The risk of losses from our buyer and seller protection programs are specific to individual customers, merchants, and transactions, and may also be impacted by regional variations in, and changes or modifications to, the programs, including as a result of changes in regulatory requirements.

For the periods presented in these condensed consolidated financial statements included in this report, our transaction loss rate was 0.10% of TPV.

For the periods presented in these condensed consolidated financial statements included in this report, our transaction loss rate ranged between 0.09% and 0.11% of TPV.

Historical loss rates may not be indicative of future results.

Stock repurchases

During the three months ended March 31, 2022, we repurchased approximately $1.5 billion of our common stock in the open market under our stock repurchase program authorized in July 2018.

As of March 31, 2022, a total of approximately $3.6 billion remained available for future repurchases of our common stock under our July 2018 stock repurchase program.

During the six months ended June 30, 2022, we repurchased approximately $2.3 billion of our common stock in the open market under our stock repurchase program authorized in July 2018.

In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $15.0 billion of our common stock, with no expiration from the date of authorization.

As of June 30, 2022, a total of approximately $2.8 billion and $15.0 billion remained available for future repurchases of our common stock under our July 2018 and June 2022 stock repurchase programs, respectively.

Other considerations

3 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis