What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-04 compared with 2022-08-03 · 154 added, 143 removed, 259 unchanged (53% of the section changed)

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

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.

In the three and nine months ended September 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.

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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.

Beginning in 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.

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.

The spread of COVID-19 accelerated the shift from in-store shopping and traditional in-store payment methods (e.g., cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions (e.g., 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 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 II, Item 1A, Risk Factors of this Form 10-Q.

For additional information on how the COVID-19 pandemic has impacted and could continue to negatively impact our business, refer to Part II, Item 1A, Risk Factors of this Form 10-Q.

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.

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The tables below provide the percentage of our total net revenues and gross loans and interest receivable from the U.K.

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

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

and EU for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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7 % 9 % 8 % 9 %

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

Net revenues generated from the EU 17 % 18 % 17 % 20 %

September 30,

2022 December 31,

Gross loans and interest receivable due from customers in the U.K.

Gross loans and interest receivable due from customers in the EU (excluding the U.K.) 29 % 21 %

Gross loans and interest receivable due from customers in the EU 27 % 21 %

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

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.

and EU as of September 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

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OVERVIEW OF RESULTS OF OPERATIONS

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)

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

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended September 30, Percent Increase/(Decrease)

2022 2021 2022 2021

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Other income (expense), net $ 460 $ 122 277 % $ (337) $ 181 (286) %

Income tax expense (benefit) 390 172 127 % 510 (53) **

Income tax expense 248 78 218 % 758 25 **

Effective tax rate 16 % 7 % ** 34 % 1 % **

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** Not meaningful.

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.

THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Net revenues increased $664 million, or 11%, in the three months ended September 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 $589 million, or 11%, in the three months ended September 30, 2022 compared to the same period of the prior year due primarily to an increase in transaction expense, and to a lesser extent, an increase in transaction and credit losses.

Operating income increased by $75 million, or 7%, in the three months ended September 30, 2022 compared to the same period of the prior year due to the increase in net revenues exceeding the increase in operating expenses.

Our operating margin was 16% and 17% in the three months ended September 30, 2022 and 2021, respectively.

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

Net income increased $243 million, or 22%, in the three months ended September 30, 2022 as compared to the same period of the prior year due to the previously discussed increase in operating income of $75 million and an increase in other income (expense), net of $338 million driven by higher gains on strategic investments, partially offset by an increase in income tax expense of $170 million driven primarily by higher tax expense related to net gains on strategic investments and lower tax benefits associated with discrete adjustments.

NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

Net revenues increased $1.7 billion, or 9%, in the nine months ended September 30, 2022 compared to the same period of the prior year driven primarily by growth in TPV of 10%.

Total operating expenses increased $2.3 billion, or 15%, in the nine months ended September 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, technology and development expenses, and restructuring and other charges.

Operating income decreased by $619 million, or 19%, in the nine months ended September 30, 2022 compared to the same period of the prior year due to growth of operating expenses exceeding growth in net revenues.

Our operating margin was 13% and 17% in the nine months ended September 30, 2022 and 2021, respectively.

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

Net income decreased by $1.9 billion, or 56%, in the nine months ended September 30, 2022 compared to the same period of the prior year due to the previously discussed decrease in operating income of $619 million, a decrease of $518 million in other income (expense), net driven primarily by losses on strategic investments, and an increase in income tax expense of $733 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

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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% 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.

We generated approximately 42% and 43% of our net revenues from customers domiciled outside of the U.S.

in the three and nine months ended September 30, 2022 as compared to 44% and 47% in the three and nine months ended September 30, 2021, respectively.

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

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

In the three and nine months ended September 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 June 30, 2022 Six Months Ended June 30, 2022

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

(In millions)

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Favorable impact to operating expense 162 350

Net unfavorable impact to operating income $ (4) $ (23)

Net favorable (unfavorable) impact to operating income $ 11 $ (12)

While we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements, it is impossible to predict or eliminate the total effects of this exposure.

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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.

Given that we also have foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional foreign currency exchange exposure management program in which we use foreign currency exchange contracts to offset the impact of foreign currency exchange rate movements on our assets and liabilities.

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These foreign currency exchange contracts reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities.

KEY METRICS AND FINANCIAL RESULTS

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• 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.

As our transaction revenue is typically correlated with TPV growth and the number of payment transactions completed on our payments platform, management uses these metrics to gain insights into the scale and strength of our payments platform, the engagement level of our customers, and underlying activity and trends which are indicators of current and future performance.

We present these key metrics to enhance investors’ evaluation of the performance of our business and operating results.

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Growth in TPV is directly impacted by the number of payment transactions that we enable on our payments platform.

We earn additional fees from merchants and consumers on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from accounts that violate our user agreement, and other miscellaneous fees.

We earn additional fees from merchants and consumers:

on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees.

• Revenues from other value added services :

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Net revenue analysis

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

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

Transaction revenues

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:

Transaction revenues grew by $627 million, or 11%, and $1.5 billion, or 9%, in the three and nine months ended September 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 nine months ended September 30, 2022 transaction revenues included $76 million and $181 million, respectively, in contractual compensation from sellers that violated our contractual terms, compared to $25 million and $65 million for the three and nine months ended September 30, 2021, respectively.

This contractual compensation and the year-over-year increase are predominantly attributable to activity in international markets.

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

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

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

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

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

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

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The following table provides a summary of related metrics:

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

June 30, Percent Increase/(Decrease)

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended

September 30, Percent Increase/(Decrease)

2022 2021 2022 2021

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** Not meaningful

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.

We had active accounts of 432 million and 416 million as of September 30, 2022 and 2021, respectively, an increase of 4%.

Our total number of payment transactions was 5.6 billion and 4.9 billion for the three months ended September 30, 2022 and 2021, respectively, an increase of 15%.

Our total number of payment transactions was 16.3 billion for the nine months ended September 30, 2022, compared to 14.0 billion in the nine months ended September 30, 2021, an increase of 17%.

TPV was $337 billion and $310 billion for the three months ended September 30, 2022 and 2021, respectively, an increase of 9%.

TPV was $1.0 trillion for the nine months ended September 30, 2022 compared to $906 billion in the nine months ended September 30, 2021, an increase of 10%.

Transaction revenues growth exceeded TPV growth in the three months ended September 30, 2022 compared to the same period in the prior year due primarily to a favorable impact from hedging and an increase in revenue from our Venmo products and services, partially offset by a decline in revenues from PayPal products and services and a decline in foreign currency exchange fees.

Transaction revenues grew more slowly than TPV in the nine months ended September 30, 2022 compared to the same period in the prior year due primarily to declines in foreign currency exchange fees, TPV attributable to eBay’s marketplace platform, where we had historically earned higher rates, and a decline in revenues from PayPal products and services, partially offset by a favorable impact from hedging and an increase in revenue from our Venmo products and services.

Revenues from other value added services

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.

Revenues from other value added services increased $37 million, or 6%, and $203 million, or 14%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share earned from Synchrony Bank, interest earned on certain assets underlying customer account balances resulting from higher interest rates, and interest and fee revenue on our merchant loans receivable portfolio.

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

Government’s Paycheck Protection Program in the three and nine months ended September 30, 2021 of $93 million and $145 million, respectively, 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 June 30, Percent Increase/(Decrease) Six Months Ended June 30, Percent Increase/(Decrease)

Three Months Ended September 30, Percent Increase/(Decrease) Nine Months Ended September 30, Percent Increase/(Decrease)

2022 2021 2022 2021

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Transaction expense

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.

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

Transaction expense increased by $424 million, or 17%, and $1.5 billion, or 20%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 9% and 10% for the three and nine months ended September 30, 2022, respectively, and unfavorable changes in product mix.

The increase in the transaction expense rate for the three and nine months ended September 30, 2022 compared to the same periods of the prior year was also attributable to unfavorable changes in product mix with a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and services.

For the three months ended September 30, 2022, this increase in transaction expense rate was partially offset by favorable changes in regional mix with respect to our core PayPal products, which were also favorably impacted by certain third-party pricing reductions.

For the three and nine months ended September 30, 2022, approximately 34% and 35% of TPV, respectively, was generated outside of the U.S.

For the three and nine months ended September 30, 2021, approximately 38% and 39% 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.

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As we expand the availability and presentation of alternative funding sources to our customers, our funding mix may change, which could increase or decrease our transaction expense rate.

Macroeconomic environment changes may also result in behavioral shifts in consumer spending patterns affecting the type of funding source they use, which would also impact the funding mix.

Macroeconomic environment changes may also result in behavioral shifts in consumer spending patterns affecting the type of funding source they use, which could also impact the funding mix.

Transaction and credit losses

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,

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

Transaction and credit losses increased by $99 million, or 37%, and $474 million, or 67%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year.

Transaction losses were $254 million in the three months ended September 30, 2022 compared to $293 million in the three months ended September 30, 2021, a decrease of $39 million, or 13%.

Transaction losses were $956 million in the nine months ended September 30, 2022 compared to $847 million in the nine months ended September 30, 2021, an increase of $109 million, or 13%.

Transaction loss rate (transaction losses divided by TPV) was 0.08% and 0.10% for the three and nine months ended September 30, 2022, respectively, and 0.09% for both the three and nine months ended September 30, 2021.

The decrease in transaction losses in the three months ended September 30, 2022 was primarily due to recoveries attributable to enhancements in our fraud recoupment capabilities and benefits from continued risk mitigation strategies.

The increase in transaction losses in the nine months ended September 30, 2022 was primarily attributable to a $114 million loss related to an ongoing merchant insolvency proceeding, 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, partially offset by recoveries attributable to enhancements in our fraud recoupment capabilities.

Credit losses increased by $138 million and $365 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year.

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

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Credit losses $ 113 $ (25) $ 228 $ (137)

(1) Net charge-offs includes the principal charge-offs partially offset by recoveries for consumer and merchant receivables.

(1) Net charge-offs includes principal charge-offs partially offset by recoveries for consumer and merchant receivables.

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

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 provision in the three and nine months ended September 30, 2022 was attributable to loan originations during the period.

The benefit in the three and nine months ended September 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 loan originations.

During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments that 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 September 30, 2022 and 2021 was $4.4 billion and $2.8 billion, respectively, representing a year-over-year increase of 59% 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 41% and 63% of our consumer loans receivable outstanding as of September 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 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.

at September 30, 2022 compared to September 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:

September 30,

Percent of consumer loans and interest receivable current 96.3 % 96.8 %

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

The increase in the net charge-off rate for consumer receivables at September 30, 2022 as compared to September 30, 2021 was primarily due to the expansion of our short-term installment products.

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 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%.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of September 30, 2022 were $2.0 billion, compared to $1.4 billion as of September 30, 2021, representing a year-over-year increase of 47%.

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.

Approximately 86% and 5% of our merchant receivables outstanding as of September 30, 2022 were due from merchants in the U.S.

and U.K., respectively, as compared to 81% and 9%, respectively, as of September 30, 2021.

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

September 30,

Percent of merchant loans, advances, and interest and fees receivable current 93.4 % 90.5 %

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(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 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.

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 September 30, 2022 as compared to September 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 June 30, 2022 as compared to June 30, 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.

We continue to evaluate and modify our acceptable risk parameters in response to the changing macroeconomic environment.

Changes to our acceptable risk parameters in 2021 resulted in a gradual increase in originations, and thus a higher merchant receivable balance as of September 30, 2022 as compared to September 30, 2021.

For additional information, see “Note 11—Loans and Interest Receivable” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Customer support and operations

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.

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

Customer support and operations expenses increased by $5 million, or 1%, and $36 million, or 2%, in the three and nine months ended September 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, costs associated with the production of PayPal debit and credit cards, and customer onboarding and compliance costs, partially offset by a decline in contractors and consulting costs.

The increase in the nine months ended September 30, 2022 was also attributable to other operating charges.

Sales and marketing

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.

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

Sales and marketing expenses decreased by $5 million, or 1%, and $46 million, or 3%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year due primarily to declines in consulting services and employee-related costs, partially offset by an increase in amortization of acquired intangible assets.

The decline in sales and marketing expenses in the nine months ended September 30, 2022 was also impacted by lower spending on marketing campaigns compared to the prior year.

Technology and development

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.

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

Technology and development expenses increased by $46 million, or 6%, and $189 million, or 8%, in the three and nine months ended September 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.

In the three months ended September 30, 2022, the increase described above was partially offset by a decline in costs related to contractors and consultants.

General and administrative

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.

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

General and administrative expenses decreased by $35 million, or 7%, and increased by $40 million, or 3%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year.

The decrease in general and administrative expenses in the three months ended September 30, 2022 was due primarily to a decrease in employee-related expenses driven mainly by a decline in stock-based compensation, in part due to a change in projected performance associated with certain equity incentive awards and a decrease in professional services expenses, partially offset by an increase in costs associated with enterprise software services.

The increase in general and administrative expenses in the nine months ended September 30, 2022 was attributable to an increase in costs associated with enterprise software services and employee-related expenses, partially offset by a decline in professional services.

Restructuring and other charges

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.

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

Restructuring and other charges increased by $55 million and $122 million in the three and nine months ended September 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 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.

The associated restructuring charges during the three and nine months ended September 30, 2022 were $23 million and $114 million, respectively.

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

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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.

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.

The associated restructuring charges for the three and nine months ended September 30, 2021 were nil and $27 million, respectively.

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.

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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.

We incurred asset impairment charges of $29 million and $64 million in the three and nine months ended September 30, 2022, respectively, and nil and $26 million in the three and nine months ended September 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 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 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.

Other income (expense), net increased $338 million in the three months ended September 30, 2022 compared to the same period of the prior year due primarily to higher net gains on strategic investments.

Other income (expense), net decreased $518 million in the nine months ended September 30, 2022 compared to the same period of the prior year due primarily to net losses on strategic investments in the current period compared to net gains in the prior period.

Additionally, the nine months ended September 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

Our effective income tax rate was 16% and 7% for the three months ended September 30, 2022 and 2021, respectively.

The increase in the effective income tax rate for the three months ended September 30, 2022 compared to the same period of the prior year was due primarily to an increase in tax expense associated with higher net gains on strategic investments and a decrease in tax benefits associated with discrete tax adjustments.

Our effective income tax rate was 34% and 1% for the nine months ended September 30, 2022 and 2021, respectively.

The increase in our effective income tax rate for the nine months ended September 30, 2022 compared to the same period of the prior year was primarily attributable to an increase in tax expense related to the intra-group transfer of intellectual property and a decrease in discrete tax benefits associated with stock-based compensation deductions.

LIQUIDITY AND CAPITAL RESOURCES

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SOURCES OF LIQUIDITY

Cash, cash equivalents, investments, and restricted cash

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

Cash, cash equivalents, and investments

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

September 30, 2022 December 31, 2021

(In millions)

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$ 13,795 $ 12,981

(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.

(1) Excludes assets related to funds receivable and customer accounts of $34.8 billion and $36.1 billion at September 30, 2022 and December 31, 2021, respectively.

(2) Excludes total restricted cash of $21 million and $109 million at September 30, 2022 and December 31, 2021, respectively, and strategic investments of $2.2 billion and $3.2 billion as of September 30, 2022 and December 31, 2021, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $9.9 billion at September 30, 2022 and $7.4 billion at December 31, 2021, or 72% 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.

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

Six Months Ended June 30,

Nine Months Ended September 30,

(In millions)

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Operating activities

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.

We generated cash from operating activities of $4.7 billion in the nine months ended September 30, 2022 due primarily to operating income of $2.6 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.2 billion, depreciation and amortization of $991 million, and stock-based compensation of $967 million.

Net income was also adjusted for changes in deferred income taxes of $538 million, net losses on our strategic investments of $163 million, and changes in other assets and liabilities of $141 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 $4.6 billion in the nine months ended September 30, 2021 due primarily to operating income of $3.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $1.1 billion, depreciation and amortization of $939 million, and provision for transaction and credit losses of $710 million.

Net income was also adjusted for net gains on our strategic investments of $336 million, changes in deferred income taxes of $175 million, changes in accounts receivable of $155 million, and changes in other assets and liabilities of $892 million, primarily related to actual cash transaction losses during the period.

In the nine months ended September 30, 2022 and 2021, cash paid for income taxes, net was $666 million and $436 million, respectively.

Investing activities

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.

The net cash used in investing activities of $3.3 billion in the nine months ended September 30, 2022 was due primarily to purchases and originations of loans receivable of $19.2 billion, purchases of investments of $16.5 billion, changes in funds receivable from customers of $1.1 billion, and purchases of property and equipment of $548 million.

These cash outflows were partially offset by principal repayment of loans receivable of $17.2 billion and maturities and sales of investments of $16.8 billion.

The net cash used in investing activities of $2.4 billion in the nine months ended September 30, 2021 was due primarily to purchases of investments of $30.9 billion, purchases and originations of loans receivable of $8.2 billion, purchases of property and equipment of $695 million, and acquisitions (net of cash acquired) of $469 million.

These cash outflows were partially offset by maturities and sales of investments of $30.4 billion and principal repayment of loans receivable of $7.6 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 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.

The net cash used in financing activities of $2.4 billion in the nine months ended September 30, 2022 was due primarily to the repurchase of $3.2 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”), changes in funds payable and amounts due to customers of $659 million, and tax withholdings related to net share settlement of equity awards of $321 million.

These cash outflows were partially offset by 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).

The net cash used in financing activities of $186 million in the nine months ended September 30, 2021 was due primarily to the repurchase of $1.9 billion of our common stock under our July 2018 stock repurchase program and tax withholdings related to net share settlement of equity awards of $1.0 billion, partially offset by changes in funds payable and amounts due to customers of $2.6 billion.

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

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.

Foreign currency exchange rates for the nine months ended September 30, 2022 and 2021 had a negative impact of $253 million and $106 million, respectively, on cash, cash equivalents, and restricted cash due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar.

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

dollar to the Euro, Swedish krona, and Japanese yen.

Available credit and debt

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 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 $439 million as of June 30, 2022).

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.

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

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.

In September 2022, the Paidy Credit Agreement was modified to increase the borrowing capacity by ¥30.0 billion for a total borrowing capacity of ¥90.0 billion (approximately $623 million as of September 30, 2022).

In the nine months ended September 30, 2022, ¥45.8 billion (approximately $317 million) was drawn down under the Paidy Credit Agreement.

Accordingly, at September 30, 2022, ¥44.2 billion (approximately $306 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”).

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For additional information, see “Note 12—Debt” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to fund our operating activities, finance acquisitions, make strategic investments, repurchase shares under our stock repurchase program, or reduce our cost of capital.

We have a cash pooling arrangement with a financial institution for cash management purposes.

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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 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.

As of September 30, 2022, we had a total of $4.9 billion in cash withdrawals offsetting our $4.9 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

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.

As of September 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.

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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.

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.

In August 2022, the CSSF approved PayPal’s management designating up to 50% of such balances to fund European and U.S.

credit activities through February 2023.

During the second quarter of 2022, an additional $300 million was approved by management to fund European and U.S.

credit activities.

As of September 30, 2022, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.0 billion and represented approximately 29% of European customer balances 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.

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Stock repurchases

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.

During the nine months ended September 30, 2022, we repurchased approximately $3.2 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.

As of September 30, 2022, a total of approximately $1.9 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

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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