What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-09 compared with 2022-11-04 · 135 added, 200 removed, 213 unchanged (61% of the section changed)

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans, or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, mergers or acquisitions, or management strategies).

Additionally, our forward-looking statements include expectations related to anticipated impacts of the coronavirus pandemic.

These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions.

These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue,” “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions.

These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements.

Such risks and uncertainties include, among others, those discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”), as supplemented in the risk factors set forth below in Part II, Item 1A, Risk Factors, of this Form 10-Q, as well as in our unaudited condensed consolidated financial statements, related notes, and the other information appearing in this report and our other filings with the Securities and Exchange Commission.

We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results or future events or circumstances.

We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results, new information, or future events or circumstances.

Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

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We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, are continuing to evolve through legislative and regulatory action and judicial interpretation.

The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, continue to evolve through legislative and regulatory action and judicial interpretation.

New or changing laws and regulations, including changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition.

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Information security risks for global payments and technology companies like us have increased significantly in recent years.

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that our security measures will provide sufficient security or prevent breaches or attacks.

Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and enable us to effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that our security measures will provide sufficient security or prevent breaches or attacks.

For additional information regarding our information security risks, see Part I, Item 1A, Risk Factors in our 2022 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q.

RUSSIA AND UKRAINE CONFLICT

With respect to the military hostilities commenced by Russia in Ukraine in February 2022, our priority is the safety and well-being of our PayPal employee community impacted by these events.

We continue to take actions to comply with all applicable restrictions and sanctions that may impact our operations.

In March 2022, we suspended our transactional services in Russia.

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

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.

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 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.

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.

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 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, 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.

PayPal (Europe) S.à.r.l.

et Cie, SCA (“PayPal (Europe)”) operates in the U.K.

et Cie, SCA operates in the U.K.

within the scope of its passport permissions (as they stood at the end of the transition period) under the Temporary Permissions Regime pending the grant of new U.K.

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We are currently unable to determine the longer-term impact that Brexit will have on our business, which will depend, in part, on the implications of new tariff, trade, and regulatory frameworks that now govern the provision of cross-border goods and services between the U.K.

and the EEA, as well as the financial and operational consequences of the requirement for PayPal (Europe) to obtain new U.K.

and the EEA, as well as the financial and operational consequences of the requirement for PayPal to obtain new U.K.

authorizations to operate its business longer-term within the U.K.

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and EU for the periods presented:

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

2022 2021 2022 2021

Three Months Ended March 31,

Net revenues generated from the U.K.

7 % 9 % 8 % 9 %

Net revenues generated from the EU 18 % 18 %

September 30,

2023 December 31,

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Gross loans and interest receivable due from customers in the EU 28 % 28 %

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

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

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.

The broader implications of the macroeconomic environment, including uncertainty around the duration and severity of the coronavirus pandemic, the Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, 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, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, foreign currency exchange fluctuations, or other business interruption, which may adversely impact our business.

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

OVERVIEW OF RESULTS OF OPERATIONS

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

The following table provides a summary of our condensed consolidated financial results for the three months ended March 31, 2023 and 2022:

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

(In millions, except percentages and per share data)

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Net cash provided by operating activities (1)

$ 1,170 $ 1,217 (4) %

All amounts in tables are rounded to the nearest million, except as otherwise noted.

As a result, certain amounts may not recalculate using the rounded amounts provided.

(1) Prior period amounts have been revised to conform to the current period presentation.

Refer to “Note 1 — Overview and Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Form 10-Q for additional information.

** Not meaningful.

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.

THREE MONTHS ENDED MARCH 31, 2023 AND 2022

Net revenues increased $557 million, or 9%, in the three months ended March 31, 2023 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 10%.

Total operating expenses increased $269 million, or 5%, in the three months ended March 31, 2023 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 restructuring and other charges, partially offset by reductions in sales and marketing expense, general and administrative expense, and technology and development expense.

Operating income increased by $288 million, or 41%, in the three months ended March 31, 2023 compared to the same period of the prior year due to net revenues growing faster than operating expenses.

Our operating margin was 14% and 11% in the three months ended March 31, 2023 and 2022, respectively, reflecting the positive impact of operating efficiencies in our business, partially offset by the negative impact of an increase in transaction expense.

Net income increased $286 million, or 56%, in the three months ended March 31, 2023 as compared to the same period of the prior year due to the previously discussed increase in operating income of $288 million and an increase in other income (expense), net of $157 million driven primarily by higher interest income due to an increase in interest rates, partially offset by an increase in income tax expense of $159 million driven primarily by higher tax expense on higher income before taxes and discrete tax adjustments.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

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We generated approximately 41% 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.

in the three months ended March 31, 2023 and 2022, 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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We calculate the year-over-year impact of foreign currency exchange movements on our business using prior period foreign currency exchange rates applied to current period transactional currency amounts.

While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exchange exposure management program in which we designate certain foreign currency exchange contracts as cash flow hedges intended to reduce the impact on earnings from foreign currency exchange rate movements.

While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exchange exposure management program in which we use foreign currency exchange contracts, designated as cash flow hedges, intended to reduce the impact on earnings from foreign currency exchange rate movements.

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 nine months ended September 30, 2022, year-over-year foreign currency movements relative to the U.S.

In the three months ended March 31, 2023, year-over-year foreign currency exchange rate movements relative to the U.S.

dollar had the following impact on our reported results:

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

Three Months Ended March 31, 2023

(In millions)

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Favorable impact to operating expense 78

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

Net favorable impact to operating income $ 15

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.

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.

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 help offset the impact of foreign currency exchange rate movements on our assets and liabilities.

The foreign currency exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign currency exchange contracts.

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KEY METRICS AND FINANCIAL RESULTS

Active accounts, number of payment transactions, number of payment transactions per active account, and TPV are key non-financial performance metrics (“key metrics”) that management uses to measure the performance of our business, and are defined as follows:

TPV, number of payment transactions, active accounts, and number of payment transactions per active account are key non-financial performance metrics (“key metrics”) that management uses to measure the scale of our platform and the relevance of our products and services to our customers, and are defined as follows:

• 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.

• 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.

• An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform, not including gateway-exclusive transactions, within the past 12 months.

A platform access partner is a third party whose customers are provided access to PayPal’s platform or services through such third party’s login credentials, including entities that utilize Hyperwallet’s payout capabilities.

A platform access partner is a third party whose customers are provided access to PayPal’s platform or services through such third party’s login credentials, including individuals and entities that utilize Hyperwallet’s payout capabilities.

A user may register on our platform to access different products and may register more than one account to access a product.

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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 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 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.

The number of times a consumer account or a merchant account transacts on our platform may vary significantly from the average number of payment transactions per active account.

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 may be indicators of current and future performance.

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

Our key metrics are calculated using internal company data based on the activity we measure on our platform and may be compiled from multiple systems, including systems that are organically developed or acquired through business combinations.

Our key metrics are calculated using internal company data based on the activity we measure on our payments platform and compiled from multiple systems, including systems that are internally developed or acquired through business combinations.

While the measurement of our key metrics is based on what we believe to be reasonable methodologies and estimates, there are inherent challenges and limitations in measuring our key metrics globally at our scale.

The methodologies used to calculate our key metrics require judgment.

We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve their accuracy or relevance.

We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve the accuracy or relevance of our metrics.

For example, we continuously apply models, processes, and practices designed to detect and prevent fraudulent account creation on our platforms, and work to improve and enhance those capabilities.

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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.

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 bank account or debit card, 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 nine months ended September 30, 2022 and 2021 were as follows (in millions):

The components of our net revenues for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Transaction revenues

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:

Transaction revenues grew by $366 million, or 6%, in the three months ended March 31, 2023 compared to the same period of the prior year driven primarily by growth in TPV (in particular growth in our unbranded card processing volume, which consists primarily of our Braintree products and services) and the number of payment transactions on our payments platform.

The growth in transaction revenues in the three months ended March 31, 2023 was partially offset by a decline in revenues from our core PayPal products and services, including fee revenue from foreign exchange.

The graphs below present the respective key metrics (in millions) for the three months ended March 31, 2023 and 2022:

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

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.

Number of payment transactions

The following table provides a summary of related metrics:

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

September 30, Percent Increase/(Decrease)

2022 2021 2022 2021

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

Number of payment transactions per active account 53.1 47.0 13 %

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** Not meaningful

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.

We had active accounts of 433 million and 429 million as of March 31, 2023 and 2022, respectively, an increase of 1%.

Our total number of payment transactions was 5.8 billion and 5.2 billion for the three months ended March 31, 2023 and 2022, respectively, an increase of 13%.

TPV was $355 billion and $323 billion for the three months ended March 31, 2023 and 2022, respectively, an increase of 10%.

Transaction revenues grew more slowly than growth in TPV and the number of payment transactions in the three months ended March 31, 2023 compared to the same period in the prior year due primarily to a decline in revenues from core PayPal products and services and foreign currency exchange fees.

Revenues from other value added services

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.

Revenues from other value added services increased $191 million, or 39%, in the three months ended March 31, 2023 compared to the same period in the prior year primarily attributable to increases in interest earned on certain assets underlying customer account balances resulting from higher interest rates and interest and fee revenue on our loans receivable portfolio driven by consumer interest-bearing installment loans and our PayPal Business Loan (“PPBL”) products.

OPERATING EXPENSES

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

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

2022 2021 2022 2021

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

(In millions, except percentages)

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Transaction expense

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.

Transaction expense for the three months ended March 31, 2023 and 2022 was as follows (in millions):

Transaction expense increased by $466 million, or 17%, in the three months ended March 31, 2023 compared to the same period of the prior year due primarily to the 10% increase in TPV for the three months ended March 31, 2023 and unfavorable changes in product mix.

The increase in the transaction expense rate for the three months ended March 31, 2023 compared to the same period 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, partially offset by favorable impacts resulting from certain third-party pricing reductions and favorable changes in regional mix with respect to our core PayPal products.

For the three months ended March 31, 2023 and 2022, approximately 35% and 36% 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.

The cost of funding a transaction with a credit or debit card is generally higher than the cost of funding a transaction from a bank or through internal sources such as a PayPal or Venmo account balance or our consumer credit products.

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 could also impact the funding mix.

Transaction and credit losses

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

The components of our transaction and credit losses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Transaction and credit losses increased by $73 million, or 20%, in the three months ended March 31, 2023 compared to the same period of the prior year.

Transaction losses were $300 million in the three months ended March 31, 2023 compared to $322 million in the three months ended March 31, 2022, a decrease of $22 million, or 7%.

Transaction loss rate (transaction losses divided by TPV) was 0.08% for the three months ended March 31, 2023, compared to 0.10% for the three months ended March 31, 2022.

The decrease in transaction losses in the three months ended March 31, 2023 was primarily due to benefits from risk mitigation strategies particularly with our Venmo products.

Credit losses increased by $95 million in the three months ended March 31, 2023 compared to the same period of the prior year.

The components of credit losses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Three Months Ended March 31,

Net charge-offs (1)

$ 69 $ 38 $ 181 $ 166

Reserve build (release) (2)

44 (63) 47 (303)

Credit losses $ 142 $ 47

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

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 provision in the three months ended March 31, 2023 was attributable to loan originations during the period and a deterioration in the credit quality of loans outstanding.

The provision in the three months ended March 31, 2022 was attributable to loan originations in that 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 at that time.

During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments that took into account uncertainty with respect to macroeconomic conditions and around the financial health of our borrowers, including the effectiveness of loan modification programs made available to merchants in previous years.

The consumer loans and interest receivable balance as of March 31, 2023 and 2022 was $6.1 billion and $4.1 billion, respectively, net of participation interest sold, representing a year-over-year increase of 47% driven by the expansion of our installment credit products.

Approximately 36% and 48% of our consumer loans receivable outstanding as of March 31, 2023 and 2022, respectively, were due from consumers in the U.K.

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

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.

at March 31, 2023 compared to March 31, 2022 was due to overall growth in the consumer loan receivables portfolio, particularly from installment credit products in other markets including Germany, the U.S., and Japan.

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 96.7 % 96.9 %

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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 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%.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of March 31, 2023 were $2.1 billion, compared to $1.5 billion as of March 31, 2022, 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 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.

Approximately 84% and 5% of our merchant receivables outstanding as of March 31, 2023 were due from merchants in the U.S.

and U.K., respectively, as compared to 83% and 7%, respectively, as of March 31, 2022.

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 89.8 % 92.6 %

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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 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.

The decrease in the percent of current merchant receivables, increase in percent of merchant receivables greater than 90 days outstanding, and increase in the net charge-off rate for merchant receivables at March 31, 2023 as compared to March 31, 2022 were primarily due to the expansion of acceptable risk parameters in 2022, which resulted in a decline in the overall credit quality of loans outstanding.

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.

During the first quarter of 2023, in response to declining performance, a number of risk mitigation strategies were implemented which resulted in reduced PPBL originations in the quarter.

Modifications to the acceptable risk parameters for our consumer credit products did not have a material impact on our consumer loans in the periods presented.

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 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.

Customer support and operations expenses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Customer support and operations expenses decreased by $46 million, or 9%, in the three months ended March 31, 2023, compared to the same period of the prior year due primarily to a decline in employee-related costs, customer onboarding and compliance costs, and contractors and consulting costs.

Sales and marketing

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.

Sales and marketing expenses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Sales and marketing expenses decreased by $158 million, or 27%, in the three months ended March 31, 2023 compared to the same period of the prior year due primarily to lower spending on marketing campaigns and targeted user incentives and decline in employee-related costs.

Technology and development

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.

Technology and development expenses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Technology and development expenses decreased by $94 million, or 12%, in the three months ended March 31, 2023 compared to the same period of the prior year due primarily to a decline in costs related to contractors, consultants, and cloud computing services utilized in delivering our products and services along with lower intangible amortization in the current period.

General and administrative

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.

General and administrative expenses for the three months ended March 31, 2023 and 2022 were as follows (in millions):

General and administrative expenses decreased by $100 million, or 16%, in the three months ended March 31, 2023 compared to the same period of the prior year due primarily to a decrease in employee-related expenses driven by a decline in stock-based compensation expense.

Restructuring and other charges

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.

Restructuring and other charges for the three months ended March 31, 2023 and 2022 were as follows (in millions):

Restructuring and other charges increased by $128 million in the three months ended March 31, 2023 compared to the same period of the prior year.

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency.

The associated restructuring charges during the three months ended March 31, 2023 were $117 million.

We primarily incurred employee severance and benefits costs, substantially all of which have been accrued for as of March 31, 2023.

The estimated reduction in annualized employee-related costs associated with the impacted workforce was approximately $280 million, including approximately $85 million in stock-based compensation.

We expect to reinvest a portion of the reduction in annual costs associated with the impacted workforce to drive business priorities.

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 nine months ended September 30, 2022 were $23 million and $114 million, respectively.

This effort focused on reducing redundant operations and simplifying our organizational structure.

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

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.

Management estimates that an additional $10 million in restructuring charges will be incurred over the remainder of 2022.

The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately $290 million, including approximately $110 million in stock-based compensation.

A portion of the reduction in annual costs associated with the impacted workforce is expected to be reinvested in the business to drive additional growth.

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 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.

The strategic actions associated with this plan were substantially completed by the fourth quarter of 2022.

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

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.

Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models.

We incurred asset impairment charges of $39 million and $16 million in the three months ended March 31, 2023 and 2022, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements.

We also incurred a loss of $8 million upon designation of an owned property as held for sale in the three months ended March 31, 2023.

Other income (expense), net

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.

Other income (expense), net increased $157 million in the three months ended March 31, 2023 compared to the same period of the prior year due primarily to higher interest income resulting from an increase in interest rates.

Other income (expense), net in the three months ended March 31, 2023 was also positively impacted by foreign exchange gains in the current period compared to losses in the prior period primarily from actions taken in connection with our decision to suspend transactional services in Russia, and higher net gains on strategic investments.

These factors favorably impacting other income (expense), net were partially offset by an increase in interest expense due in part to incremental expense from our May 2022 fixed rate debt.

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.

Our effective income tax rate was 26% and 19% for the three months ended March 31, 2023 and 2022, respectively.

The increase in the effective income tax rate for the three months ended March 31, 2023 compared to the same period of the prior year was due primarily to a decrease in tax benefits associated with discrete tax adjustments and an increase in tax expense associated with higher net gains on strategic investments.

LIQUIDITY AND CAPITAL RESOURCES

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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

The following table summarizes our cash, cash equivalents, and investments as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

(In millions)

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$ 13,059 $ 13,723

(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.

(1) Excludes assets related to funds receivable and customer accounts of $35.3 billion and $36.4 billion at March 31, 2023 and December 31, 2022, respectively.

(2) Excludes total restricted cash of $13 million and $17 million at March 31, 2023 and December 31, 2022, respectively, and strategic investments of $2.2 billion and $2.1 billion as of March 31, 2023 and December 31, 2022, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $8.9 billion at March 31, 2023 and $8.6 billion at December 31, 2022, or 68% and 62% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2022, 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:

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

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Operating activities (1)

$ 1,170 $ 1,217

Investing activities (1)

Financing activities (1)

(2,662) (669)

Effect of exchange rates on cash, cash equivalents, and restricted cash (4) 18

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (1,305) $ 1,929

Net decrease in cash, cash equivalents, and restricted cash $ (1,462) $ (186)

(1) Prior period amounts have been revised to conform to the current period presentation.

Refer to “Note 1 — Overview and Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Form 10-Q for additional information.

Operating activities

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.

The net cash generated from operating activities of $1.2 billion in the three months ended March 31, 2023 was due primarily to operating income of $1.0 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $442 million, stock-based compensation of $345 million, and depreciation and amortization of $270 million.

Cash flows from operating activities was also impacted by changes in other assets and liabilities of $240 million, primarily related to actual cash transaction losses incurred during the period, and changes in income taxes payable of $235 million.

The net cash generated from operating activities of $1.2 billion in the three months ended March 31, 2022 was 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.

Cash flows from operating activities was also impacted by changes in other assets and liabilities of $391 million, primarily related to actual cash transaction losses during the period.

In the three months ended March 31, 2023 and 2022, cash paid for income taxes, net was $495 million and $47 million, respectively.

Investing activities

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.

The net cash provided by investing activities of $34 million in the three months ended March 31, 2023 was due primarily to principal repayment of loans receivable of $8.1 billion, maturities and sales of investments of $5.4 billion, and changes in funds receivable from customers of $1.1 billion, offset by purchases and originations of loans receivable of $8.3 billion, purchases of investments of $6.1 billion, and purchases of property and equipment of $170 million.

The net cash used in investing activities of $752 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.

Financing activities

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.

The net cash used in financing activities of $2.7 billion in the three months ended March 31, 2023 was due primarily to the repurchase of $1.4 billion of our common stock under our stock repurchase programs, changes in funds payable and amounts due to customers of $1.0 billion, tax withholdings related to net share settlement of equity awards of $149 million, and changes in collateral received related to derivative instruments, net of $129 million.

The net cash used in financing activities of $669 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 July 2018 stock repurchase program, tax withholdings related to net share settlement of equity awards of $244 million, and repayment of borrowings under a prior credit agreement 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.

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

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.

Foreign currency exchange rates for the three months ended March 31, 2023 had a negative impact of $4 million 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 partially offset by the impact of favorable fluctuations in the exchange rate of the U.S.

dollar to the Euro.

Foreign currency exchange rates for the three months ended March 31, 2022 had a positive impact of $18 million on cash, cash equivalents, and restricted cash 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 impact of unfavorable fluctuations in the exchange rate of the U.S.

dollar to the Russian ruble 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, 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 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”).

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.

Other than as described above, there are no significant changes to the available credit and debt disclosed in our 2021 Form 10‑K.

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥30.0 billion for a total borrowing capacity of ¥90.0 billion (approximately $678 million as of March 31, 2023.) As of March 31, 2023 and December 31, 2022, ¥73.3 billion (approximately $553 million) and ¥64.3 billion (approximately $491 million), respectively, were outstanding under the Paidy Credit Agreement.

At March 31, 2023, ¥16.7 billion (approximately $125 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

Other than as described above, there were no significant changes to the available credit and debt disclosed in our 2022 Form 10‑K.

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.

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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 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.

As of March 31, 2023, we had a total of $3.8 billion in cash withdrawals offsetting our $3.8 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

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.

As of March 31, 2023, 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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credit activities.

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.

In August 2022, the CSSF approved PayPal’s management designating up to 50% of such balances to fund our credit activities through the end of February 2023.

In February 2023, the CSSF agreed that PayPal’s management may continue to designate up to 50% of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., 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.

As of March 31, 2023, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.8 billion and represented approximately 39% 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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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.

The risk of losses from our customer protection programs are specific to individual consumers, 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 ranged between 0.08% and 0.10% of TPV.

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Stock repurchases

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 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.

During the three months ended March 31, 2023, we repurchased approximately $1.4 billion of our common stock in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

As of March 31, 2023, a total of approximately $14.4 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

Other considerations

Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors including those related to the COVID-19 pandemic discussed in this Form 10-Q.

In addition, our liquidity, access to capital, and borrowing costs could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party.

See Part I, Item 1A, Risk Factors of our 2021 Form 10-K, as supplemented and, to the extent inconsistent, superseded below in Part II, Item 1A, Risk Factors of this Form 10-Q, as well as “Note 13—Commitments and Contingencies” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for additional discussion of these and other risks that our business faces.

See Part I, Item 1A, Risk Factors of our 2022 Form 10-K, as supplemented and, to the extent inconsistent, superseded below in Part II, Item 1A, Risk Factors of this Form 10-Q, as well as “Note 13—Commitments and Contingencies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional discussion of these and other risks that our business faces.

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