What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-08 compared with 2023-02-10 · 144 added, 185 removed, 372 unchanged (47% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Form 10-K 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).

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 “Item 1A.

Risk Factors” of this Form 10-K, as well as in our consolidated financial statements, related notes, and the other information appearing in this report and our other filings with the Securities and Exchange Commission (“SEC”).

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.

You should read the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the audited consolidated financial statements and the related notes that appear in this report.

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We monitor these areas closely and are focused on designing compliant solutions for our customers.

Information security

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.

For additional information regarding our information security risks, see “Item 1A.

Risk Factors— Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition.

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 years ended December 31, 2022 and 2021, our total net revenues related to Russia and Ukraine were not material.

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.

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.

authorizations by the U.K.

financial regulators.

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.

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

For additional information on how Brexit could affect our business, see “Item 1A.

Risk Factors— Brexit:

The U.K.'s departure from the EU could harm our business, financial condition, and results of operations .”

Brexit may contribute to instability in financial, stock, and foreign currency exchange markets, including volatility in the value of the British Pound and Euro.

We have foreign currency exchange exposure management programs designed to help reduce the impact from foreign currency exchange rate movements.

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

and EU for the periods presented:

Year Ended December 31,

2022 2021 2020

Net revenues generated from the U.K.

Net revenues generated from the EU 17 % 19 % 19 %

December 31, 2022 December 31, 2021

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

Gross loans and interest receivable due from customers in the EU 28 % 21 %

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

and EU year over year was primarily attributable to expansion of our installment credit products in the EU, particularly in Germany where we have increased our product offerings.

Cybersecurity and information security

Cybersecurity and 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 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 cybersecurity and information security risks, see “Item 1A.

Risk Factors— Cyberattacks and security vulnerabilities could result in serious harm to our reputation, business, and financial condition ” and “Item 1C.

Cybersecurity.”

MACROECONOMIC ENVIRONMENT

The broader implications of the macroeconomic environment, including uncertainty around the duration and severity of the coronavirus pandemic (“COVID-19”), 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 operating results.

The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts including 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 continue to 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

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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 consolidated financial statements included in this Form 10-K for additional information.

** Not meaningful.

Net revenues increased $2.3 billion, or 8%, in 2023 compared to 2022 driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 13%.

Total operating expenses increased $2.6 billion, or 12%, in 2022 compared to 2021 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, partially offset by a decline in sales and marketing expenses.

Operating income decreased $425 million, or 10%, in 2022 compared to 2021 due to growth in operating expenses exceeding growth in net revenues.

Our operating margin was 14% and 17% in 2022 and 2021, respectively.

Operating margin for 2022 was negatively impacted primarily by increases in transaction expense and transaction and credit losses.

Net income decreased by $1.8 billion, or 42%, in 2022 as compared to 2021 due to the previously discussed decrease in operating income of $425 million, higher expense of $308 million in other income (expense), net, driven primarily by losses on strategic investments, and an increase in income tax expense of $1.0 billion primarily related to lower benefits associated with stock-based compensation deductions, and higher expense related to intra-group transfers of intellectual property.

Total operating expenses increased $1.1 billion, or 4%, in 2023 compared to 2022 due primarily to an increase in transaction expense, partially offset by reductions in sales and marketing expense, restructuring and other, and technology and development expense.

Operating income increased $1.2 billion, or 31%, in 2023 compared to 2022 due to net revenues growing more than operating expenses.

Our operating margin was 17% and 14% in 2023 and 2022, respectively, reflecting the positive impact of operating efficiencies in our business and gain on sale of a divested business, partially offset by the negative impact of an increase in transaction expense.

Net income increased by $1.8 billion, or 76%, in 2023 compared to 2022 due to the previously discussed increase in operating income of $1.2 billion and an increase of $854 million in other income (expense), net, driven primarily by net gains on strategic investments in the current period as compared to net losses and impairments on strategic investments in the prior period as well as higher interest income from an increase in interest rates, partially offset by an increase in income tax expense of $218 million primarily related to higher pre-tax income, inclusive of tax expense associated with net gains on strategic investments and the sale of a divested business.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, subjecting us to foreign currency exchange risk which may adversely impact our financial results.

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.

The strengthening or weakening of the United States (“U.S.”) dollar versus foreign 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.

In 2023, 2022, and 2021, we generated approximately 42%, 43%, and 46% of our net revenues from customers domiciled outside of the U.S., respectively.

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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.

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

In the years ended December 31, 2023 and 2022, the year-over-year foreign currency exchange rate movements relative to the U.S.

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(In millions)

(Unfavorable) favorable impact to net revenues (exclusive of hedging impact) $ (949) $ 440

Favorable (unfavorable) impact to net revenues (exclusive of hedging impact)

$ 128 $ (949)

Hedging impact 111 462

(Unfavorable) favorable impact to net revenues (487) 250

Favorable (unfavorable) impact to operating expense 492 (181)

Favorable (unfavorable) impact to net revenues

(Unfavorable) favorable impact to operating expense

Net favorable impact to operating income $ 210 $ 5

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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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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.

The methodologies used to calculate our key metrics require significant judgment.

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.

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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:

We generate additional revenue 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 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.

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Transaction revenues

Transaction revenues grew by $1.8 billion, or 8%, in 2022 compared to 2021 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.

This growth in transaction revenues was partially offset by a decline 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.

Additionally, for the year ended December 31, 2022, transaction revenues included $190 million in contractual compensation from sellers that violated our contractual terms, compared to $82 million in the year ended December 31, 2021.

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

Transaction revenues grew by $1.7 billion, or 7%, in 2023 compared to 2022 driven primarily by growth in TPV and the number of payment transactions from our Braintree products and services, partially offset by a decline in revenues from our core PayPal products and services, including declines in contractual compensation of $190 million from sellers that violated our contractual terms predominantly in international markets.

Transaction revenues for the year ended December 31, 2023 were also impacted unfavorably by lower net gains due to hedging activities as compared to the same period of the prior year.

The graphs below present the respective key metrics (in millions) for the years ended December 31, 2023, 2022, and 2021:

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

Active accounts as of December 31, 2021 include 3.2 million active accounts contributed by Paidy, Inc.

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

The following table provides a summary of related metrics:

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Percent of cross-border TPV (1)

12 % 13 % 16 % ** **

(1) Cross-border TPV occurs primarily between two PayPal accounts in different countries and includes transactions initiated through our Xoom product.

** Not meaningful

We had active accounts of 435 million and 426 million as of December 31, 2022 and 2021, respectively, an increase of 2%.

Number of payment transactions was 22.3 billion and 19.3 billion as of December 31, 2022 and 2021, respectively, an increase of 16%.

TPV was $1.36 trillion and $1.25 trillion as of December 31, 2022 and 2021, respectively, an increase of 9%.

Transaction revenues grew more slowly than TPV and the number of payment transactions in 2022 due primarily to declines in foreign currency exchange fees, TPV attributable to eBay’s marketplace (where we had historically earned higher rates), and a decline in revenues from core 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 426 million and 435 million as of December 31, 2023 and 2022, respectively, a decrease of 2%.

Number of payment transactions was 25.0 billion and 22.3 billion for the years ended December 31, 2023 and 2022, respectively, an increase of 12%.

TPV was $1.53 trillion and $1.36 trillion or the years ended December 31, 2023 and 2022, respectively, an increase of 13%.

Transaction revenues growth was lower than the growth in TPV and the number of payment transactions in 2023 due primarily to a decline in revenues from core PayPal products and services, an unfavorable impact from hedging, and declines in foreign currency exchange fees.

Revenues from other value added services

Revenues from other value added services increased by $343 million, or 17%, in 2022 compared to 2021 due primarily to an increase in interest earned on certain assets underlying customer account balances resulting from higher interest rates, our revenue share earned from an independent chartered financial institution (“partner institution”), 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 2021 of $157 million, for which revenue was de minimis in the current period.

Consumers that have outstanding loans and interest receivable due to the partner institution may experience hardships that result in losses recognized by the partner institution, which may result in a decrease in our revenue share earned in future periods.

Revenues from other value added services increased by $602 million, or 26%, in 2023 compared to 2022 due primarily to increases in interest earned on certain assets underlying customer account balances resulting from higher interest rates, and to a lesser extent, interest and fee revenue on our loans receivable portfolio driven by consumer interest-bearing installment loans and consumer revolving loans.

These drivers positively impacting revenues from other value added services were partially offset by a decline in revenue earned from our PayPal Honey product and a lower revenue share earned from an independent chartered financial institution (“partner institution”).

Consumers that have outstanding loans and interest receivable due to our partner institution may experience hardships that result in losses recognized by the partner institution, which may result in a decrease in our revenue share earned in future periods.

In the event the overall return on the PayPal branded credit programs funded by the partner institution does not meet a minimum rate of return (“minimum return threshold”) in a particular quarter, our revenue share for that period would be zero.

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General and administrative 2,059 2,099 2,114 (2) % (1) %

Restructuring and other charges 207 62 139 234 % (55) %

Restructuring and other

(84) 207 62 (141) % 234 %

Total operating expenses $ 24,743 $ 23,681 $ 21,109 4 % 12 %

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Transaction expense increased by $2.2 billion, or 18%, in 2023 compared to 2022 due primarily to an increase in TPV of 13% and unfavorable changes in product mix.

The increase in transaction expense rate in 2022 compared to 2021 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.

The increase in transaction expense rate in 2023 compared to 2022 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 changes in regional mix with respect to our core PayPal products and services.

For the years ended December 31, 2023, 2022, and 2021, approximately 36%, 35%, and 39% of TPV, respectively, was generated outside of the U.S.

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Transaction and credit losses increased by $110 million, or 7%, in 2023 compared to 2022.

Transaction losses were approximately $1.2 billion for both 2022 and 2021, reflecting an increase of $17 million, or 1%.

Transaction losses were approximately $1.2 billion for both 2023 and 2022, reflecting a slight increase of $22 million, or 2%.

Transaction loss rate (transaction losses divided by TPV) was 0.08%, 0.09%, and 0.09% for the years ended December 31, 2023, 2022, and 2021, respectively.

The increase in transaction losses in 2022 was attributable to an increase in losses related to our Venmo products and services resulting from fraud schemes, an increase in goods and services transactions which are now eligible for coverage by our protection programs, and a loss related to a merchant insolvency proceeding, which was offset by recoveries attributable to enhancements in our fraud recoupment capabilities and benefits from continued risk mitigation strategies.

In the second quarter of 2022, we recorded a $114 million estimated loss related to the above mentioned merchant insolvency proceeding, and in the fourth quarter of 2022, this estimated loss was reduced by approximately $75 million to account for recoveries and changes in our estimated loss reserve.

The increase in transaction losses in 2023 was primarily attributable to lower recoveries compared to 2022 and higher losses related to fraud schemes, partially offset by a $39 million loss related to an ongoing merchant insolvency proceeding in 2022 with no activity of comparable individual magnitude in the current period.

Credit losses increased by $88 million in 2023 compared to 2022.

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Year Ended December 31,

2022 2021 2020

Net charge-offs (1)

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(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 and, for 2020, impact of adoption of the current expected credit loss accounting standard.

The provision for the year ended December 31, 2022 was primarily attributable to loan originations during the period and a slight deterioration in the credit quality of loans outstanding.

The benefit for the year ended December 31, 2021 was attributable to a reduction of our allowance for loans and interest receivable due primarily 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 allowance due to originations.

During 2022 and 2021, allowances for our merchant and consumer portfolios included qualitative adjustments that took into account uncertainty with respect to macroeconomic conditions, 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 December 31, 2022 and 2021 was $5.9 billion and $3.8 billion, respectively, net of participation interest sold, representing a year-over-year increase of 53% driven by the expansion of our installment credit products.

Approximately 37% and 53% of our consumer loans receivable outstanding as of December 31, 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 December 31, 2022 compared to December 31, 2021 was due to overall growth in the consumer loan portfolio, particularly from installment credit products in other markets including Germany, the U.S., and Japan.

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

(3) Includes changes in the allowance due to the reclassification of loans and interest receivable to or from held for sale.

The provision in the years ended December 31, 2023 and 2022 was primarily attributable to loan originations during the respective periods and a deterioration in the credit quality of loans outstanding.

During 2023 and 2022, 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.

Consumer loan portfolio

As of December 31, 2023, loans and interest receivable, held for sale was $563 million.

Loans and interest receivable, held for sale, represents the portion of our installment consumer receivables that we intend to sell.

This portfolio includes the substantial majority of our United Kingdom (“U.K.”) and other European buy now, pay later loan receivables.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of U.K.

and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivables, including a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (collectively, “eligible consumer installment receivables”).

For additional information, see “Note 1—Overview and Summary of Significant Accounting Policies” in the notes to the consolidated financial statements included in this Form 10-K.

The consumer loans and interest receivable balance as of December 31, 2023 and 2022 was $4.8 billion and $5.9 billion, respectively, net of participation interest sold, representing a year-over-year decrease of 19% driven by the sale of eligible consumer installment receivables in the U.K.

and other European countries, as discussed above, partially offset by the expansion of our revolving credit product in the U.K.

and our installment credit products in Japan.

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

Percent of consumer loans and interest receivable current (1)

95.4 % 97.1 %

Percent of consumer loans and interest receivable > 90 days outstanding (1), (2)

Net charge-off rate (1), (3)

(1) Amounts as of December 31, 2023 exclude loans and interest receivable, held for sale.

(2) Represents percentage of balances which are 90 days past the billing date or contractual repayment date, as applicable.

(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.

(3) Net charge-off rate is the annualized ratio of net credit losses during the three months ended December 31, 2023, excluding fraud losses, on consumer loans as a percentage of the average daily amount of consumer loans and interest receivable balance during the same period.

The increase in net charge-off rate for consumer loans and interest receivable at December 31, 2023 as compared to December 31, 2022 was primarily due to the sale of eligible consumer installment receivables, as discussed above, and deterioration in the credit quality of the U.S.

interest-bearing installment product.

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

In response to declining performance, a number of risk mitigation strategies were implemented in the third quarter of 2023, which resulted in reduced originations for our U.S.

interest-bearing installment product.

Merchant loan portfolio

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 December 31, 2022 was $2.1 billion compared to $1.4 billion as of December 31, 2021, representing a year-over-year increase of 48%.

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 December 31, 2022 were due from merchants in the U.S.

and U.K., as compared to approximately 82% and 8% as of December 31, 2021, respectively.

Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of December 31, 2023 and December 31, 2022 was $1.2 billion and $2.1 billion, respectively, reflecting a decline of 44% due primarily to a decrease in originations related to our PayPal Business Loan (“PPBL”) products in the U.S.

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

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(1) Represents percentage of balances which are 90 days past the original expected or contractual repayment period, as applicable.

(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.

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

Following a reduction in originations in merchant loans and advances in 2020 due to the COVID-19 pandemic, changes to our acceptable risk parameters in 2021 and 2022 resulted in a gradual increase in originations, and thus a higher merchant receivable balance as of December 31, 2022 as compared to December 31, 2021.

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.

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended December 31, 2023, 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 same period.

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 December 31, 2023 as compared to December 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 related to our PPBL product.

The significant decline in the merchant receivable portfolio year-over-year due to repayments and reduced originations also resulted in higher delinquency and charge-off rates as a percentage of outstanding loan balance as of December 31, 2023.

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

In response to declining performance, a number of risk mitigation strategies were implemented throughout 2023, which resulted in reduced originations for our PPBL product.

For additional information, see “Note 11—Loans and Interest Receivable” in the notes to the consolidated financial statements, and “Item 1A.

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Customer support and operations includes costs incurred in our global customer operations centers, including costs to provide call support to our customers, costs to support our trust and security programs protecting our merchants and consumers, and other costs incurred related to the delivery of our products, including payment devices, card production, and customer onboarding and compliance costs.

Customer support and operations costs increased $45 million, or 2%, in 2022 compared to 2021.

The increase in 2022 was primarily attributable to increases in expenses related to software that supports our consumer loan products, customer onboarding and compliance costs, other operating charges, and costs associated with the production of PayPal and Venmo branded debit and credit cards, partially offset by a decline in contractors and consulting costs.

Customer support and operations costs decreased $201 million, or 9%, in 2023 compared to 2022 due primarily to a decline in employee-related costs, contractors and consulting costs, and customer onboarding and compliance costs.

Sales and marketing

Sales and marketing includes costs incurred for customer acquisition, business development, advertising, and marketing programs.

Sales and marketing expenses decreased $188 million, or 8%, in 2022 compared to 2021 due primarily to lower spending on marketing campaigns compared to the prior year and declines in employee-related and consulting costs, partially offset by an increase in amortization of acquired intangibles and payments made to our channel partners.

Sales and marketing expenses decreased $448 million, or 20%, in 2023 compared to 2022 due primarily to lower spending on targeted user incentives and marketing campaigns, and to a lesser extent, a decline in amortization of acquired intangibles.

Technology and development

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It also includes acquired developed technology and our site operations and other infrastructure costs incurred to support our payments platform.

Technology and development expenses increased $215 million, or 7%, in 2022 compared to 2021 due primarily to increases in employee-related expenses and cloud computing services utilized in delivering our products and services, partially offset by a decline in costs related to contractors and consultants.

Technology and development expenses decreased $280 million, or 9%, in 2023 compared to 2022 due primarily to lower intangible amortization and a decline in costs related to contractors and consultants.

General and administrative

General and administrative includes costs incurred to provide support to our business, including legal, human resources, finance, risk and compliance, executive, and other support operations.

General and administrative expenses decreased $15 million, or 1%, in 2022 compared to 2021 due primarily to declines in professional services and employee-related expenses due in part to a decline in stock-based compensation expense, partially offset by an increase in costs associated with enterprise software services.

Restructuring and other charges

Restructuring and other charges primarily consist of restructuring expenses and asset impairment charges.

Restructuring and other charges increased by $145 million in 2022 compared to 2021.

General and administrative expenses decreased $40 million, or 2%, in 2023 compared to 2022 due primarily to a decline in depreciation expense and facilities costs.

Restructuring and other

Restructuring and other primarily consist of restructuring expenses, asset impairment charges, gain on sale of divested business, and losses on loans and interest receivable, held for sale.

Restructuring and other decreased by $291 million in 2023 compared to 2022 primarily resulting from gain on sale of a divested business, partially offset by restructuring charges, asset impairment charges, and fair value adjustments on loans and interest receivable, held for sale.

In the fourth quarter of 2023, we completed the sale of Happy Returns and recorded a pre-tax gain of $339 million, net of transaction costs.

For additional information on the divestiture, see “Note 4—Business Combinations and Divestitures” in the notes to the consolidated financial statements included in this Form 10-K.

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 year ended December 31, 2023 were $122 million.

We primarily incurred employee severance and benefits costs, which were substantially completed in the fourth quarter of 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.

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

The estimated reduction in annualized employee-related costs associated with the impacted workforce was approximately $265 million, including approximately $100 million in stock-based compensation.

A portion of the reduction in annual costs associated with the impacted workforce was 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.

During the year ended December 31, 2021, the associated restructuring charges were $27 million.

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

For information on the associated restructuring liability, see “Note 17—Restructuring and Other Charges” in the notes to the consolidated financial statements included in this Form 10-K.

For information on the associated restructuring liabilities, see “Note 17—Restructuring and Other” in the notes to the consolidated financial statements included in this Form 10-K.

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 $81 million and $26 million, 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 $61 million and $81 million in the years ended December 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.

In the year ended December 31, 2023, we recognized a gain of $17 million due to the sale of an owned property.

We also incurred a loss of $14 million related to another owned property, which was previously held for sale, in the year ended December 31, 2023.

During the year ended December 31, 2023, approximately $74 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale (inclusive of transaction costs) and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

Other income (expense), net

Other income (expense), net of $(471) million in 2022 increased $308 million as compared to $(163) million in 2021 due primarily to net losses and impairments on strategic investments incurred in the period compared to net gains in the prior period and, to a lesser extent, an increase in interest expense due in part to incremental expense from our May 2022 fixed rate debt, partially offset by an increase in interest income due to an increase in interest rates.

Other income (expense), net of $383 million in 2023 increased $854 million compared to $(471) million in 2022 due primarily to net gains on strategic investments in the current period compared to net losses and impairments in the prior period and higher interest income from an increase in interest rates.

Income tax expense (benefit)

Our effective income tax rate was 22% in 2023 and 28% in 2022.

The increase in our effective income tax rate in 2022 compared to 2021 was primarily attributable to a decrease in discrete tax benefits associated with stock-based compensation deductions and an increase in tax expense related to the intra-group transfer of intellectual property.

The decrease in our effective income tax rate in 2023 compared to 2022 was primarily attributable to higher tax expense in the prior year related to the intra-group transfer of intellectual property.

See “Note 16—Income Taxes” to the consolidated financial statements included in this Form 10-K for more information on our effective tax rate.

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Net increase (decrease) in cash, cash equivalents, and restricted cash $ 2,678 $ 1,127 $ (11)

(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 consolidated financial statements included in this Form 10-K for additional information.

Operating activities

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Actual charge-offs of receivables related to our merchants and consumer credit products have no impact on cash from operating activities.

The net cash generated from operating activities of $5.8 billion in 2022 was due primarily to operating income of $3.8 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.6 billion, depreciation and amortization of $1.3 billion, and stock-based compensation of $1.3 billion.

Cash flows from operating activities was also impacted by changes in income taxes payable of $373 million, net losses on our strategic investments of $304 million, and an increase in other liabilities of $483 million.

The net cash provided by operating activities of $4.8 billion in 2023 was due primarily to operating income of $5.0 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.7 billion, stock-based compensation of $1.5 billion, and depreciation and amortization of $1.1 billion.

Cash flows from operating activities was also impacted by proceeds from repayments and sales of loans receivable, originally classified as held for sale, of $10.8 billion and changes in other assets of $203 million.

These changes, which favorably impacted cash generated from operations, were offset by originations of loans receivable, held for sale of $11.5 billion, actual cash transaction losses incurred during the period of $1.2 billion, changes in deferred income taxes of $668 million, gain on divestiture of business, excluding transaction costs, of $356 million, net accretion of investments purchased at a discount of $367 million, and changes in liabilities of $222 million.

The net cash provided by operating activities of $5.8 billion in 2022 was due primarily to operating income of $3.8 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.6 billion, depreciation and amortization of $1.3 billion, and stock-based compensation of $1.3 billion.

Cash flows from operating activities was also impacted by net losses on our strategic investments of $304 million, and an increase in other liabilities of $856 million.

These changes, which favorably impacted cash generated from operations, were partially offset by actual cash transaction losses incurred during the period of $1.2 billion and changes in deferred income taxes of $811 million.

The net cash generated from operating activities of $5.8 billion in 2021 was due primarily to operating income of $4.3 billion, as well as adjustments for non-cash expenses including stock-based compensation of $1.4 billion, depreciation and amortization of $1.3 billion, and provision for transaction and credit losses of $1.1 billion.

Cash flows from operating activities was also impacted by actual cash transaction losses incurred during the period of $1.2 billion, changes in deferred income taxes of $482 million, an increase in accounts receivable of $222 million, and changes in other assets and liabilities of $287 million.

The net cash generated from operating activities of $6.2 billion in 2020 was due primarily to operating income of $3.3 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.7 billion, stock-based compensation of $1.4 billion, and depreciation and amortization of $1.2 billion.

Cash flows from operating activities was also impacted by net gains on our strategic investments of $1.9 billion and actual cash transaction losses incurred during the period of $1.1 billion, partially offset by increase in other liabilities of $1.0 billion.

Cash paid for income taxes, net in 2022, 2021, and 2020 was $878 million, $474 million, and $565 million, respectively.

Cash paid for income taxes, net in 2023, 2022, and 2021 was $2.1 billion, $878 million, and $474 million, respectively.

Included within cash paid for income taxes for 2023 is $106 million related to the purchase of transferable tax credits as authorized by the Inflation Reduction Act of 2022.

Investing activities

Cash flows from investing activities includes purchases, maturities and sales of investments, cash paid for acquisitions and strategic investments, purchases and sales of property and equipment, purchases, originations, and principal repayment of loans receivable, changes in funds receivable, and changes in collateral posted related to derivative instruments, net.

Cash flows from investing activities includes purchases, maturities and sales of investments;

cash paid for acquisitions and strategic investments;

purchases and sales of property and equipment;

purchases, originations, sales, and principal repayment of loans receivable, originally classified as held for investment;

changes in funds receivable;

and changes in collateral posted related to derivative instruments, net.

The net cash provided by investing activities of $752 million in 2023 was due primarily to proceeds from repayments and sales of loans receivable, originally classified as held for investment, of $26.7 billion, maturities and sales of investments of $24.3 billion, and proceeds from divestiture of business, net of cash divested, of $466 million.

These cash inflows were partially offset by purchases and originations of loans receivable of $25.2 billion, purchases of investments of $22.0 billion, changes in funds receivable from customers of $2.9 billion, and purchases of property and equipment of $623 million.

The net cash used in investing activities of $3.3 billion in 2022 was due primarily to purchases and originations of loans receivable of $28.2 billion, purchases of investments of $20.2 billion, changes in funds receivable from customers of $2.7 billion, and purchases of property and equipment of $706 million.

These cash outflows were partially offset by principal repayment of loans receivable of $24.9 billion and maturities and sales of investments of $23.4 billion.

The net cash used in investing activities of $5.1 billion in 2021 was due primarily to purchases of investments of $40.1 billion, purchases and originations of loans receivable of $13.4 billion, acquisitions (net of cash acquired) of $2.8 billion, and purchases of property and equipment of $908 million.

These cash outflows were partially offset by maturities and sales of investments of $39.7 billion, principal repayment of loans receivable of $11.8 billion, changes in collateral posted related to derivative instruments, net of $336 million, and changes in funds receivable from customers of $193 million.

The net cash used in investing activities of $16.5 billion in 2020 was due primarily to purchases of investments of $41.5 billion, purchases and originations of loans receivable of $6.1 billion, acquisitions (net of cash acquired) of $3.6 billion, changes in funds receivable from customers of $1.6 billion, purchases of property and equipment of $866 million, and changes in collateral posted related to derivative instruments, net of $327 million.

These cash outflows were partially offset by maturities and sales of investments of $30.9 billion, principal repayment of loans receivable of $6.4 billion and proceeds from the sale of property and equipment of $120 million.

Financing activities

Cash flows from financing activities includes proceeds from issuance of common stock, purchases of treasury stock, tax withholdings related to net share settlements of equity awards, borrowings and repayments under financing arrangements, changes in funds payable and amounts due to customers, and changes in collateral received related to derivative instruments, net.

The net cash used in financing activities of $1.1 billion in 2022 was due primarily to the repurchase of $4.2 billion of our common stock under our July 2018 stock repurchase program, repayments 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 below under “Available credit and debt”), and tax withholdings of $336 million related to net share settlement of equity awards.

The net cash used in financing activities of $3.0 billion in 2023 was due primarily to the repurchase of $5.0 billion of our common stock under our stock repurchase programs, repayments of borrowings under financing arrangements of $1.1 billion (including principal repayment of fixed rate debt that matured in June 2023 and repayment of borrowings under our Paidy credit agreement), tax withholdings of $257 million related to net share settlement of equity awards, and a decline in collateral received related to derivative instruments of $197 million.

These cash outflows were partially offset by changes in funds payable and amounts due to customers of $1.9 billion and borrowings under financing arrangements of $1.5 billion (including proceeds from the issuance of fixed rate debt in June 2023, borrowings under our Paidy credit agreement, and short-term overdraft borrowings).

The net cash used in financing activities of $1.2 billion in 2022 was due primarily to the repurchase of $4.2 billion of our common stock under our stock repurchase programs, repayments 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), and tax withholdings of $336 million related to net share settlement of equity awards.

These cash outflows were partially offset by borrowings under financing arrangements of $3.5 billion (including proceeds from the issuance of fixed rate debt in May 2022 and borrowings under our Paidy credit agreements) and changes in funds payable and amounts due to customers of $1.4 billion.

The net cash used in financing activities of $557 million in 2021 was due primarily to the repurchase of $3.4 billion of our common stock under our July 2018 stock repurchase program, tax withholdings of $1.0 billion related to net share settlement of equity awards, and repayments of borrowings under Paidy credit agreements of $361 million.

The cash outflows were partially offset by changes in funds payable and amounts due to customers of $3.6 billion, cash proceeds from borrowings under our Paidy credit agreements of $272 million, and changes in collateral received related to derivative instruments, net of $207 million.

The net cash generated from financing activities of $12.5 billion in 2020 was due primarily to changes in funds payable and amounts due to customers of $10.6 billion and $7.0 billion of cash proceeds from the issuance of long-term debt in the form of fixed rate notes in May 2020 as well as proceeds from borrowings under our Credit Agreement (as defined below under “Available credit and debt”).

These cash inflows were partially offset by repayment of outstanding borrowings under our Credit Agreement of $3.0 billion, the repurchase of $1.6 billion of our common stock under our stock repurchase programs, and tax withholdings related to net share settlement of equity awards of $521 million.

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

Foreign currency exchange rates had a negative impact of $155 million, a negative impact of $102 million, and a positive impact of $169 million on cash, cash equivalents, and restricted cash during 2022, 2021, and 2020, respectively, which resulted primarily from the impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar.

The negative impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2022 was also attributable, to a lesser extent, to the fluctuations in the exchange rate of the U.S.

Foreign currency exchange rates had a positive impact of $76 million and negative impact of $155 million on cash, cash equivalents, and restricted cash during 2023 and 2022, respectively.

The positive impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2023 was primarily due to favorable fluctuations in the exchange rate of the U.S.

dollar to the British pound.

The negative impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2022 was primarily attributable to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar and, to a lesser extent, to the fluctuations in the exchange rate of the U.S.

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

The negative impact of foreign currency exchange on cash, cash equivalents, and restricted cash in 2021 was also attributable, to a lesser extent, to the fluctuations in the exchange rate of the U.S.

dollar to the Euro and Swedish krona.

Available credit and debt

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

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 $686 million as of December 31, 2022).

In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving credit facility and terminated the facility entered into in September 2019.

The Credit Agreement includes a $150 million letter of credit sub-facility and a $600 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

As of December 31, 2023, no borrowings were outstanding under the Credit Agreement and as such, $5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

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 $638 million as of December 31, 2023).

In the year ended December 31, 2023, ¥50.0 billion (approximately $355 million) was drawn down under the Paidy Credit Agreement.

Accordingly, at December 31, 2023, ¥40.0 billion (approximately $283 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.

In September 2019, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving credit facility that includes a $150 million letter of credit sub-facility and a $500 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time.

As of December 31, 2022, no borrowings were outstanding under the Credit Agreement and as such, $5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

We maintain uncommitted credit facilities in various regions throughout the world with a borrowing capacity of approximately $80 million in the aggregate, where we can withdraw and utilize the funds at our discretion for general corporate purposes.

As of December 31, 2023, the majority of the borrowing capacity under these credit facilities was available, subject to customary conditions to borrowing.

In May 2022, May 2020 and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $12.0 billion (collectively referred to as the “Notes”).

In June 2023, May 2022, May 2020 and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $12.6 billion (collectively referred to as the “Notes”).

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.

In May 2022, we used a portion of the proceeds from that debt issuance to repurchase and redeem $1.6 billion in notes from our prior debt issuances in September 2019 and May 2020.

As of December 31, 2023, we had $10.6 billion in fixed rate debt outstanding with varying maturity dates.

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

We 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 fund European and U.S.

We continue to evaluate partnerships and third-party sources of funding for our credit products.

The Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 50% of European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S.

credit activities.

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.

During 2022, an additional $1.1 billion was approved to fund our credit activities.

As of December 31, 2022, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.8 billion and represented approximately 37% 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 December 31, 2023 and 2022, the total amount approved by management to be designated to fund credit activities was $3.0 billion and $3.8 billion, respectively, and represented approximately 39% and 37% of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF.

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

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

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of our eligible consumer installment receivables portfolio.

During the year ended December 31, 2023, we sold $5.5 billion of loans and interest receivable, in connection with this agreement.

For additional information, see “Note 1—Overview and Summary of Significant Accounting Policies” to our consolidated financial statements included in this Form 10-K.

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

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Stock repurchases

During the year ended December 31, 2022, we repurchased approximately $4.2 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 December 31, 2022, a total of approximately $861 million 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 year ended December 31, 2023, we repurchased approximately $5.0 billion of our common stock in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

The June 2022 stock repurchase program became effective during the first quarter of 2023 upon completion of the July 2018 stock repurchase program.

As of December 31, 2023, a total of approximately $10.9 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

For additional information, see “Note 14—Stock Repurchase Programs” to our consolidated financial statements included in this Form 10-K.

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The significant assumptions used in our determination of amounts presented in the above table are as follows:

• Purchase obligation amounts include minimum purchase commitments for cloud computing services, advertising, and capital expenditures, and other goods and services entered into in the ordinary course of business.

• Purchase obligation amounts include minimum purchase commitments for cloud computing services, capital expenditures, advertising, and other goods and services entered into in the ordinary course of business.

• Operating lease amounts include minimum rental payments under our non-cancelable operating leases (including leases not yet commenced) primarily for office and data center facilities.

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For more information, see “Note 12—Debt” to our consolidated financial statements included in this Form 10-K.

As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits, net, the table above does not include $1.9 billion of such non-current liabilities included in deferred and other tax liabilities recorded on our consolidated balance sheet as of December 31, 2022.

As we are unable to reasonably predict the timing of settlement of liabilities related to unrecognized tax benefits, net, the table above does not include $2.4 billion recorded in other long-term liabilities on our consolidated balance sheets as of December 31, 2023.

Other considerations

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Our transaction and credit losses fluctuate depending on many factors, including:

total TPV, product mix, current and projected macroeconomic conditions, merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products, which include revolving and installment credit products offered to consumers at checkout, and merchant loans and advances arising from the PayPal Working Capital and PayPal Business Loan products.

We establish allowances for negative customer balances and estimated transaction losses arising from processing customer transactions, such as chargebacks for unauthorized credit card use and merchant-related chargebacks due to non-delivery or unsatisfactory delivery of purchased items, purchase protection program claims, account takeovers, and Automated Clearing House returns.

total TPV, product mix, current and projected macroeconomic conditions, merchant insolvency events, changes to and usage of our customer protection programs, the impact of regulatory changes, and the credit quality of loans receivable arising from transactions funded with our credit products, which include revolving and installment credit products offered to consumers at checkout, as well as merchant loans and advances arising from the PayPal Working Capital and PPBL products.

Additions to the allowance, in the form of provisions, are reflected in transaction and credit losses on our consolidated statements of income (loss).

The allowances are based on known facts and circumstances, internal factors including experience with similar cases, historical trends involving collection and write-off patterns, and the mix of transaction and loss types, as well as current and projected macroeconomic factors, as appropriate.

We also establish an allowance for loans and interest receivable, which represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivable.

This evaluation process is subject to numerous estimates and judgments.

The allowance is primarily based on expectations of credit losses based on historical lifetime loss data as well as macroeconomic forecasts applied to the portfolio.

The loss models incorporate various portfolio attributes including geographic region, first borrowing versus repeat borrowing, delinquency, loan term, internally developed risk ratings, credit rating, and vintage, which vary by portfolio.

The loss models also incorporate macroeconomic factors such as forecasted trends in unemployment, retail e-commerce sales, and household disposable income (and through the second quarter of 2022, benchmark credit card charge-off rates), which are sourced externally, using a single scenario that we believe is most appropriate to the economic conditions applicable to a particular period.

Projected loss rates, inclusive of historical loss data and macroeconomic factors, are applied to the principal amount of our merchant and consumer receivables.

Our consumer receivables consist of revolving products, which do not have a contractual term, and installment products.

The reasonable and supportable forecast period for revolving products, installment products, and merchant products that we have included in our projected loss rates for 2022, which approximates the estimated life of the loans, is approximately 2 years, approximately 7 months to 3.5 years, and approximately 2.5 to 3.5 years, respectively.

In 2021, the reasonable and supportable forecast periods were consistent with 2022 except for installment products, which had an estimated life of 7 months to 2.5 years.

We also include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

The allowance for current expected credit losses on interest and fees receivable is determined primarily by applying loss curves to each portfolio by geography, delinquency, and period of origination, among other factors.

We also establish an allowance for loans and interest receivable, which represents our estimate of current expected credit losses inherent in our portfolio of loans and interest receivable and includes expected credit losses from modifications of receivables to borrowers experiencing financial difficulty.

Determining appropriate current expected credit loss allowances for loans and interest receivable is an inherently uncertain process and ultimate losses may vary from the current estimates.

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The allowances are maintained at a level we deem appropriate to adequately provide for current expected credit losses at the balance sheet date after incorporating the impact of externally sourced macroeconomic forecasts.

As of December 31, 2022, we utilized externally published projections of the U.S.

As of December 31, 2023, we utilized externally published projections of U.S.

forecasted unemployment rates, forecasted U.S.

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As of December 31, 2022, we utilized externally published projections of the U.S.

forecasted unemployment rates over the reasonable and supportable forecast period.

forecasted unemployment rates, forecasted U.S.

retail e-commerce sales, and forecasted U.K.

household disposable income, among others, over the reasonable and supportable forecast period.

The overall principal and interest coverage ratio as of December 31, 2023 and 2022 was approximately 9% and 7%, respectively.

A significant change in the forecasted macroeconomic factors could result in a material change in our allowances.

Our allowance as of December 31, 2022 took into account uncertainty with respect to macroeconomic conditions, and uncertainty around the financial health of our borrowers and effectiveness of loan modification programs made available to merchants.

Our allowance as of December 31, 2021 took into account continued volatility with respect to macroeconomic conditions and uncertainty around the financial health of our merchant borrowers, including uncertainty around the effectiveness of loan modification programs made available to merchants.

Our allowance as of December 31, 2023 and 2022 took into account uncertainty with respect to macroeconomic conditions, uncertainty around the financial health of our borrowers, and effectiveness of loan modification programs made available to merchants.

An increase of 1% in the principal and interest coverage ratio would increase our allowances by approximately $60 million based on the loans and interest receivable balance outstanding as of December 31, 2023.

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In addition to local country tax laws and regulations, our income tax rate depends on the extent that our foreign earnings are taxed by the U.S.

through provisions such as the GILTI tax and base erosion anti-abuse tax or as a result of our indefinite reinvestment assertion.

Indefinite reinvestment is determined by management’s judgment about, and intentions concerning, our future operations.

through provisions such as the GILTI tax and base erosion anti-abuse tax.

Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years.

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LOSS CONTINGENCIES

We are currently involved in various claims, regulatory and legal proceedings, and investigations of potential operating violations by regulatory oversight authorities.

We regularly review the status of each significant matter and assess our potential financial exposure.

We are regularly involved in various claims, regulatory and legal proceedings, and investigations of potential violations by regulatory oversight authorities.

On a regular basis, we review the status of each significant matter and assess our potential financial exposure.

If the potential loss from any claim, legal proceeding, or potential regulatory violation is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.

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Incentives determined to be made to a customer, or payable on behalf of a customer, are recorded as a reduction to gross revenue.

Incentives that are earned by the customer based on performance targets

are recorded when earned, based on management’s estimate of each customer’s future performance.

These accruals are regularly reviewed and estimates of performance are adjusted, as appropriate, based on changes in performance expectations, actual customer performance, amendments to existing contracts, or the execution of new contracts.

Changes in judgments with respect to these assumptions and estimates could impact the amount of revenue recognized.

VALUATION OF GOODWILL AND INTANGIBLES

The valuation of assets acquired in a business combination requires the use of significant estimates and assumptions.

The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.

Our estimates are based upon assumptions that we believe to be reasonable, but which are inherently uncertain and unpredictable.

These valuations require the use of management’s assumptions, which do not reflect unanticipated events and circumstances that may occur.

EVALUATION OF STRATEGIC INVESTMENTS FOR IMPAIRMENT

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When indicators of impairment exist, we estimate the fair value of these non-marketable equity securities using the market approach and/or the income approach.

If any impairment is identified, we write down the investment to its fair value and record the corresponding charge through other income (expense), net in our consolidated statements of income (loss).

If any impairment is identified, we write down the investment to its fair value and record the corresponding charge through other income (expense), net on our consolidated statements of income (loss).

Estimating fair value requires judgment and use of estimates such as discount rates, forecasted cash flows, and market data of comparable companies, among others.

For sensitivity analysis performed on our strategic investments, see “Item 7A.

Quantitative and Qualitative Disclosures about Market Risk— Equity Investment Risk .”

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-K

Item 7. Management’s Discussion and Analysis