What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-30 compared with 2023-11-02 · 128 added, 212 removed, 204 unchanged (63% of the section changed)

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BUSINESS ENVIRONMENT

We are a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide.

PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world.

Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments.

We are a leading technology platform that enables digital payments and personalizes commerce experiences on behalf of merchants and consumers worldwide.

PayPal’s mission is to revolutionize commerce globally by creating innovative experiences that are designed to make moving money, selling, and shopping simple, personalized, and secure.

Regulatory environment

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risks, see Part I, Item 1A, Risk Factors in our 2022 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q.

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 has operated in the U.K.

within the scope of its passport permissions pursuant to the Temporary Permissions Regime pending the grant of new authorizations by the U.K.

Financial Conduct Authority (“FCA”).

On October 31, 2023, PayPal’s U.K.

subsidiary received authorizations from the FCA as an electronic money institution and consumer credit firm, and registration as a cryptoasset business, subject to certain conditions that will require further implementation action by us.

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.

For additional information on how Brexit could affect our business, 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.

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:

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

2023 2022 2023 2022

Net revenues generated from the U.K.

7 % 7 % 7 % 8 %

Net revenues generated from the EU 20 % 17 % 19 % 17 %

September 30,

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

Gross loans and interest receivable due from customers in the EU 31 % 28 %

(1) Includes loans and interest receivable, held for sale.

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 have experienced and expect to continue to experience cybersecurity incidents and remain subject to these risks.

There can be no assurance that our security measures will provide sufficient protection or security to prevent breaches or attacks.

For additional information regarding our cybersecurity and information security risks, see Part I, Item 1A, Risk Factors in our 2023 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.

MACROECONOMIC ENVIRONMENT

The broader implications of the macroeconomic environment, including uncertainty around 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.

The broader implications of the macroeconomic environment, including uncertainty around recent international conflicts such as 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.

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OVERVIEW OF RESULTS OF OPERATIONS

The following table provides a summary of our condensed consolidated financial results for the three and nine months ended September 30, 2023 and 2022:

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

2023 2022 2023 2022

The following table provides a summary of our condensed consolidated financial results for the three months ended March 31, 2024 and 2023:

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

(In millions, except percentages and per share data)

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

** Not meaningful.

THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Net revenues increased $572 million, or 8%, in the three months ended September 30, 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 15%.

Total operating expenses increased $522 million, or 9%, in the three months ended September 30, 2023 compared to the same period of the prior year due primarily to an increase in transaction expense, partially offset by reductions in sales and marketing expense.

Operating income increased by $50 million, or 4%, in the three months ended September 30, 2023 compared to the same period of the prior year.

Our operating margin was 16% in the three months ended September 30, 2023 and 2022 reflecting the negative impact of an increase in transaction expense, offset by the positive impact of operating efficiencies in our business.

Net income decreased $310 million, or 23% in the three months ended September 30, 2023 compared to the same period of the prior year due primarily to a decrease in other income (expense), net of $387 million driven primarily by lower net gains on strategic investments in the current period.

NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

Net revenues increased $1.6 billion, or 8%, in the nine months ended September 30, 2023 compared to the same period of the prior year driven primarily by growth in TPV of 12%.

Total operating expenses increased $903 million, or 5%, in the nine months ended September 30, 2023 compared to the same period of the prior year due primarily to an increase in transaction expense, partially offset by reductions in sales and marketing expense, and technology and development expense.

Operating income increased $707 million, or 27%, in the nine months ended September 30, 2023 compared to the same period of the prior year due to net revenues growing faster than operating expenses.

Our operating margin was 15% and 13% in the nine months ended September 30, 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 $1.3 billion, or 90%, in the nine months ended September 30, 2023 compared to the same period of the prior year due to the previously discussed increase in operating income of $707 million and an increase of $655 million in other income (expense), net driven primarily by net gains on strategic investments in the current period as compared to net losses in the prior period as well as higher interest income from an increase in interest rates.

THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Net revenues increased $659 million, or 9%, in the three months ended March 31, 2024 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 14%.

Total operating expenses increased $490 million, or 8%, in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to higher transaction expense, partially offset by a decline in transaction and credit losses.

Operating income increased by $169 million, or 17%, in the three months ended March 31, 2024 compared to the same period of the prior year due to revenue growing by more than operating expenses.

Our operating margin was 15% and 14% in the three months ended March 31, 2024 and 2023, respectively, reflecting the positive impact of operating efficiencies in our business, partially offset by the negative impact of higher transaction expense.

Net income increased $93 million, or 12%, in the three months ended March 31, 2024 compared to the same period of the prior year due to the previously discussed increase in operating income of $169 million, partially offset by an increase in income tax expense of $42 million and a decrease in other income (expense), net of $34 million.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

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We generated approximately 42% and 41% of our net revenues from customers domiciled outside of the U.S.

in the three and nine months ended September 30, 2023, respectively, as compared to 42% and 43% in the three and nine months ended September 30, 2022, respectively.

in the three months ended March 31, 2024 and 2023, respectively.

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

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

In the three and nine months ended September 30, 2023, year-over-year foreign currency exchange rate movements relative to the U.S.

In the three months ended March 31, 2024, 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, 2023 Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

(In millions)

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Favorable impact to net revenues 32

(Unfavorable) favorable impact to operating expense

Unfavorable impact to operating expense (13)

Net favorable impact to operating income $ 19

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

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

• Number of payment transactions is 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.

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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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Net revenue analysis

The components of our net revenues for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

The components of our net revenues for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Transaction revenues

Transaction revenues grew by $420 million, or 7%, and $1.1 billion, or 6%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year 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 for the three and nine months ended September 30, 2023, of $76 million and $181 million, respectively, from sellers that violated our contractual terms predominantly in international markets.

Transaction revenues for the three and nine months ended September 30, 2023 were also impacted unfavorably by lower net gains due to hedging activities as compared to the same periods of the prior year.

The graphs below present the respective key metrics (in millions) for the three and nine months ended September 30, 2023 and 2022:

Transaction revenues grew by $670 million, or 11%, in the three months ended March 31, 2024 compared to the same period of the prior year driven primarily by growth in TPV and the number of payment transactions from our Braintree products and services and, to a lesser extent, growth in our core PayPal products and services.

Transaction revenues for the three months ended March 31, 2024 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 three months ended March 31, 2024 and 2023:

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

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)

2023 2022 2023 2022

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

Number of payment transactions per active account 60.0 53.1 13 %

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** Not meaningful

We had active accounts of 428 million and 432 million as of September 30, 2023 and 2022, respectively, a decline of 1%.

Our total number of payment transactions was 6.3 billion and 5.6 billion for the three months ended September 30, 2023 and 2022, respectively, an increase of 11%.

Our total number of payment transactions was 18.2 billion for the nine months ended September 30, 2023, compared to 16.3 billion in the nine months ended September 30, 2022, an increase of 11%.

TPV was $388 billion and $337 billion for the three months ended September 30, 2023 and 2022, respectively, an increase of 15%.

TPV was $1.1 trillion for the nine months ended September 30, 2023 compared to $1.0 trillion in the nine months ended September 30, 2022, an increase of 12%.

Transaction revenues grew more slowly than growth in TPV and the number of payment transactions in the three and nine months ended September 30, 2023 compared to the same periods in the prior year due primarily to an unfavorable impact from hedging and a decline in revenues from core PayPal products.

We had active accounts of 427 million and 433 million as of March 31, 2024 and 2023, respectively, a decline of 1%.

Our total number of payment transactions was 6.5 billion and 5.8 billion for the three months ended March 31, 2024 and 2023, respectively, an increase of 11%.

TPV was $404 billion and $355 billion for the three months ended March 31, 2024 and 2023, respectively, an increase of 14%.

Transaction revenues growth was lower than the growth in TPV and the number of payment transactions in the three months ended March 31, 2024 compared to the same period in the prior year due primarily to an unfavorable impact from foreign exchange fees and hedging and unfavorable changes in mix from core PayPal products.

Revenues from other value added services

Revenues from other value added services increased $152 million, or 25%, and $540 million, or 33%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods in the prior year primarily attributable 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.

Revenues from other value added services decreased $11 million, or 2%, in the three months ended March 31, 2024 compared to the same period in the prior year due primarily to a decline in the revenue share earned from an independent chartered financial institution and interest and fee revenue on our loans receivable portfolio driven by a decrease in merchant loan originations, mostly offset by an increase in interest earned on certain assets underlying customer account balances.

The increase in interest earned on certain assets underlying customer accounts resulted primarily from higher interest rates, partially offset by a decline in the balances earning interest year-over-year.

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)

2023 2022 2023 2022

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

(In millions, except percentages)

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General and administrative 464 507 (8) %

Restructuring and other charges 39 56 (30) % 227 182 25 %

Restructuring and other 212 164 29 %

Total operating expenses $ 6,531 $ 6,041 8 %

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Transaction expense

Transaction expense for the three and nine months ended September 30, 2023 and 2022 was as follows (in millions):

Transaction expense increased by $615 million, or 21%, and $1.6 billion, or 18%, in the three and nine months ended September 30, 2023, respectively, due primarily to the increase in TPV of 15% and 12% for the three and nine months ended September 30, 2023, respectively, as well as unfavorable changes in product mix.

The increase in the transaction expense rate for the three and nine months ended September 30, 2023 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, partially offset by favorable changes in regional mix with respect to our core PayPal products.

For the three and nine months ended September 30, 2023, approximately 37% and 36% of TPV, respectively, was generated outside of the U.S.

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

Transaction expense for the three months ended March 31, 2024 and 2023 was as follows (in millions):

Transaction expense increased by $634 million, or 19%, in the three months ended March 31, 2024 due primarily to the increase in TPV of 14% as well as unfavorable changes in product mix.

The increase in the transaction expense rate for the three months ended March 31, 2024 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 changes in regional mix and product mix within our core PayPal products and services.

For the three months ended March 31, 2024 and 2023, approximately 36% and 35% of TPV, respectively, was generated outside of the U.S.

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

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Transaction and credit losses

The components of our transaction and credit losses for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

Transaction and credit losses increased by $79 million, or 22%, and $102 million, or 9%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year.

Transaction losses were $329 million in the three months ended September 30, 2023 compared to $254 million in the three months ended September 30, 2022, an increase of $75 million, or 30%.

Transaction losses were $915 million in the nine months ended September 30, 2023 compared to $956 million in the nine months ended September 30, 2022, a decrease of $41 million, or 4%.

Transaction loss rate (transaction losses divided by TPV) was 0.08% for both the three and nine months ended September 30, 2023, compared to 0.08% and 0.10% for the three and nine months ended September 30, 2022, respectively.

The increase in transaction losses in the three months ended September 30, 2023 compared to the same period of the prior year was due to an increase in losses related to our core PayPal products and services driven by fraud schemes.

The decrease in transaction losses in the nine months ended September 30, 2023 compared to the same period of the prior year was primarily due to a $114 million loss related to an ongoing merchant insolvency proceeding in the nine months ended September 30, 2022 with no activity of comparable individual magnitude in the current period and benefits from continued risk mitigation strategies in the current period, partially offset by lower recoveries compared to the same period of the prior year.

Credit losses increased by $4 million and $143 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year.

The components of credit losses for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

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

2023 2022 2023 (3)

The components of our transaction and credit losses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Transaction and credit losses decreased by $121 million, or 27%, in the three months ended March 31, 2024 compared to the same period of the prior year.

Transaction losses were $260 million in the three months ended March 31, 2024 compared to $300 million in the three months ended March 31, 2023, a decrease of $40 million, or 13%.

Transaction loss rate (transaction losses divided by TPV) was 0.06% and 0.08% for the three months ended March 31, 2024 and 2023, respectively.

The decrease in transaction losses and the associated transaction loss rate in the three months ended March 31, 2024 compared to the same period of the prior year was primarily due to lower losses from our core PayPal and Venmo products and services.

These lower losses were the result of higher fraud recoveries and fewer fraud events in the current period for core PayPal and Venmo, respectively.

Credit losses decreased by $81 million in the three months ended March 31, 2024 compared to the same period of the prior year.

The components of credit losses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Three Months Ended March 31,

Net charge-offs (1)

$ 163 $ 69 $ 407 $ 181

Reserve build (release) (2)

(46) 44 (36) 47

Credit losses $ 61 $ 142

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

(3) Includes the reversal of allowance associated with the reclassification of certain loans to held for sale.

The provision in the three and nine months ended September 30, 2023 was attributable to loan originations during the period and a deterioration in the credit quality of loans outstanding.

The provision in the nine months ended September 30, 2023 was partially offset by reversal of reserves associated with the reclassification of certain receivables to held for sale.

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

The provision in the three months ended March 31, 2024 was attributable to loan originations partially offset by improvement in credit quality of loans outstanding.

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.

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.

Consumer loan portfolio

As of September 30, 2023, loans and interest receivable, held for sale was $2.2 billion.

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 the 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 receivable, held for sale at the closing of the transaction and a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (collectively, “eligible consumer installment receivables”).

At the time of reclassification, previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $33 million in transaction and credit losses in our condensed consolidated statement of income (loss).

See “Note 1—Overview and Summary of Significant Accounting Policies” and “Note 18—Subsequent Events” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information.

The consumer loans and interest receivable balance, net of participation interest sold, as of September 30, 2023 and 2022 was $4.2 billion and $4.4 billion, respectively, representing a decrease of 5%.

The decrease was driven by the reclassification of eligible consumer installment receivables as held for sale 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 and the U.S.

Approximately 36% and 41% of our consumer loans receivable outstanding (including loans held for sale and loans held for investment) as of September 30, 2023 and 2022, respectively, were due from consumers in the U.K.

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

at September 30, 2023 compared to September 30, 2022 was primarily due to overall growth of installment credit products in other markets.

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”).

As of March 31, 2024, loans and interest receivable, held for sale was $307 million.

Loans and interest receivable, held for sale, represents the portion of our installment consumer receivables that we intend to sell and includes certain United Kingdom (“U.K.”) and other European buy now, pay later loan receivables.

The consumer loans and interest receivable balance as of March 31, 2024 and 2023 was $4.5 billion and $6.1 billion, respectively, net of participation interest sold, representing a decrease of 26%.

The decrease was driven by the classification of eligible consumer installment receivables in the U.K.

and other European countries as held for sale during the second quarter of 2023, partially offset by the expansion of our installment credit products in Japan and our revolving credit product in the U.K.

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 (1)

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

(1) Amounts as of September 30, 2023 exclude loans and interest receivable, held for sale.

(1) Amounts as of March 31, 2024 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.

(3) 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 net charge-off rate for consumer loans and interest receivable at September 30, 2023 as compared to September 30, 2022 was primarily due to the reclassification of certain receivables to held for sale, as discussed above.

(3) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2024 and 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 March 31, 2024 as compared to March 31, 2023 was primarily due to the classification of eligible consumer installment receivables as held for sale during the second quarter of 2023, 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.

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

interest-bearing installment product.

We expect to maintain reduced originations through the remainder of 2023.

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, interest, and fees receivable outstanding, net of participation interest sold, as of September 30, 2023 and 2022 was $1.4 billion and $2.0 billion, respectively, a decrease of 30%, due to a decline in receivables outstanding related to our PayPal Business Loan (“PPBL”) product in the U.S.

Approximately 74% and 8% of our merchant receivables outstanding as of September 30, 2023 were due from merchants in the U.S.

and U.K., respectively, as compared to 86% and 5%, respectively, as of September 30, 2022.

Total merchant loans, advances, interest, and fees receivable outstanding, net of participation interest sold, as of March 31, 2024 and 2023 was $1.2 billion and $2.1 billion, respectively, reflecting a decline of 42% attributable to a decrease in originations related to our PayPal Business Loan (“PPBL”) product in the U.S.

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 88.7 % 89.8 %

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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.

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 September 30, 2023 as compared to September 30, 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 September 30, 2023.

The net charge-off rate is expected to remain elevated in the fourth quarter of 2023 due to reduced new originations of merchant loans and advances.

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2024 and 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 increase in the net charge-off rate for merchant receivables at March 31, 2024 as compared to March 31, 2023 was primarily due to the significant year-over-year reduction of the PPBL portfolio balance as a result of reduced originations.

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.

We expect to maintain reduced originations through the remainder of 2023.

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

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, 2023 and 2022 were as follows (in millions):

Customer support and operations expenses decreased by $35 million, or 7%, and $125 million, or 8%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year due primarily to a decline in employee-related costs, contractors and consulting costs, and customer onboarding and compliance costs.

Customer support and operations expenses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Customer support and operations expenses decreased by $34 million, or 7%, in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to a decline in employee-related costs and other operating costs, partially offset by an increase in customer onboarding and compliance costs.

Sales and marketing

Sales and marketing expenses for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

Sales and marketing expenses decreased by $102 million, or 19%, and $390 million, or 23%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year due primarily to lower spending on targeted user incentives and marketing campaigns and, to a lesser extent, a decline in amortization of acquired intangibles.

The decline in sales and marketing expenses in the three months ended September 30, 2023 was partially offset by an increase employee-related costs.

Sales and marketing expenses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Sales and marketing expenses decreased by $15 million, or 3%, in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to lower spending on marketing campaigns and advertising.

Technology and development

Technology and development expenses for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

Technology and development expenses decreased by $62 million, or 8%, and $228 million, or 9%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year due primarily to lower intangible amortization and a decline in costs related to contractors and consultants.

Technology and development expenses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Technology and development expenses increased by $21 million, or 3%, in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to an increase in cloud computing services utilized in delivering our products and services and higher depreciation expense in the current period, partially offset by a decline in costs related to contractors and consultants.

General and administrative

General and administrative expenses for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

General and administrative expenses increased by $44 million, or 10%, and decreased by $79 million, or 5%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year.

The increase in general and administrative expenses in the three months ended September 30, 2023 was due primarily to an increase in employee-related expenses driven by higher stock-based compensation expense, partially offset by a decline in depreciation expense.

The decline in general and administrative expenses in the nine months ended September 30, 2023 was primarily attributable to a decline in employee-related expenses driven by lower headcount, depreciation expense, and a decrease in professional services expenses.

Restructuring and other charges

Restructuring and other charges for the three and nine months ended September 30, 2023 and 2022 were as follows (in millions):

Restructuring and other charges decreased by $17 million and increased by $45 million, in the three and nine months ended September 30, 2023, respectively, compared to the same periods 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 and nine months ended September 30, 2023 were $3 million and $120 million, respectively.

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.

General and administrative expenses for the three months ended March 31, 2024 and 2023 were as follows (in millions):

General and administrative expenses decreased by $43 million, or 8%, in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to declines in indirect tax expense, facilities expense, and depreciation expense.

Restructuring and other

Restructuring and other for the three months ended March 31, 2024 and 2023 were as follows (in millions):

Restructuring and other increased by $48 million in the three months ended March 31, 2024 compared to the same period of the prior year.

During the first quarter of 2024, management initiated a global workforce reduction intended to streamline operations, focus resources on core strategic priorities, and improve our cost structure.

The associated restructuring charges during the three months ended March 31, 2024 were $175 million and included employee severance and benefits costs and stock-based compensation expense.

In connection with this restructuring, we expect to incur additional charges related to employee severance and benefits costs of approximately $70 million to $90 million, which includes stock-based compensation expense.

We expect the remaining charges to be substantially recognized by the second quarter of 2024.

The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately $560 million, including approximately $135 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.

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

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

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

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.

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

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve 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, which were substantially completed by the fourth quarter of 2023.

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 $15 million and $58 million in the three and nine months ended September 30, 2023, respectively, and $29 million and $64 million in the three and nine months ended September 30, 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 nine months ended September 30, 2023, we recognized a gain of $17 million due to the sale of an owned property.

We also incurred a loss of $12 million related to another owned property held for sale in the nine months ended September 30, 2023.

During the three and nine months ended September 30, 2023, approximately $15 million and $49 million, respectively, of losses were recorded in restructuring and other charges in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

We incurred asset impairment charges of nil and $39 million in the three months ended March 31, 2024 and 2023, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements.

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

During the three months ended March 31, 2024, approximately $37 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale 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 decreased $387 million and increased $655 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods of the prior year.

The decrease in the three months ended September 30, 2023 was due primarily to lower net gains on strategic investments in the current period compared to the prior period, partially offset by higher interest income resulting from an increase in interest rates.

The increase in the nine months ended September 30, 2023 was driven primarily by net gains on strategic investments in the current period as compared to net losses in the prior period, higher interest income from an increase in interest rates, and foreign exchange gains in the current period compared to losses in the prior period due in part to actions taken in connection with our decision to suspend transactional services in Russia.

These factors favorably impacting the nine months ended September 30, 2023 were partially offset by an increase in interest expense due to incremental expense from our May 2022 fixed rate debt.

Other income (expense), net decreased $34 million in the three months ended March 31, 2024 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, partially offset by higher interest income resulting from an increase in interest rates and cash balances year-over-year.

Income tax expense

Our effective income tax rate was 18% and 16% for the three months ended September 30, 2023 and 2022, respectively, and 21% and 34% for the nine months ended September 30, 2023 and 2022, respectively.

The increase in our effective income tax rate for the three months ended September 30, 2023 compared to the same period of the prior year was due primarily to a decrease in tax benefits associated with discrete tax adjustments.

The decrease in our effective income tax rate for the nine months ended September 30, 2023 compared to the same period of the prior year was due primarily to higher tax expense in the prior year related to the intra-group transfer of intellectual property.

Our effective income tax rate was 27% and 26% for the three months ended March 31, 2024 and 2023, respectively.

The increase in our effective income tax rate for the three months ended March 31, 2024 compared to the same period of the prior year was due primarily to changes in foreign income taxed at different rates and discrete tax adjustments.

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, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

The following table summarizes our cash, cash equivalents, and investments as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

(In millions)

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$ 15,894 $ 15,493

(1) Excludes assets related to funds receivable and customer accounts of $34.6 billion and $36.3 billion at September 30, 2023 and December 31, 2022, respectively.

(2) Excludes total restricted cash of $6 million and $17 million at September 30, 2023 and December 31, 2022, respectively, and strategic investments of $2.4 billion and $2.1 billion as of September 30, 2023 and December 31, 2022, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $7.7 billion at September 30, 2023 and $8.6 billion at December 31, 2022, or 59% and 62% of our total cash, cash equivalents, and investments as of those respective dates.

(1) Excludes assets related to funds receivable and customer accounts of $38.4 billion and $38.9 billion at March 31, 2024 and December 31, 2023, respectively.

(2) Excludes total restricted cash of $3 million at March 31, 2024 and December 31, 2023 and strategic investments of $1.8 billion at March 31, 2024 and December 31, 2023.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $9.8 billion and $10.0 billion at March 31, 2024 and December 31, 2023, or 62% and 64% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2023, 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 $ 1,917 $ 1,170

$ 2,229 $ 4,222

Investing activities 980 153

1,286 (3,289)

Financing activities (2,362) (2,781)

(5,993) (1,985)

Effect of exchange rates on cash, cash equivalents, and restricted cash (94) (4)

Net decrease in cash, cash equivalents, and restricted cash $ (2,573) $ (1,305)

(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.

Net increase (decrease) in cash, cash equivalents, and restricted cash

$ 441 $ (1,462)

Operating activities

The net cash provided by operating activities of $2.2 billion in the nine months ended September 30, 2023 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 $1.3 billion, stock-based compensation of $1.1 billion, and depreciation and amortization of $809 million.

Cash flows from operating activities was also impacted by originations of loans receivable, held for sale of $5.7 billion, changes in other assets and liabilities of $834 million, primarily related to actual cash transaction losses incurred during the period, changes in deferred income taxes of $439 million, and net gains from our strategic investments of $205 million, partially offset by proceeds from repayments of loans receivable, originally classified as held for sale, of $3.7 billion.

The net cash provided by operating activities of $4.2 billion in the nine months ended September 30, 2022 was 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.

Cash flows from operating activities was also impacted by net losses incurred on our strategic investments of $163 million, partially offset by changes in deferred income taxes of $538 million, and changes in other assets and liabilities of $522 million, primarily related to actual cash transaction losses during the period and an increase in other liabilities.

In the nine months ended September 30, 2023 and 2022, cash paid for income taxes, net was $1.1 billion and $666 million, respectively.

The Internal Revenue Service disaster-area tax relief allows us to defer quarterly payments of 2023 federal estimated taxes to the fourth quarter of 2023.

We expect to pay approximately $725 million related to this deferral in the fourth quarter of 2023.

The net cash provided by operating activities of $1.9 billion in the three months ended March 31, 2024 was due primarily to operating income of $1.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $365 million, provision for transaction and credit losses of $321 million, and depreciation and amortization of $265 million.

Cash flows from operating activities was also impacted by proceeds from repayments and sales of loans receivable, originally classified as held for sale of $5.2 billion, and changes in other assets and liabilities of $176 million, primarily related to an increase in other liabilities partially offset by actual cash transaction losses incurred during the period.

These cash inflows from operating activities were partially offset by originations of loans receivable, held for sale of $5.3 billion.

The net cash provided by 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 $475 million, primarily related to actual cash transaction losses during the period and changes in income taxes payable.

In the three months ended March 31, 2024 and 2023, cash paid for income taxes, net was $83 million and $495 million, respectively.

The decline in cash paid for income taxes, net in the current period was due primarily to cash paid in the three months ended March 31, 2023 related to the intra-group transfer of intellectual property, for which there was no similar activity in three months ended March 31, 2024.

Investing activities

The net cash provided by investing activities of $1.3 billion in the nine months ended September 30, 2023 was due primarily to proceeds from repayments of loans receivable, originally classified as held for investment, of $21.3 billion and maturities and sales of investments of $16.1 billion, partially offset by purchases and originations of loans receivable of $19.8 billion, purchases of investments of $15.0 billion, changes in funds receivable from customers of $1.0 billion, and purchases of property and equipment of $478 million.

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

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

The net cash provided by investing activities of $980 million in the three months ended March 31, 2024 was due primarily to maturities and sales of investments of $9.2 billion and proceeds from repayments and sales of loans receivable, originally classified as held for investment, of $4.8 billion, partially offset by purchases of investments of $7.1 billion, purchases and originations of loans receivable of $4.8 billion, changes in funds receivable from customers of $1.2 billion, and purchases of property and equipment of $154 million.

The net cash provided by investing activities of $153 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 $1.2 billion, partially 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.

Financing activities

The net cash used in financing activities of $6.0 billion in the nine months ended September 30, 2023 was due primarily to the repurchase of $4.4 billion of our common stock under our stock repurchase programs, changes in funds payable and amounts due to customers of $1.3 billion, repayments of borrowings under financing arrangements of $942 million (including principal repayment of fixed rate debt that matured in June 2023 and repayment of borrowings under our Paidy credit agreement), and tax withholdings related to net share settlement of equity awards of $225 million.

These cash outflows were partially offset by borrowings under financing arrangements of $829 million, including proceeds from the issuance of fixed rate debt in June 2023 and borrowings under our Paidy credit agreement.

The net cash used in financing activities of $2.0 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 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), 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), and changes in collateral received related to derivative instruments, net of $437 million.

The net cash used in financing activities of $2.4 billion in the three months ended March 31, 2024 was due primarily to the repurchase of $1.5 billion of our common stock under our stock repurchase program, changes in funds payable and amounts due to customers of $483 million, repayments of borrowings under financing arrangements of $359 million, and tax withholdings related to net share settlement of equity awards of $167 million.

These cash outflows were partially offset by borrowings under financing arrangements of $115 million.

The net cash used in financing activities of $2.8 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 program, changes in funds payable and amounts due to customers of $1.1 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.

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

Foreign currency exchange rates for the nine months ended September 30, 2023 and 2022 had a negative impact of $95 million and $253 million, respectively, on cash, cash equivalents, and restricted cash.

The negative impact on cash, cash equivalents, and restricted cash in the nine months ended September 30, 2023 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar, and to a lesser extent, the Chinese yuan and Japanese yen.

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

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

Foreign currency exchange rates for the three months ended March 31, 2024 and 2023 had a negative impact of $94 million and $4 million, respectively, on cash, cash equivalents, and restricted cash.

The negative impact on cash, cash equivalents, and restricted cash in the three months ended March 31, 2024 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar, and to a lesser extent, the British pound and Euro.

The negative impact on cash, cash equivalents and restricted cash in the three months ended March 31, 2023 was 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.

Available credit and debt

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥90 billion (approximately $603 million as of September 30, 2023).

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.

As of September 30, 2023, we had $10.6 billion in fixed rate debt outstanding with varying maturity dates.

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 September 30, 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 $603 million as of September 30, 2023.) In June 2023, we repaid borrowings on the Paidy Credit Agreement using proceeds from the June 2023 debt issuance.

As of September 30, 2023 and December 31, 2022, ¥16.0 billion (approximately $108 million) and ¥64.3 billion (approximately $491 million), respectively, was outstanding under the Paidy Credit Agreement.

At September 30, 2023, ¥74.0 billion (approximately $495 million) of borrowing capacity was available for the purposes permitted by the Paidy 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 $595 million as of March 31, 2024.) As of March 31, 2024 and December 31, 2023, ¥61.0 billion (approximately $403 million) and ¥50.0 billion (approximately $355 million), respectively, was outstanding under the Paidy Credit Agreement.

At March 31, 2024, ¥29.0 billion (approximately $192 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 2023 Form 10‑K.

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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, 2023, we had a total of $2.6 billion in cash withdrawals offsetting our $2.6 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

As of March 31, 2024, 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, 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.

As of March 31, 2024, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

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

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We continue to evaluate 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.

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.

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.

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.

As of December 31, 2022, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.8 billion.

In the third quarter of 2023, an additional $250 million was approved to fund our credit activities.

As of September 30, 2023, the cumulative amount approved by management to be designated to fund credit activities aggregated to $4.0 billion and represented approximately 43% of European customer balances made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

In October 2023, management approved a $1.0 billion reduction to the amount approved to fund credit activities, lowering the aggregate cumulative amount approved by management for this purpose to $3.0 billion.

As of March 31, 2024, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.0 billion and represented approximately 40% 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.

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, including those receivables held on our balance sheet at closing of the transaction and a forward-flow arrangement for the sale of future originations.

Following the closing of this transaction, which is expected to occur in the fourth quarter of 2023, the global investment firm will become the owner of the eligible consumer installment receivables and future eligible installment receivables originated over a 24-month commitment period, and we will no longer hold an ownership interest in these receivables.

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 three months ended March 31, 2024, we sold $4.8 billion of loans and interest receivable in connection with this agreement.

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

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 nine months ended September 30, 2023, we repurchased approximately $4.4 billion of our common stock in the open market under our stock repurchase programs authorized in July 2018 and June 2022.

As of September 30, 2023, a total of approximately $11.5 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

During the three months ended March 31, 2024, we repurchased approximately $1.5 billion of our common stock in the open market under our stock repurchase program authorized in June 2022.

As of March 31, 2024, a total of approximately $9.4 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

Other considerations

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis