PayPal Holdings, Inc. 10-Q

ITEM 1: FINANCIAL STATEMENTS PayPal Holdings, Inc. CONDENSED CONSOLIDATED BALANCE SHEETS March 31, 2024 December 31, 2023 (In millions, except par value) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 9,693 $ 9,081 Short-term investments 4,625 4,979 Accounts receivable, net 1,108 1,069 Loans and interest receivable, held for sale 307 563 Loans and interest receivable, net of allowances of $ 465 and $ 540 as of March 31, 2024 and December 31, 2023, respectively 5,202 5,433 Funds receivable and customer accounts 38,353 38,935 Prepaid expenses and other current assets 4,418 2,509 Total current assets 63,706 62,569 Long-term investments 3,409 3,273 Property and equipment, net 1,426 1,488 Goodwill 10,916 11,026 Intangible assets, net 465 537 Other assets 3,425 3,273 Total assets $ 83,347 $ 82,166 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 108 $ 139 Funds payable and amounts due to customers 41,353 41,935 Accrued expenses and other current liabilities 8,385 6,392 Total current liabilities 49,846 48,466 Other long-term liabilities 3,116 2,973 Long-term debt 9,683 9,676 Total liabilities 62,645 61,115 Commitments and contingencies (Note 13) Equity: Common stock, $ 0.0001 par value; 4,000 shares authorized; 1,053 and 1,072 shares outstanding as of March 31, 2024 and December 31, 2023, respectively — — Preferred stock, $ 0.0001 par value; 100 shares authorized, unissued — — Treasury stock at cost, 270 and 245 shares as of March 31, 2024 and December 31, 2023, respectively ( 22,552 ) ( 21,045 ) Additional paid-in-capital 19,825 19,642 Retained earnings 24,088 23,200 Accumulated other comprehensive income (loss) ( 659 ) ( 746 ) Total equity 20,702 21,051 Total liabilities and equity $ 83,347 $ 82,166 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents PayPal Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS) Three Months Ended March 31, 2024 2023 (In millions, except per share data) (Unaudited) Net revenues $ 7,699 $ 7,040 Operating expenses: Transaction expense 3,917 3,283 Transaction and credit losses 321 442 Customer support and operations 454 488 Sales and marketing 421 436 Technology and development 742 721 General and administrative 464 507 Restructuring and other 212 164 Total operating expenses 6,531 6,041 Operating income 1,168 999 Other income (expense), net 41 75 Income before income taxes 1,209 1,074 Income tax expense 321 279 Net income (loss) $ 888 $ 795 Net income (loss) per share: Basic $ 0.83 $ 0.70 Diluted $ 0.83 $ 0.70 Weighted average shares: Basic 1,064 1,129 Diluted 1,072 1,134 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents PayPal Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Three Months Ended March 31, 2024 2023 (In millions) (Unaudited) Net income (loss) $ 888 $ 795 Other comprehensive income (loss), net of reclassification adjustments: Foreign currency translation adjustments (“CTA”) ( 143 ) ( 20 ) Net investment hedges CTA gains, net 99 27 Tax expense on net investment hedges CTA gains, net ( 23 ) ( 6 ) Unrealized gains (losses) on cash flow hedges, net 96 ( 111 ) Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net ( 5 ) 6 Unrealized gains on available-for-sale debt securities, net 83 175 Tax expense on unrealized gains on available-for-sale debt securities, net ( 20 ) ( 41 ) Other comprehensive income (loss), net of tax 87 30 Comprehensive income (loss) $ 975 $ 825 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents PayPal Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Equity (In millions) (Unaudited) Balances at December 31, 2023 1,072 $ ( 21,045 ) $ 19,642 $ ( 746 ) $ 23,200 $ 21,051 Net income — — — — 888 888 Foreign CTA — — — ( 143 ) — ( 143 ) Net investment hedges CTA gains, net — — — 99 — 99 Tax expense on net investment hedges CTA gains, net — — — ( 23 ) — ( 23 ) Unrealized gains on cash flow hedges, net — — — 96 — 96 Tax expense on unrealized gains on cash flow hedges, net — — — ( 5 ) — ( 5 ) Unrealized gains on available-for-sale debt securities, net — — — 83 — 83 Tax expense on unrealized gains on available-for-sale debt securities, net — — — ( 20 ) — ( 20 ) Common stock and stock-based awards issued, net of shares withheld for employee taxes 6 — ( 193 ) — — ( 193 ) Common stock repurchased ( 25 ) ( 1,511 ) — — ( 1,511 ) Treasury stock reissuance — 4 — — — 4 Stock-based compensation — — 376 — — 376 Balances at March 31, 2024 1,053 $ ( 22,552 ) $ 19,825 $ ( 659 ) $ 24,088 $ 20,702 Common Stock Shares Treasury Stock Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Equity (In millions) (Unaudited) Balances at December 31, 2022 1,136 $ ( 16,079 ) $ 18,327 $ ( 928 ) $ 18,954 $ 20,274 Net income — — — — 795 795 Foreign CTA — — — ( 20 ) — ( 20 ) Net investment hedges CTA gains, net — — — 27 — 27 Tax expense on net investment hedges CTA gains, net — — — ( 6 ) — ( 6 ) Unrealized losses on cash flow hedges, net — — — ( 111 ) — ( 111 ) Tax benefit on unrealized losses on cash flow hedges, net — — — 6 — 6 Unrealized gains on available-for-sale debt securities, net — — — 175 — 175 Tax expense on unrealized gains on available-for-sale debt securities, net — — — ( 41 ) — ( 41 ) Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 5 — ( 157 ) — — ( 157 ) Common stock repurchased ( 19 ) ( 1,443 ) — — — ( 1,443 ) Stock-based compensation — — 359 — — 359 Balances at March 31, 2023 1,122 $ ( 17,522 ) $ 18,529 $ ( 898 ) $ 19,749 $ 19,858 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents PayPal Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2024 2023 (In millions) (Unaudited) Cash flows from operating activities: Net income (loss) $ 888 $ 795 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Transaction and credit losses 321 442 Depreciation and amortization 265 270 Stock-based compensation 365 345 Deferred income taxes 52 ( 67 ) Net (gains) losses on strategic investments 49 ( 48 ) Accretion of discounts on investments, net of amortization of premiums ( 75 ) ( 69 ) Adjustments to loans and interest receivable, held for sale 37 — Other 13 ( 23 ) Originations of loans receivable, held for sale ( 5,345 ) — Proceeds from repayments and sales of loans receivable, originally classified as held for sale 5,232 — Changes in assets and liabilities: Accounts receivable ( 39 ) ( 3 ) Accounts payable ( 22 ) 3 Other assets and liabilities 176 ( 475 ) Net cash provided by operating activities 1,917 1,170 Cash flows from investing activities: Purchases of property and equipment ( 154 ) ( 170 ) Proceeds from sales of property and equipment — 1 Purchases and originations of loans receivable ( 4,779 ) ( 8,267 ) Proceeds from repayments and sales of loans receivable, originally classified as held for investment 4,827 8,063 Purchases of investments ( 7,081 ) ( 6,100 ) Maturities and sales of investments 9,242 5,445 Funds receivable ( 1,169 ) 1,195 Collateral posted related to derivative instruments, net 74 ( 22 ) Other investing activities 20 8 Net cash provided by investing activities 980 153 Cash flows from financing activities: Proceeds from issuance of common stock — 1 Purchases of treasury stock ( 1,501 ) ( 1,432 ) Tax withholdings related to net share settlements of equity awards ( 167 ) ( 149 ) Borrowings under financing arrangements 115 72 Repayments under financing arrangements ( 359 ) ( 5 ) Funds payable and amounts due to customers ( 483 ) ( 1,139 ) Collateral received related to derivative instruments, net 33 ( 129 ) Net cash used in financing activities ( 2,362 ) ( 2,781 ) 8 Table of Contents PayPal Holdings, Inc. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued) Three Months Ended March 31, 2024 2023 (In millions) (Unaudited) Effect of exchange rate changes on cash, cash equivalents, and restricted cash ( 94 ) ( 4 ) Net change in cash, cash equivalents, and restricted cash 441 ( 1,462 ) Cash, cash equivalents, and restricted cash at beginning of period 21,834 19,156 Cash, cash equivalents, and restricted cash at end of period $ 22,275 $ 17,694 Supplemental cash flow disclosures: Cash paid for interest $ 2 $ 2 Cash paid for income taxes, net $ 83 $ 495 The table below reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows: Cash and cash equivalents $ 9,693 $ 7,101 Short-term investments 3 13 Funds receivable and customer accounts 12,579 10,580 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows $ 22,275 $ 17,694 The accompanying notes are an integral part of these condensed consolidated financial statements. 9 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1— OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES OVERVIEW AND ORGANIZATION PayPal Holdings, Inc. (“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is 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. We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, continue to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition. We monitor these areas closely and are focused on designing compliant solutions for our customers. SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and principles of consolidation The accompanying condensed consolidated financial statements include the financial statements of PayPal and our wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investee’s results of operations is included in other income (expense), net on our condensed consolidated statements of income (loss). Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our condensed consolidated statements of income (loss). Our investment balance is included in long-term investments on our condensed consolidated balance sheets. We determine at the inception of each investment, and re-evaluate if certain events occur, whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine an investment is in a VIE, we then assess if we are the primary beneficiary, which would require consolidation. As of March 31, 2024 and December 31, 2023, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance. As of March 31, 2024 and December 31, 2023, the carrying value of our investments in nonconsolidated VIEs was $ 178 million and $ 175 million, respectively, and is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets. The investments in nonconsolidated VIEs are primarily investments in funds that are limited partnerships or similar structures which are focused on increasing access to capital for underserved communities. Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $ 246 million as of March 31, 2024 and December 31, 2023. These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 8, 2024. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the condensed consolidated financial statements for all interim periods presented. Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three months ended March 31, 2024. 10 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Use of estimates The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, and the evaluation of strategic investments for impairment. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. Actual results could materially differ from these estimates. Recent accounting guidance In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures . The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024, with early adoption permitted. We are evaluating the impact this amended guidance may have on the footnotes to our condensed consolidated financial statements. In December 2023, the FASB issued ASU 2023-08, Intangibles – Goodwill and Other – Crypto Assets (Subtopic 350-60): Accounting for and Disclosure of Crypto Assets . This amended guidance requires fair value measurement of certain crypto assets each reporting period with the changes in fair value reflected in net income. The amendments also require disclosures of the name, fair value, units held, and cost bases for each significant crypto asset held and annual reconciliations of crypto asset holdings. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2024, with early adoption permitted. We are required to apply these amendments as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year in which the guidance is adopted. The adoption of this guidance is not expected to have a material impact on our condensed consolidated financial statements based on our current crypto asset holdings and fair value. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. We are evaluating the impact this amended guidance may have on the footnotes to our condensed consolidated financial statements. There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these new accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures. NOTE 2— REVENUE We enable our customers to send and receive payments. We earn revenue primarily by completing payment transactions for our customers on our payments platform and from other value added services. Our revenues are classified into two categories: transaction revenues and revenues from other value added services. 11 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) DISAGGREGATION OF REVENUE We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who regularly reviews our operating results on a consolidated basis. We operate as one segment and have one reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and types of revenue categories (transaction revenues and revenues from other value added services). Revenues recorded within these categories are earned from similar products and services for which the nature of associated fees and the related revenue recognition models are substantially similar. The following table presents our revenue disaggregated by primary geographical market and category: Three Months Ended March 31, 2024 2023 (In millions) Primary geographical markets U.S. $ 4,467 $ 4,147 Other countries (1) 3,232 2,893 Total net revenues (2) $ 7,699 $ 7,040 Revenue category Transaction revenues $ 7,034 $ 6,364 Revenues from other value added services 665 676 Total net revenues (2) $ 7,699 $ 7,040 (1) No single country included in the other countries category generated more than 10% of total net revenues. (2) Total net revenues include $ 468 million and $ 451 million for the three months ended March 31, 2024 and 2023, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers . Such revenues relate to interest and fees earned on loans and interest receivable, including loans and interest receivable, held for sale, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances. Net revenues are attributed to the country in which the party paying our fee is located. NOTE 3— NET INCOME (LOSS) PER SHARE Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period. The dilutive effect of outstanding equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares. During periods when we report net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items would decrease the net loss per share. 12 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated: Three Months Ended March 31, 2024 2023 (In millions, except per share amounts) Numerator: Net income (loss) $ 888 $ 795 Denominator: Weighted average shares of common stock - basic 1,064 1,129 Dilutive effect of equity incentive awards 8 5 Weighted average shares of common stock - diluted 1,072 1,134 Net income (loss) per share: Basic $ 0.83 $ 0.70 Diluted $ 0.83 $ 0.70 Common stock equivalents excluded from net income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive 17 14 NOTE 4— BUSINESS COMBINATIONS AND DIVESTITURES There were no acquisitions accounted for as business combinations or divestitures completed in the three months ended March 31, 2024 and 2023. NOTE 5— GOODWILL AND INTANGIBLE ASSETS GOODWILL The following table presents goodwill balances and adjustments to those balances during the three months ended March 31, 2024: December 31, 2023 Goodwill Acquired Adjustments March 31, 2024 (In millions) Total goodwill $ 11,026 $ — $ ( 110 ) $ 10,916 The adjustments to goodwill during the three months ended March 31, 2024 pertained to foreign currency translation adjustments. INTANGIBLE ASSETS The components of identifiable intangible assets were as follows: March 31, 2024 December 31, 2023 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Weighted Average Useful Life (Years) (In millions, except years) Intangible assets: Customer lists and user base $ 1,517 $ ( 1,162 ) $ 355 7 $ 1,546 $ ( 1,140 ) $ 406 7 Marketing related 382 ( 351 ) 31 5 387 ( 350 ) 37 5 Developed technology 1,010 ( 1,003 ) 7 3 1,013 ( 999 ) 14 3 All other 430 ( 358 ) 72 7 433 ( 353 ) 80 7 Intangible assets, net $ 3,339 $ ( 2,874 ) $ 465 $ 3,379 $ ( 2,842 ) $ 537 13 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Amortization expense for intangible assets was $ 56 million and $ 57 million for the three months ended March 31, 2024 and 2023, respectively. Additionally, in the three months ended March 31, 2023, we retired approximately $ 84 million of fully amortized intangible assets, of which $ 65 million and $ 19 million were included in customer lists and user base and developed technology, respectively. Expected future intangible asset amortization as of March 31, 2024 was as follows (in millions): Fiscal years: Remaining 2024 $ 130 2025 147 2026 90 2027 55 2028 43 Total $ 465 NOTE 6— LEASES PayPal enters into various leases, which are primarily real estate operating leases. We use these properties for executive and administrative offices, data centers, product development offices, and customer services and operations centers. PayPal also enters into computer equipment finance leases. While a majority of our lease agreements do not contain an explicit interest rate, certain of our lease agreements are subject to changes based on the Consumer Price Index or another referenced index. In the event of changes to the relevant index, lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred. The short-term lease exemption has been adopted for all leases with a duration of less than 12 months. PayPal’s lease portfolio includes a small number of subleases. A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements. The components of lease expense were as follows: Three Months Ended March 31, 2024 2023 (In millions) Operating lease expense $ 37 $ 41 Sublease income ( 3 ) ( 2 ) Total lease expense, net (1) $ 34 $ 39 (1) During the three months ended March 31, 2024, finance lease expense was de minimis. Supplemental cash flow information related to leases during the three months ended March 31, 2024 and 2023 were as follows: Three Months Ended March 31, 2024 (In millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 43 Right-of-use (“ROU”) lease assets obtained in exchange for new operating lease liabilities $ 143 ROU lease assets obtained in exchange for new finance lease liabilities $ 16 14 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Three Months Ended March 31, 2023 (In millions) Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 43 ROU lease assets obtained in exchange for new operating lease liabilities $ ( 1 ) Other non-cash ROU lease asset activity (1) $ ( 21 ) (1) ROU lease asset impairment. Refer to “Note 17—Restructuring and Other” for further details. Supplemental balance sheet information related to leases was as follows: March 31, 2024 December 31, 2023 (In millions, except weighted-average figures) Operating leases (1) Finance leases (2) Operating leases (1) Finance leases (2) ROU lease assets $ 505 $ 16 $ 390 $ — Current lease liabilities 144 9 144 — Long-term lease liabilities 524 7 416 — Total lease liabilities $ 668 $ 16 $ 560 $ — Weighted-average remaining lease term 5.8 years 4.9 years 5.0 years — Weighted-average discount rate 4 % 2 % 4 % — % (1) ROU assets for operating leases are included in “other assets” and lease liabilities for operating leases are included in “accrued expenses and other current liabilities” and “other long-term liabilities” on our condensed consolidated balance sheets. (2) ROU assets for finance leases are included in “property and equipment, net” and lease liabilities for finance leases are included in “accrued expenses and other current liabilities” and “other long-term liabilities” on our condensed consolidated balance sheets. Future minimum lease payments for our leases as of March 31, 2024 were as follows: Operating leases Finance leases Fiscal years: (In millions) Remaining 2024 $ 127 $ 8 2025 139 2 2026 128 2 2027 104 2 2028 73 2 Thereafter 181 — Total $ 752 $ 16 Less: present value discount ( 84 ) — Lease liability $ 668 $ 16 Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities. Finance lease amounts include minimum lease payments under our non-cancelable finance leases primarily for computer equipment. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases. As of March 31, 2024, we have additional operating leases, primarily for data centers, which will commence in the second quarter of 2024 or later with minimum lease payments aggregating to $ 102 million and lease terms ranging from four to eight years . As of March 31, 2024, we have additional finance leases for computer equipment, which will commence in the second quarter of 2024 or later with minimum lease payments aggregating to $ 62 million and lease terms of five years . 15 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) NOTE 7— OTHER FINANCIAL STATEMENT DETAILS CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET We allow our customers in certain markets to buy, hold, sell, convert, receive, and send certain cryptocurrencies as well as use the proceeds from sales of cryptocurrencies to pay for purchases at checkout. These cryptocurrencies consist of Bitcoin, Ethereum, Bitcoin Cash, Litecoin, and PayPal USD stablecoin (collectively, “our customers’ crypto assets”). We engage third parties, which are licensed trust companies, to provide certain custodial services, including holding our customers’ cryptographic key information, securing our customers’ crypto assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Our third-party custodians hold the crypto assets in a custodial account in PayPal’s name for the benefit of PayPal’s customers. We maintain the internal recordkeeping of our customers’ crypto assets, including the amount and type of crypto asset owned by each of our customers in that custodial account. As of March 31, 2024, we utilize two third-party custodians; as such, there is concentration risk in the event these custodians are not able to perform in accordance with our agreement. Due to the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks, we recognize a crypto asset safeguarding liability to reflect our obligation to safeguard the crypto assets held for the benefit of our customers, which is recorded in accrued expenses and other current liabilities on our condensed consolidated balance sheets. We also recognize a corresponding safeguarding asset, which is recorded in prepaid expenses and other current assets on our condensed consolidated balance sheets. The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using quoted prices for the underlying crypto assets on the active exchange that we have identified as the principal market at the balance sheet date. The corresponding safeguarding asset may be adjusted for loss events, as applicable. As of March 31, 2024 and December 31, 2023, the Company had not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value. The following table summarizes the significant crypto assets we hold for the benefit of our customers and the crypto asset safeguarding liability and corresponding safeguarding asset as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (In millions) Bitcoin $ 1,709 $ 741 Ethereum 985 412 Other 152 88 Crypto asset safeguarding liability $ 2,846 $ 1,241 Crypto asset safeguarding asset $ 2,846 $ 1,241 16 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2024: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities Foreign Currency Translation Adjustment (“CTA”) Net Investment Hedges CTA Gains (Losses) Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ ( 56 ) $ ( 134 ) $ ( 731 ) $ 191 $ ( 16 ) $ ( 746 ) Other comprehensive income (loss) before reclassifications 96 41 ( 143 ) 99 ( 48 ) 45 Less: Amount of loss reclassified from accumulated other comprehensive income (loss) (“AOCI”) — ( 42 ) — — — ( 42 ) Net current period other comprehensive income (loss) 96 83 ( 143 ) 99 ( 48 ) 87 Ending balance $ 40 $ ( 51 ) $ ( 874 ) $ 290 $ ( 64 ) $ ( 659 ) The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended March 31, 2023: Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Available-for-sale Debt Securities Foreign CTA Net Investment Hedges CTA Gains (Losses) Estimated Tax (Expense) Benefit Total (In millions) Beginning balance $ 111 $ ( 591 ) $ ( 575 ) $ ( 1 ) $ 128 $ ( 928 ) Other comprehensive income (loss) before reclassifications ( 35 ) 150 ( 20 ) 27 ( 41 ) 81 Less: Amount of gain (loss) reclassified from AOCI 76 ( 25 ) — — — 51 Net current period other comprehensive income (loss) ( 111 ) 175 ( 20 ) 27 ( 41 ) 30 Ending balance $ — $ ( 416 ) $ ( 595 ) $ 26 $ 87 $ ( 898 ) The following table provides details about reclassifications out of AOCI for the periods presented below: Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI Affected Line Item in the Statements of Income (Loss) Three Months Ended March 31, 2024 2023 (In millions) Gains on cash flow hedges — foreign currency exchange contracts $ — $ 76 Net revenues Losses on investments ( 42 ) ( 23 ) Net revenues Losses on investments — ( 2 ) Other income (expense), net ( 42 ) 51 Income before income taxes — — Income tax expense Total reclassifications for the period $ ( 42 ) $ 51 Net income (loss) 17 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) OTHER INCOME (EXPENSE), NET The following table reconciles the components of other income (expense), net for the periods presented below: Three Months Ended March 31, 2024 2023 (In millions) Interest income $ 166 $ 108 Interest expense ( 86 ) ( 87 ) Net gains (losses) on strategic investments ( 49 ) 48 Other 10 6 Other income (expense), net $ 41 $ 75 NOTE 8— CASH AND CASH EQUIVALENTS, FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS, AND INVESTMENTS The following table summarizes the assets underlying our cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 (In millions) Cash and cash equivalents (1) $ 9,693 $ 9,081 Funds receivable and customer accounts: Cash and cash equivalents (2) $ 12,579 $ 12,750 Time deposits 80 82 Available-for-sale debt securities 14,166 15,708 Funds receivable 11,528 10,395 Total funds receivable and customer accounts $ 38,353 $ 38,935 Short-term investments: Time deposits $ 100 $ 128 Available-for-sale debt securities 4,522 4,848 Restricted cash 3 3 Total short-term investments $ 4,625 $ 4,979 Long-term investments: Time deposits $ 40 $ 45 Available-for-sale debt securities 1,539 1,391 Strategic investments 1,830 1,837 Total long-term investments $ 3,409 $ 3,273 (1) Includes $ 1.5 billion and $ 777 million of available-for-sale debt securities with original maturities of three months or less as of March 31, 2024 and December 31, 2023, respectively. (2) Includes $ 931 million and $ 399 million of available-for-sale debt securities with original maturities of three months or less as of March 31, 2024 and December 31, 2023, respectively. 18 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) As of March 31, 2024 and December 31, 2023, the estimated fair value of our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments was as follows: March 31, 2024 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Cash and cash equivalents: U.S. government and agency securities $ 1,296 $ — $ — $ 1,296 Commercial paper 200 — — 200 Funds receivable and customer accounts: U.S. government and agency securities 8,038 2 ( 26 ) 8,014 Foreign government and agency securities 195 — — 195 Corporate debt securities 477 — ( 1 ) 476 Asset-backed securities 1,860 4 ( 1 ) 1,863 Municipal securities 710 — ( 3 ) 707 Commercial paper 3,193 1 ( 2 ) 3,192 Short-term investments: U.S. government and agency securities 572 — ( 12 ) 560 Foreign government and agency securities 195 — ( 3 ) 192 Corporate debt securities 1,443 1 ( 9 ) 1,435 Asset-backed securities 751 4 ( 3 ) 752 Commercial paper 1,584 — ( 1 ) 1,583 Long-term investments: U.S. government and agency securities 51 — ( 2 ) 49 Foreign government and agency securities 112 — ( 2 ) 110 Corporate debt securities 692 2 ( 3 ) 691 Asset-backed securities 686 3 — 689 Total available-for-sale debt securities (2) $ 22,055 $ 17 $ ( 68 ) $ 22,004 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” 19 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) December 31, 2023 (1) Gross Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value (In millions) Cash and cash equivalents: U.S. government and agency securities $ 428 $ — $ — $ 428 Commercial paper 349 — — 349 Funds receivable and customer accounts: U.S. government and agency securities 8,549 8 ( 79 ) 8,478 Foreign government and agency securities 620 — ( 8 ) 612 Corporate debt securities 1,507 — ( 18 ) 1,489 Asset-backed securities 1,421 4 ( 2 ) 1,423 Municipal securities 639 1 ( 2 ) 638 Commercial paper 2,846 4 ( 1 ) 2,849 Short-term investments: U.S. government and agency securities 632 — ( 9 ) 623 Foreign government and agency securities 353 — ( 6 ) 347 Corporate debt securities 1,494 1 ( 13 ) 1,482 Asset-backed securities 719 3 ( 4 ) 718 Commercial paper 1,678 1 ( 1 ) 1,678 Long-term investments: U.S. government and agency securities 188 — ( 8 ) 180 Foreign government and agency securities 33 — ( 1 ) 32 Corporate debt securities 424 — ( 6 ) 418 Asset-backed securities 759 2 — 761 Total available-for-sale debt securities (2) $ 22,639 $ 24 $ ( 158 ) $ 22,505 (1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position. (2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9 — Fair Value Measurement of Assets and Liabilities.” Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled $ 108 million and $ 101 million at March 31, 2024 and December 31, 2023, respectively, and were included in other current assets on our condensed consolidated balance sheets. 20 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) As of March 31, 2024 and December 31, 2023, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows: March 31, 2024 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Cash and cash equivalents: U.S. government and agency securities $ 897 $ — $ — $ — $ 897 $ — Commercial paper 200 — — — 200 — Funds receivable and customer accounts: U.S. government and agency securities 4,727 ( 10 ) 902 ( 16 ) 5,629 ( 26 ) Foreign government and agency securities 69 — 115 — 184 — Corporate debt securities 125 — 331 ( 1 ) 456 ( 1 ) Asset-backed securities 719 ( 1 ) 94 — 813 ( 1 ) Municipal securities 509 ( 2 ) 96 ( 1 ) 605 ( 3 ) Commercial paper 1,523 ( 2 ) — — 1,523 ( 2 ) Short-term investments: U.S. government and agency securities 80 — 430 ( 12 ) 510 ( 12 ) Foreign government and agency securities 6 — 186 ( 3 ) 192 ( 3 ) Corporate debt securities 364 ( 1 ) 486 ( 8 ) 850 ( 9 ) Asset-backed securities 124 — 114 ( 3 ) 238 ( 3 ) Commercial paper 1,186 ( 1 ) — — 1,186 ( 1 ) Long-term investments: U.S. government and agency securities — — 49 ( 2 ) 49 ( 2 ) Foreign government and agency securities 78 ( 1 ) 32 ( 1 ) 110 ( 2 ) Corporate debt securities 285 — 53 ( 3 ) 338 ( 3 ) Asset-backed securities 142 — 22 — 164 — Total available-for-sale debt securities $ 11,034 $ ( 18 ) $ 2,910 $ ( 50 ) $ 13,944 $ ( 68 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. 21 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) December 31, 2023 (1) Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (In millions) Cash and cash equivalents: Commercial paper $ 349 $ — $ — $ — $ 349 $ — Funds receivable and customer accounts: U.S. government and agency securities 2,626 ( 8 ) 3,917 ( 71 ) 6,543 ( 79 ) Foreign government and agency securities 36 — 451 ( 8 ) 487 ( 8 ) Corporate debt securities 100 — 1,364 ( 18 ) 1,464 ( 18 ) Asset-backed securities 253 — 473 ( 2 ) 726 ( 2 ) Municipal securities 196 ( 1 ) 156 ( 1 ) 352 ( 2 ) Commercial paper 1,088 ( 1 ) — — 1,088 ( 1 ) Short-term investments: U.S. government and agency securities — — 296 ( 9 ) 296 ( 9 ) Foreign government and agency securities — — 347 ( 6 ) 347 ( 6 ) Corporate debt securities 194 — 797 ( 13 ) 991 ( 13 ) Asset-backed securities 131 — 144 ( 4 ) 275 ( 4 ) Commercial paper 737 ( 1 ) — — 737 ( 1 ) Long-term investments: U.S. government and agency securities — — 180 ( 8 ) 180 ( 8 ) Foreign government and agency securities — — 32 ( 1 ) 32 ( 1 ) Corporate debt securities 120 — 120 ( 6 ) 240 ( 6 ) Asset-backed securities 109 — 195 — 304 — Total available-for-sale debt securities $ 5,939 $ ( 11 ) $ 8,472 $ ( 147 ) $ 14,411 $ ( 158 ) (1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position. Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis. The decline in fair value is due primarily to changes in market interest rates, rather than credit losses. We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred. During the three months ended March 31, 2024, we received $ 11.3 billion in proceeds from the sale and maturity of available-for-sale debt securities and incurred gross realized losses of $ 42 million. During the three months ended March 31, 2023, we received $ 6.4 billion in proceeds from the sale and maturity of available-for-sale debt securities and incurred gross realized losses of $ 25 million. Gross realized gains and losses were determined using the specific identification method. Our available-for-sale debt securities included within cash and cash equivalents, funds receivable and customer accounts, short-term investments, and long-term investments classified by date of contractual maturity were as follows: March 31, 2024 Amortized Cost Fair Value (In millions) One year or less $ 14,127 $ 14,083 After one year through five years 5,535 5,523 After five years through ten years 2,315 2,320 After ten years 78 78 Total $ 22,055 $ 22,004 Actual maturities may differ from contractual maturities as certain securities may be prepaid. 22 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Supplemental cash flow information related to investments Non-cash investing transactions that are not reflected in the condensed consolidated statement of cash flows for the three months ended March 31, 2024 include the purchase of investments not yet settled of $ 413 million. STRATEGIC INVESTMENTS Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies. Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our condensed consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of income (loss). Marketable equity securities totaled $ 21 million and $ 24 million as of March 31, 2024 and December 31, 2023, respectively. Our non-marketable equity securities are recorded in long-term investments on our condensed consolidated balance sheets. The carrying value of our non-marketable equity securities totaled $ 1.8 billion as of March 31, 2024 and December 31, 2023. As of March 31, 2024 and December 31, 2023, we had non-marketable equity securities of $ 185 million and $ 182 million, respectively, for which we have the ability to exercise significant influence, but not control, over the investee. We account for these equity securities using the equity method of accounting. The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our condensed consolidated statements of income (loss). Measurement Alternative adjustments The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three months ended March 31, 2024 and 2023 were as follows: Three Months Ended March 31, 2024 2023 (In millions) Carrying amount, beginning of period $ 1,631 $ 1,687 Adjustments related to non-marketable equity securities: Net additions (1) 40 16 Gross unrealized gains — 22 Gross unrealized losses and impairments ( 47 ) ( 45 ) Carrying amount, end of period $ 1,624 $ 1,680 (1) Net additions include purchases, reductions due to sales of securities, and reclassifications when the Measurement Alternative is subsequently elected or no longer applies. The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at March 31, 2024 and December 31, 2023, respectively: March 31, 2024 December 31, 2023 (In millions) Cumulative gross unrealized gains $ 1,168 $ 1,168 Cumulative gross unrealized losses and impairments $ ( 329 ) $ ( 283 ) 23 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at March 31, 2024 and 2023, respectively: Three Months Ended March 31, 2024 2023 (In millions) Net unrealized gains (losses) $ ( 51 ) $ 52 24 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) NOTE 9— FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023: March 31, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) U.S. government and agency securities $ 1,296 $ — $ 1,296 Commercial paper 200 — 200 Total cash and cash equivalents 1,496 — 1,496 Short-term investments (2) : U.S. government and agency securities 560 — 560 Foreign government and agency securities 192 — 192 Corporate debt securities 1,435 — 1,435 Asset-backed securities 752 — 752 Commercial paper 1,583 — 1,583 Total short-term investments 4,522 — 4,522 Funds receivable and customer accounts (3) : U.S. government and agency securities 8,014 — 8,014 Foreign government and agency securities 745 — 745 Corporate debt securities 576 — 576 Asset-backed securities 1,863 — 1,863 Municipal securities 707 — 707 Commercial paper 3,192 — 3,192 Total funds receivable and customer accounts 15,097 — 15,097 Derivatives (4) 290 — 290 Crypto asset safeguarding asset (4) 2,846 — 2,846 Long-term investments (2),(5) : U.S. government and agency securities 49 — 49 Foreign government and agency securities 110 — 110 Corporate debt securities 691 — 691 Asset-backed securities 689 — 689 Marketable equity securities 21 21 — Total long-term investments 1,560 21 1,539 Total financial assets $ 25,811 $ 21 $ 25,790 Liabilities: Derivatives (4) $ 42 $ — $ 42 Crypto asset safeguarding liability (4) 2,846 — 2,846 Total financial liabilities $ 2,888 $ — $ 2,888 (1) Excludes cash of $ 8.2 billion not measured and recorded at fair value. (2) Excludes restricted cash of $ 3 million and time deposits of $ 140 million not measured and recorded at fair value. (3) Excludes cash, time deposits, and funds receivable of $ 23.3 billion underlying funds receivable and customer accounts not measured and recorded at fair value. 25 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) (4) Derivative assets and liabilities are included within “prepaid expenses and other current assets” and “other assets” and “accrued expenses and other current liabilities” and “other long-term liabilities,” respectively, on our condensed consolidated balance sheets. Crypto safeguarding asset and associated liability are recorded within “prepaid expenses and other current assets” and “accrued expenses and other current liabilities,” respectively, on our condensed consolidated balance sheets. (5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting. December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) (In millions) Assets: Cash and cash equivalents (1) U.S. government and agency securities $ 428 $ — $ 428 Commercial paper 349 — 349 Money market fund 160 — 160 Total cash and cash equivalents 937 — 937 Short-term investments (2) : U.S. government and agency securities 623 — 623 Foreign government and agency securities 347 — 347 Corporate debt securities 1,482 — 1,482 Asset-backed securities 718 — 718 Commercial paper 1,678 — 1,678 Total short-term investments 4,848 — 4,848 Funds receivable and customer accounts (3) : U.S. government and agency securities 8,478 — 8,478 Foreign government and agency securities 1,118 — 1,118 Corporate debt securities 1,601 — 1,601 Asset-backed securities 1,423 — 1,423 Municipal securities 638 — 638 Commercial paper 2,849 — 2,849 Total funds receivable and customer accounts 16,107 — 16,107 Derivatives (4) 141 — 141 Crypto asset safeguarding asset (4) 1,241 — 1,241 Long-term investments (2), (5) : U.S. government and agency securities 180 — 180 Foreign government and agency securities 32 — 32 Corporate debt securities 418 — 418 Asset-backed securities 761 — 761 Marketable equity securities 24 24 — Total long-term investments 1,415 24 1,391 Total financial assets $ 24,689 $ 24 $ 24,665 Liabilities: Derivatives (4) $ 131 $ — $ 131 Crypto asset safeguarding liability (4) 1,241 — 1,241 Total financial liabilities $ 1,372 $ — $ 1,372 (1) Excludes cash of $ 8.1 billion not measured and recorded at fair value. (2) Excludes restricted cash of $ 3 million and time deposits of $ 173 million not measured and recorded at fair value. (3) Excludes cash, time deposits, and funds receivable of $ 22.8 billion underlying funds receivable and customer accounts not measured and recorded at fair value. 26 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) (4) Derivative assets and liabilities are included within “prepaid expenses and other current assets” and “other assets” and “accrued expenses and other current liabilities” and “other long-term liabilities,” respectively, on our condensed consolidated balance sheets. Crypto safeguarding asset and associated liability are recorded within “prepaid expenses and other current assets” and “accrued expenses and other current liabilities,” respectively, on our condensed consolidated balance sheets. (5) Excludes non-marketable equity securities of $ 1.8 billion measured using the Measurement Alternative or equity method accounting. Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1). There are no active markets for our crypto asset safeguarding liability or the corresponding safeguarding asset. Accordingly, we have valued the asset and liability using quoted prices on the active exchange that we have identified as the principal market for the underlying crypto assets (Level 2). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2). A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple observable inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices (Level 2). As of March 31, 2024 and December 31, 2023, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3). We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries under the fair value option. Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the condensed consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities. The following table summarizes the estimated fair value and amortized cost of our available-for-sale debt securities under the fair value option as of March 31, 2024 and December 31, 2023: March 31, 2024 December 31, 2023 Amortized Cost Fair Value Amortized Cost Fair Value (In millions) (In millions) Funds receivable and customer accounts $ 656 $ 650 $ 625 $ 618 The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 (In millions) Funds receivable and customer accounts $ ( 7 ) $ 7 27 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS The following tables summarize our assets held as of March 31, 2024 and December 31, 2023 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2024 and the year ended December 31, 2023, respectively: March 31, 2024 Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) (In millions) Loans and interest receivable, held for sale $ 307 $ 307 $ — Non-marketable equity securities measured using the Measurement Alternative (1) 12 — 12 Total $ 319 $ 307 $ 12 (1) Excludes non-marketable equity securities of $ 1.6 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2024. December 31, 2023 Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) (In millions) Loans and interest receivable, held for sale (1) $ 563 $ — $ 563 Non-marketable equity investments measured using the Measurement Alternative (2) 440 131 309 Other assets (3) 112 112 — Total $ 1,115 $ 243 $ 872 (1) As of December 31, 2023, loans and interest receivable, held for sale were valued using a price-based model. The price was the significant unobservable input and was determined based upon certain loan and risk classifications of the portfolio. Low, high and weighted average prices were all $ 0.99 , measured in relation to $ 1.00 par. (2) Excludes non-marketable equity securities of $ 1.2 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2023. (3) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2023. Beginning with the first quarter of 2024, we measure loans and interest receivable, held for sale using observable inputs, such as the most recent executed prices for comparable loans sold to the global investment firm. Accordingly, loans and interest receivable, held for sale are classified within Level 2 in the fair value hierarchy. Refer to “Note 11—Loans and interest receivable” for additional information on loans and interest receivable, held for sale. We measure the non-marketable equity securities accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer. Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within Level 2 in the fair value hierarchy because we estimate the fair value based on valuation methods which only include significant inputs that are observable, such as the observable transaction price at the transaction date. The fair value of non-marketable equity securities are classified within Level 3 when we estimate fair value using significant unobservable inputs such as when we remeasure due to impairment and use discount rates, forecasted cash flows, and market data of comparable companies, among others. We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. Impairment losses on ROU lease assets related to office operating leases are calculated using estimated rental income per square foot derived from observable market data, and the impaired asset is classified within Level 2 in the fair value hierarchy. 28 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and long-term debt related to borrowings on our credit facilities, are carried at amortized cost, which approximates their fair value. Our notes receivable had a carrying value of approximately $ 508 million and fair value of approximately $ 465 million as of March 31, 2024. Our notes receivable had a carrying value of approximately $ 513 million and fair value of approximately $ 474 million as of December 31, 2023. Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.5 billion and fair value of approximately $ 9.8 billion as of March 31, 2024. Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $ 10.6 billion and fair value of approximately $ 10.0 billion as of December 31, 2023. If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1; restricted cash, time deposits, certain customer accounts, and term debt (including current portion) would be classified as Level 2; and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy. NOTE 10— DERIVATIVE INSTRUMENTS SUMMARY OF DERIVATIVE INSTRUMENTS Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. Our derivatives expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions and by entering into collateral security arrangements. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. We do not use any derivative instruments for trading or speculative purposes. Cash flow hedges We have significant international revenues and expenses denominated in foreign currencies, which subjects us to foreign currency exchange risk. We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 12 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in certain foreign currencies. The objective of these foreign currency exchange contracts is to help mitigate the risk that the U.S. dollar-equivalent cash flows are adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue or applicable expense line item in the condensed consolidated statements of income (loss) in the same period the forecasted transaction affects earnings. We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, we conclude the hedge will be perfectly effective. We do not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness. We report cash flows arising from derivative instruments consistent with the classification of cash flows from the underlying hedged items that these derivatives are hedging. Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our condensed consolidated statements of cash flows. As of March 31, 2024, we estimated that $ 40 million of net derivative gains related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months. During the three months ended March 31, 2024 and 2023, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction. If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivative’s gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings. Gains and losses on derivatives held after we discontinue our cash flow hedges and on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statement line item to which the derivative relates. 29 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Net investment hedges We use forward foreign currency exchange contracts to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries. These derivatives are designated as net investment hedges and accordingly, the gains and losses on the portion of the derivatives included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation. We exclude forward points from the assessment of hedge effectiveness and recognize them in other income (expense), net on a straight-line basis over the life of the hedge. The accumulated gains and losses associated with these instruments will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings. The cash flows associated with derivatives designated as a net investment hedge are classified in cash flows from investing activities on our condensed consolidated statements of cash flows. We have no t reclassified any gains or losses related to net investment hedges from AOCI into earnings for any of the periods presented. Foreign currency exchange contracts not designated as hedging instruments We have a foreign currency exposure management program in which we use foreign currency exchange contracts to offset the foreign currency exchange risk of our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities. The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts. The cash flows associated with our non-designated derivatives used to hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our condensed consolidated statements of cash flows. FAIR VALUE OF DERIVATIVE CONTRACTS The fair value of our outstanding derivative instruments as of March 31, 2024 and December 31, 2023 was as follows: Balance Sheet Location March 31, 2024 December 31, 2023 (In millions) Derivative Assets: Foreign currency exchange contracts designated as hedging instruments Other current assets $ 93 $ 7 Foreign currency exchange contracts designated as hedging instruments Other assets (non-current) 155 77 Foreign currency exchange contracts not designated as hedging instruments Other current assets 42 57 Total derivative assets $ 290 $ 141 Derivative Liabilities: Foreign currency exchange contracts designated as hedging instruments Other current liabilities $ 12 $ 64 Foreign currency exchange contracts not designated as hedging instruments Other current liabilities 30 67 Total derivative liabilities $ 42 $ 131 MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF Under master netting agreements with certain counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our condensed consolidated balance sheets. Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of $ 33 million as of March 31, 2024 and $ 38 million as of December 31, 2023. 30 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) We have entered into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The following table provides the collateral posted and received: March 31, 2024 December 31, 2023 (In millions) Cash collateral posted (1) $ 6 $ 80 Cash collateral received (2) $ 39 $ 6 (1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our condensed consolidated balance sheets. (2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our condensed consolidated balance sheets. EFFECT OF DERIVATIVE CONTRACTS ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS The following tables provide the location in the condensed consolidated statements of income (loss) and amount of recognized gains or losses related to our derivative instruments: Three Months Ended March 31, 2024 2023 (In millions) Net revenues Other income (expense), net Net revenues Other income (expense), net Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 7,699 $ 41 $ 7,040 $ 75 Gains (losses) on derivatives in cash flow hedging relationship: Amount of gains on foreign currency exchange contracts reclassified from AOCI — — 76 — Gains (losses) on derivatives in net investment hedging relationship: Amount of gains on foreign currency exchange contracts excluded from the assessment of effectiveness — 20 — 30 Gains (losses) on derivatives not designated as hedging instruments: Amount of gains (losses) on foreign currency exchange contracts — 21 — ( 75 ) Total gains (losses) $ — $ 41 $ 76 $ ( 45 ) The following table provides the amount of pre-tax unrealized gains or losses included in the assessment of hedge effectiveness related to our derivative instruments designated as hedging instruments that are recognized in other comprehensive income (loss): Three Months Ended March 31, 2024 2023 (In millions) Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges $ 96 $ ( 35 ) Unrealized gains on foreign exchange contracts designated as net investment hedges 99 27 Total unrealized gains (losses) recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss) $ 195 $ ( 8 ) 31 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS Derivative transactions are measured in terms of the notional amount; however, this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the underlying basis on which the value of foreign currency exchange payments under these contracts is determined. The following table provides the notional amounts of our outstanding derivatives: March 31, 2024 December 31, 2023 (In millions) Foreign exchange contracts designated as hedging instruments $ 6,792 $ 6,767 Foreign exchange contracts not designated as hedging instruments 12,915 14,025 Total $ 19,707 $ 20,792 NOTE 11— LOANS AND INTEREST RECEIVABLE LOANS AND INTEREST RECEIVABLE, HELD FOR SALE 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 a forward-flow arrangement for the sale of future originations. Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other on our condensed consolidated statements of income (loss). As of March 31, 2024 and December 31, 2023, loans and interest receivable, held for sale was $ 307 million and $ 563 million, respectively. During the three months ended March 31, 2024, we sold $ 4.8 billion of loans and interest receivable in connection with this agreement. LOANS AND INTEREST RECEIVABLE, NET Consumer receivables We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our payments platform. Our revolving credit product consists of PayPal Credit in the U.K., which is made available to consumers as a funding source in their PayPal wallet once they are approved for credit. Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., several markets across Europe, Australia, and Japan. We offer non interest-bearing installment credit products in these markets as well as interest-bearing installment credit products in the U.S. and Germany. We purchase receivables related to interest-bearing installment loans extended to U.S. consumers by an independent chartered financial institution (“partner institution”) and are responsible for the servicing functions related to that portfolio. During the three months ended March 31, 2024 and 2023, we purchased approximately $ 25 million and $ 268 million in consumer receivables, respectively. As of March 31, 2024 and December 31, 2023, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was $ 4.5 billion and $ 4.8 billion, respectively, net of the participation interest sold to the partner institution of $ 9 million and $ 14 million, respectively. We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk. Credit risk management begins with initial underwriting and continues through the full repayment of a loan. To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal data, including the consumer’s prior repayment history with our credit products where available. We use delinquency status and trends to assist in making (or, for interest-bearing installment loans in the U.S., to assist the partner institution in making) new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable. 32 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Consumer receivables delinquency and allowance The following tables present the delinquency status and gross charge-offs of consumer loans and interest receivable by year of origination. The amounts are based on the number of days past the billing date for revolving loans or contractual repayment date for installment loans. The “current” category represents balances that are within 29 days of the billing date or contractual repayment date, as applicable. March 31, 2024 (In millions, except percentages) Revolving Loans Amortized Cost Basis Installment Loans Amortized Cost Basis 2024 2023 2022 2021 2020 Total Percent Consumer loans and interest receivable: Current $ 2,193 $ 1,185 $ 726 $ 189 $ — $ — $ 4,293 95.9 % 30 - 59 Days 27 12 14 3 — — 56 1.2 % 60 - 89 Days 18 1 21 3 — — 43 1.0 % 90 - 179 Days 41 — 41 4 — — 86 1.9 % Total $ 2,279 $ 1,198 $ 802 $ 199 $ — $ — $ 4,478 100 % Gross charge-offs for the three months ended March 31, 2024 $ 34 $ — $ 58 $ 7 $ — $ — $ 99 December 31, 2023 (In millions, except percentages) Revolving Loans Amortized Cost Basis Installment Loans Amortized Cost Basis 2023 2022 2021 2020 2019 Total Percent Consumer loans and interest receivable: Current $ 2,225 $ 2,045 $ 289 $ — $ — $ — $ 4,559 95.4 % 30 - 59 Days 27 34 4 1 — — 66 1.4 % 60 - 89 Days 20 26 4 — — — 50 1.0 % 90 - 179 Days 41 55 8 1 — — 105 2.2 % Total $ 2,313 $ 2,160 $ 305 $ 2 $ — $ — $ 4,780 100 % Gross charge-offs for the year ended December 31, 2023 $ 125 $ 101 $ 140 $ 5 $ — $ — $ 371 33 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The following table summarizes the activity in the allowance for consumer loans and interest receivable for the three months ended March 31, 2024 and 2023: March 31, 2024 March 31, 2023 Consumer Loans Receivable Interest Receivable Total Allowance Consumer Loans Receivable Interest Receivable Total Allowance (In millions) Beginning balance $ 357 $ 23 $ 380 $ 322 $ 25 $ 347 Provisions 44 5 49 95 6 101 Charge-offs ( 92 ) ( 7 ) ( 99 ) ( 71 ) ( 7 ) ( 78 ) Recoveries 11 — 11 7 — 7 Other (1) ( 7 ) — ( 7 ) 4 — 4 Ending balance $ 313 $ 21 $ 334 $ 357 $ 24 $ 381 (1) Includes amounts related to foreign currency remeasurement. The provision for the three months ended March 31, 2024 for our consumer receivable portfolio was primarily attributable to loan originations during the period for installment loans in Japan and revolving loans in the U.K. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions and the financial health of our borrowers. The increase in charge-offs for the three months ended March 31, 2024 compared to the same period in the prior year was due to credit quality deterioration of our U.S. interest-bearing installment credit products and the growth of U.K. revolving credit products and installment credit products in Japan. The provision for current expected credit losses relating to our consumer receivable portfolio is recognized in transaction and credit losses on our condensed consolidated statements of income (loss). The provision for interest receivable for interest earned on our consumer receivable portfolio is recognized in revenues from other value added services as a reduction to revenue. Loans receivable continue to accrue interest until they are charged off. We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date or contractual repayment date, except for the U.S. consumer interest-bearing installment receivables, which are charged off 120 days past the contractual repayment date. Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable. Merchant receivables We offer access to merchant finance products for certain small and medium-sized businesses through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products, which we collectively refer to as our merchant finance offerings. We purchase receivables related to credit extended to U.S. merchants by a partner institution and are responsible for the servicing functions related to that portfolio. During the three months ended March 31, 2024 and 2023, we purchased approximately $ 419 million and $ 666 million in merchant receivables, respectively. As of March 31, 2024 and December 31, 2023, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was $ 1.2 billion, net of the participation interest sold to the partner institution of $ 43 million and $ 44 million, respectively. Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes. Through our PPBL product, we provide merchants access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner. PPBL repayments are collected through periodic payments until the balance has been satisfied. 34 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. The fixed interest or fee is amortized into revenues from other value added services based on the amount repaid over the repayment period. We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal. For PPWC, there is a general requirement that at least 10 % of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days. We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance. On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable. As such, actual repayment periods are dependent on actual merchant payment processing volumes. For PPBL, we receive fixed periodic payments over the contractual term of the loan, which generally ranges from 3 to 12 months. We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase, so that we can evaluate, quantify, and manage our credit risk exposure. To assess a merchant seeking a loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee. Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process. We use delinquency status and trends to assist in making (or, in the U.S., to assist the partner institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans, advances, and interest and fees receivable. Merchant receivables delinquency and allowance The following tables present the delinquency status and gross charge-offs of merchant loans, advances, and interest and fees receivable by year of origination. The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding. The “current” category represents balances that are within 29 days of the expected repayment date or contractual repayment date, as applicable. March 31, 2024 (In millions, except percentages) 2024 2023 2022 2021 2020 Prior Total Percent Merchant loans, advances, and interest and fees receivable: Current $ 553 $ 428 $ 45 $ 2 $ 17 $ 10 $ 1,055 88.7 % 30 - 59 Days 6 32 12 1 1 1 53 4.5 % 60 - 89 Days 1 17 8 — 1 1 28 2.4 % 90 - 179 Days — 28 16 1 1 — 46 3.9 % 180+ Days — 2 3 1 — 1 7 0.5 % Total $ 560 $ 507 $ 84 $ 5 $ 20 $ 13 $ 1,189 100 % Gross charge-offs for the three months ended March 31, 2024 $ — $ 28 $ 21 $ 1 $ 2 $ 1 $ 53 35 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) December 31, 2023 (In millions, except percentages) 2023 2022 2021 2020 2019 Total Percent Merchant loans, advances, and interest and fees receivable: Current $ 925 $ 74 $ 3 $ 22 $ 14 $ 1,038 87.0 % 30 - 59 Days 37 16 2 2 1 58 4.9 % 60 - 89 Days 16 12 1 1 1 31 2.5 % 90 - 179 Days 27 28 1 1 1 58 4.9 % 180+ Days 2 4 1 — 1 8 0.7 % Total $ 1,007 $ 134 $ 8 $ 26 $ 18 $ 1,193 100 % Gross charge-offs for the year ended December 31, 2023 $ 38 $ 228 $ 14 $ 16 $ 4 $ 300 The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the three months ended March 31, 2024 and 2023: March 31, 2024 March 31, 2023 Merchant Loans and Advances Interest and Fees Receivable Total Allowance Merchant Loans and Advances Interest and Fees Receivable Total Allowance (In millions) Beginning balance $ 148 $ 12 $ 160 $ 230 $ 18 $ 248 Provisions 17 ( 1 ) 16 49 10 59 Charge-offs ( 50 ) ( 3 ) ( 53 ) ( 51 ) ( 6 ) ( 57 ) Recoveries 8 — 8 7 — 7 Ending balance $ 123 $ 8 $ 131 $ 235 $ 22 $ 257 The provision for the three months ended March 31, 2024 was primarily attributable to loan originations during the period partially offset by improvement in credit quality of the PPBL portfolio. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty around the financial health of our borrowers, including the effectiveness of loan modification programs made available to merchants, as described further below. For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period. We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date. We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment in the last 60 days. Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy. The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses on our condensed consolidated statements of income (loss), and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable. Loan modifications for merchants experiencing financial difficulty In certain instances, we may modify the merchant loans, advances, and interest and fees receivable for which we determine it is probable that, without modification, we would be unable to collect all amounts due. These modifications are intended to provide merchants with financial relief and enable us to potentially mitigate losses. 36 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Modifications to loans for merchants experiencing financial difficulty during the three months ended March 31, 2024 and 2023 increased the term while moving the delinquency status to current. These modifications were not material. We closely monitor the performance of the merchant loans, advances, and interest and fees receivable that were modified to extend the term to understand the effectiveness of these modification efforts. The following table depicts the performance of merchant loans, advances, and interest and fees receivable as of March 31, 2024 that were modified during the 12 months ended March 31, 2024: March 31, 2024 (In millions) Merchant loans, advances, and interest and fees receivables: Current $ 54 30 - 59 days past due 8 60 - 89 days past due 6 90 - 179 days past due 10 Total $ 78 A merchant is considered in payment default after a modification when the merchant’s payment is 60 days past their expected or contractual repayment date. Merchant loans, advances, and interest and fees receivable modified during the 12 months ended March 31, 2024 that subsequently defaulted were not material. Allowances for merchant loans, advances, and interest and fees receivable modified due to merchants experiencing financial difficulties are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term. Historical loss estimates are utilized in addition to macroeconomic assumptions to determine current expected credit losses. Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses. NOTE 12— DEBT FIXED RATE NOTES In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥ 90 billion (approximately $ 595 million as of March 31, 2024). In May 2022, May 2020, and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $ 3.0 billion, $ 4.0 billion and $ 5.0 billion, respectively. The notes issued from the June 2023, May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” 37 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) As of March 31, 2024 and December 31, 2023, we had an outstanding aggregate principal amount of $ 10.6 billion related to the Notes. The following table summarizes the Notes: Maturities Effective Interest Rate March 31, 2024 December 31, 2023 (in millions) September 2019 debt issuance: Fixed-rate 2.400 % notes 10/1/2024 2.52 % $ 1,250 $ 1,250 Fixed-rate 2.650 % notes 10/1/2026 2.78 % 1,250 1,250 Fixed-rate 2.850 % notes 10/1/2029 2.96 % 1,500 1,500 May 2020 debt issuance: Fixed-rate 1.650 % notes 6/1/2025 1.78 % 1,000 1,000 Fixed-rate 2.300 % notes 6/1/2030 2.39 % 1,000 1,000 Fixed-rate 3.250 % notes 6/1/2050 3.33 % 1,000 1,000 May 2022 debt issuance: Fixed-rate 3.900 % notes 6/1/2027 4.06 % 500 500 Fixed-rate 4.400 % notes 6/1/2032 4.53 % 1,000 1,000 Fixed-rate 5.050 % notes 6/1/2052 5.14 % 1,000 1,000 Fixed-rate 5.250 % notes 6/1/2062 5.34 % 500 500 June 2023 debt issuance (1) : ¥ 30 billion fixed-rate 0.813 % notes 6/9/2025 0.89 % 198 213 ¥ 23 billion fixed-rate 0.972 % notes 6/9/2026 1.06 % 152 163 ¥ 37 billion fixed-rate 1.240 % notes 6/9/2028 1.31 % 245 262 Total term debt $ 10,595 $ 10,638 Unamortized premium (discount) and issuance costs, net ( 66 ) ( 68 ) Less: current portion of term debt (2) ( 1,249 ) ( 1,249 ) Total carrying amount of term debt $ 9,280 $ 9,321 (1) Principal amounts represent the U.S. dollar equivalent as of March 31, 2024 and December 31, 2023, respectively. (2) The current portion of term debt is included within “accrued expenses and other current liabilities” on our condensed consolidated balance sheets. The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount. The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, was $ 84 million and $ 83 million for the three months ended March 31, 2024 and 2023, respectively. CREDIT FACILITIES Paidy credit agreement 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). Borrowings under the Paidy Credit Agreement are for use by Paidy for working capital, capital expenditures, and other permitted purposes. Loans under the Paidy Credit Agreement bear interest at the Tokyo Interbank Offered Rate plus a margin (based on our public debt rating) ranging from 0.40 % to 0.60 %. The Paidy Credit Agreement will terminate and all amounts owed thereunder will be due and payable in February 2027, unless the commitments are terminated earlier. The Paidy Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and subsidiary indebtedness, in each case subject to certain exceptions. The financial covenant requires us to meet a quarterly financial test with respect to a maximum consolidated leverage ratio. 38 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) As of March 31, 2024 and December 31, 2023, ¥ 61.0 billion (approximately $ 403 million) and ¥ 50.0 billion (approximately $ 355 million) was drawn down under the Paidy Credit Agreement, respectively, which was recorded in long-term debt on our condensed consolidated balance sheets. 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. During the three months ended March 31, 2024 and 2023, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis. Other available facilities As of March 31, 2024 and December 31, 2023, we had short-term borrowings of $ 41 million and $ 359 million, respectively, due to bank overdrafts, which were recorded in accrued expenses and other liabilities on our condensed consolidated balance sheets. The weighted average interest rate on the borrowings were 8.19 % and 7.92 % as of March 31, 2024 and December 31, 2023, respectively. We repaid the borrowing of $ 359 million during the three months ended March 31, 2024. The total interest expense and fees we recorded related to the borrowings were de minimis. FUTURE PRINCIPAL PAYMENTS As of March 31, 2024, the future principal payments associated with our term debt were as follows (in millions): Remaining 2024 $ 1,250 2025 1,198 2026 1,402 2027 500 2028 245 Thereafter 6,000 Total $ 10,595 Other than as provided above, there were no significant changes to the information disclosed in our 2023 Form 10-K. NOTE 13— COMMITMENTS AND CONTINGENCIES COMMITMENTS As of March 31, 2024 and December 31, 2023, approximately $ 6.5 billion and $ 6.2 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K. While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all our PayPal Credit account holders will access their entire available credit at any given point in time. In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness. 39 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) LITIGATION AND REGULATORY MATTERS Overview We are involved in legal and regulatory proceedings on an ongoing basis. Certain of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact. In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies. Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of March 31, 2024. Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material. Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. We may be exposed to losses in excess of the amount recorded, and such amounts could be material. If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows. Regulatory proceedings PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019. This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”). On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act. The external auditor was appointed on November 1, 2019. AUSTRAC had notified PPAU that its enforcement team was investigating the matters reported upon by the external auditor in its August 31, 2020 final report. As a resolution of this investigation, on March 17, 2023, AUSTRAC’s Chief Executive Officer accepted an enforceable undertaking from PPAU in relation to the self-reported issues. The enforceable undertaking does not include a monetary penalty. The entry into and compliance with the enforceable undertaking will not require a change to our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise adversely affect our business. PPAU is required to deliver an Assurance Action Plan (“AAP”) under the enforceable undertaking to demonstrate that the governance and oversight arrangements following the remedial work completed by PPAU are sustainable and appropriate. The enforceable undertaking requires PPAU to appoint an external auditor. The external auditor was appointed on June 22, 2023 to assess and report on the appropriateness, sustainability and efficacy of the actions to be taken under the AAP. PPAU provided the external auditor’s final report to AUSTRAC on April 16, 2024. The successful completion of the enforceable undertaking is subject to AUSTRAC’s ultimate review and decision based on the external auditor’s final report. We cannot predict the outcome of AUSTRAC’s decision. Any failure to comply with the enforceable undertaking could result in penalties or require us to change our business practices. 40 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related matters, including treatment of consumers who request payments but accidentally designate an unintended recipient. The CIDs requested the production of documents and answers to written questions, to which we responded. In March 2024, the CFPB communicated it was closing this inquiry without enforcement action. In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities. The CID requests the production of documents and answers to written questions. We are cooperating with the FTC in connection with this CID. In January 2023, we received notice of an administrative proceeding and a related request for information from the German Federal Cartel Office (“FCO”) related to terms in PayPal (Europe) S.à.r.l. et Cie, S.C.A.’s contractual terms with merchants in Germany prohibiting surcharging and requiring parity presentation of PayPal relative to other payment methods. We are cooperating with the FCO in connection with this proceeding. We have received CIDs from the CFPB related to investigation and error-resolution obligations under Regulation E, the presentment of transactions to linked bank accounts, and related matters. The CIDs request the production of documents and answers to written questions. We are cooperating with the CFPB in connection with these CIDs. On November 1, 2023, we received a subpoena from the U.S. SEC Division of Enforcement relating to PayPal USD stablecoin. The subpoena requests the production of documents. We are cooperating with the SEC in connection with this request. Legal proceedings On October 4, 2022, a putative securities class action captioned Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund v. PayPal Holdings, Inc., et al. , Case No. 22-cv-5864, was filed in the U.S. District Court for the District of New Jersey. On January 11, 2023, the Court appointed Caisse de dépôt et placement du Québec as lead plaintiff and renamed the action In re PayPal Holdings, Inc. Securities Litigation (“PPH Securities Action”). On March 13, 2023, the lead plaintiff filed an amended and consolidated complaint. The PPH Securities Action asserts claims relating to our public statements with respect to net new active accounts (“NNA”) results and guidance, and the detection of illegitimately created accounts. The PPH Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 3, 2021 and February 1, 2022 (the “Class Period”), and asserts claims for alleged violations of Sections 10(b) of the Exchange Act against the Company, as well as its former Chief Executive Officer, Chief Strategy, Growth and Data Officer, and former Chief Financial Officer (collectively, the “Individual Defendants,” and together with the Company, “Defendants”), and for alleged violations of Sections 20(a) and 20A of the Exchange Act against the Individual Defendants. The complaint alleges that certain public statements made by Defendants during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the Defendants’ failure to disclose that, among other things, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance. The PPH Securities Action seeks unspecified compensatory damages on behalf of the putative class members. Defendants have filed a motion to dismiss the PPH Securities Action, which is fully briefed and pending before the court. On November 2, 2022, a putative shareholder derivative action captioned Shah v. Daniel Schulman, et al. , Case No. 22-cv-1445, was filed in the U.S. District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of the Company. On April 4, 2023, a putative shareholder derivative action captioned Nelson v. Daniel Schulman, et. al. , Case No. 23-cv-01913, was filed in the U.S. District Court for the District of New Jersey (the “Nelson Action”) purportedly on behalf of the Company. The Shah and Nelson Actions are based on the same alleged facts and circumstances as the PPH Securities Action, and name certain of our officers, including our former Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants. The Shah and Nelson Actions allege claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement and violations of the Exchange Act, and seek to recover damages on behalf of the Company. The Shah and Nelson Actions have been stayed pending further developments in the PPH Securities Action. 41 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) On December 20, 2022, a civil lawsuit captioned State of Hawai‘i, by its Office of Consumer Protection, v. PayPal, Inc., and PayPal Holdings, Inc. , Case No. 1CCV-22-0001610, was filed in the Circuit Court of the First Circuit of the State of Hawai‘i (the “Hawai‘i Action”). The Hawai‘i Action asserts claims for unfair and deceptive acts and practices under Hawai‘i Revised Statutes Sections 480-2(a) and 481A-3(a). Plaintiff seeks injunctive relief as well as unspecified penalties and other monetary relief. On July 14, 2023, the court denied Defendants’ motion to dismiss the complaint. Trial is scheduled to begin in April 2025. General matters Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to patent disputes and expect that we will increasingly be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts with us), and we are subject to increased exposure to such claims as a result of our acquisitions, particularly in cases where we are introducing new products or services in connection with such acquisitions. We have in the past been forced to litigate such claims, and we believe that additional lawsuits alleging such claims will be filed against us. Intellectual property claims, whether meritorious or not, are time-consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts. From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) or regulators alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable law, or that we have acted unfairly or not acted in conformity with such prices, rules, policies, or agreements. In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and legal review and challenges that may reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue. Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platform, the range and increasing complexity of the products and services that we offer, and our geographical operations. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, or otherwise harm our business. INDEMNIFICATION PROVISIONS Our agreements with eBay governing our separation from eBay provide for specific indemnity and liability obligations for both eBay and us. Disputes between eBay and us have arisen and others may arise in the future, and an adverse outcome in such matters could materially and adversely impact our business, results of operations, and financial condition. In addition, the indemnity rights we have against eBay under the agreements may not be sufficient to protect us, and our indemnity obligations to eBay may be significant. In the ordinary course of business, we include indemnification provisions in certain of our agreements with parties with whom we have commercial relationships. Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement. We have provided an indemnity for other types of third-party claims, which may include indemnities related to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims, among others. We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation. 42 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) PayPal has participated in the U.S. Government’s Paycheck Protection Program administered by the U.S. Small Business Administration. Loans made under this program are funded by an independent chartered financial institution that we partner with. We receive a fee for providing services in connection with these loans and retain operational and audit risk related to those activities. We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans in connection with the services provided for loans made under this program. As part of the agreement to sell a portion of our consumer installment receivables portfolio, in certain circumstances such as breaches in loan warranties, we may be required to indemnify the global investment firm that purchased the loans or repurchase the loans. The estimate of the maximum potential amount of future payments we may be required to make is equal to the current outstanding balances of the loans sold; however, the maximum potential amount of the indemnification is not, in our view, representative of the expected future exposure. As of March 31, 2024, the current outstanding balances of the loans sold was $ 2.4 billion. The terms of the indemnification align to the maturities of the loans sold. To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions. OFF-BALANCE SHEET ARRANGEMENTS As of March 31, 2024 and December 31, 2023, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources. PROTECTION PROGRAMS We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. Our Purchase Protection Program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description. Our Seller Protection Programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales. These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed. At March 31, 2024 and December 31, 2023, the allowance for transaction losses was $ 62 million and $ 64 million, respectively. The allowance for negative customer balances was $ 205 million and $ 218 million at March 31, 2024 and December 31, 2023, respectively. The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three months ended March 31, 2024 and 2023: Three Months Ended March 31, 2024 2023 (in millions) Beginning balance $ 282 $ 278 Provision 260 300 Realized losses ( 309 ) ( 265 ) Recoveries 34 5 Ending balance $ 267 $ 318 NOTE 14— STOCK REPURCHASE PROGRAMS During the three months ended March 31, 2024, we repurchased approximately 25 million shares of our common stock for approximately $ 1.5 billion at an average cost of $ 59.18 , excluding excise tax. These shares were purchased 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. 43 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. Beginning in the first quarter of 2023, we have reflected the applicable excise tax in treasury stock on our condensed consolidated balance sheets. During the three months ended March 31, 2024, we recorded $ 10 million in excise tax within treasury stock on our condensed consolidated balance sheets. NOTE 15— STOCK-BASED PLANS STOCK-BASED COMPENSATION EXPENSE Stock-based compensation expense for our equity incentive plans are measured based on their estimated fair value at the time of grant and recognized over the award’s vesting period. The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three months ended March 31, 2024 and 2023 was as follows: Three Months Ended March 31, 2024 2023 (In millions) Customer support and operations $ 68 $ 72 Sales and marketing 40 43 Technology and development 147 148 General and administrative 87 94 Restructuring and other 38 — Total stock-based compensation expense $ 380 $ 357 Capitalized as part of internal use software and website development costs $ 12 $ 11 NOTE 16— INCOME TAXES Our effective tax rate for the three months ended March 31, 2024 and 2023 was 27 % and 26 %, respectively. The difference between our effective tax rate and the U.S. federal statutory rate of 21% in both periods was primarily the result of foreign income taxed at different rates and discrete tax adjustments, including tax expense related to stock-based compensation. Gross unrecognized tax benefits were approximately $ 2.2 billion as of March 31, 2024 and December 31, 2023. Due to various factors, including uncertainties of the judicial, administrative, and regulatory processes in certain jurisdictions, the timing of the resolution of these unrecognized tax benefits is highly uncertain. It is reasonably possible that within the next twelve months, we may receive additional tax adjustments by various tax authorities or possibly reach resolution of audits in one or more jurisdictions. These adjustments or settlements could result in changes to our unrecognized tax benefits related to positions on prior year tax filings. We also continue to accrue unrecognized tax benefits for certain recurring tax positions. NOTE 17— RESTRUCTURING AND OTHER 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. 44 Table of Contents PayPal Holdings, Inc. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The following table summarizes the restructuring reserve activity during the three months ended March 31, 2024: Employee Severance and Benefits Costs (In millions) Accrued liability as of January 1, 2024 $ — Charges (1) 137 Payments ( 66 ) Accrued liability as of March 31, 2024 (2) $ 71 (1) Excludes stock-based compensation expense of $ 38 million. (2) Accrued restructuring liability is included in “accrued expenses and other current liabilities” on our condensed consolidated balance sheets. During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency. The associated restructuring charges during the three months ended March 31, 2023 were $ 117 million. We primarily incurred employee severance and benefits costs, which were substantially completed by the fourth quarter of 2023. We continue to review our real estate and facility capacity requirements due to our new and evolving work models. We incurred asset impairment charges of nil and $ 39 million in the three months ended March 31, 2024 and 2023, respectively, due to exiting of certain leased properties, which resulted in a reduction of ROU lease assets and related leasehold improvements. We also incurred a loss of $ 8 million upon designation of an owned property as held for sale in the three months ended March 31, 2023. 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. 45 Table of Contents