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Item 2. Management’s Discussion and Analysis

2024-07-30 compared with 2024-04-30 · 141 added, 118 removed, 214 unchanged (55% of the section changed)

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OVERVIEW OF RESULTS OF OPERATIONS

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

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

The following table provides a summary of our condensed consolidated financial results for the three and six months ended June 30, 2024 and 2023:

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

2024 2023 2024 2023

(In millions, except percentages and per share data)

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** Not meaningful.

THREE MONTHS ENDED MARCH 31, 2024 AND 2023

Net revenues increased $659 million, or 9%, in the three months ended March 31, 2024 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 14%.

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

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

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

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

THREE MONTHS ENDED JUNE 30, 2024 AND 2023

Net revenues increased $598 million, or 8%, in the three months ended June 30, 2024 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 11%.

Total operating expenses increased $406 million, or 7%, in the three months ended June 30, 2024 compared to the same period of the prior year due primarily to higher transaction expense.

Operating income increased $192 million, or 17%, in the three months ended June 30, 2024 compared to the same period of the prior year due to net revenues growing more than operating expenses.

Our operating margin was 17% and 16% in the three months ended June 30, 2024 and 2023, respectively, reflecting the positive impact of operating efficiencies in our business, partially offset by the negative impact of higher transaction expense.

Net income increased $99 million, or 10%, in the three months ended June 30, 2024 compared to the same period of the prior year due to the previously discussed increase in operating income of $192 million, partially offset by a decrease in other income (expense), net of $96 million driven by net losses on strategic investments in the current period compared to net gains in the prior period.

SIX MONTHS ENDED JUNE 30, 2024 AND 2023

Net revenues increased $1.3 billion, or 9%, in the six months ended June 30, 2024 compared to the same period of the prior year driven primarily by growth in TPV of 12%.

Total operating expenses increased $896 million, or 7%, in the six months ended June 30, 2024 compared to the same period of the prior year due primarily to an increase in transaction expense and, to a lesser extent, restructuring and other, partially offset by a reduction in transaction and credit losses.

Operating income increased $361 million, or 17%, in the six months ended June 30, 2024 compared to the same period of the prior year due to net revenues growing more than operating expenses.

Our operating margin was 16% and 15% in the six months ended June 30, 2024 and 2023, respectively, reflecting the positive impact of operating efficiencies in our business, partially offset by the negative impact of an increase in transaction expense.

Net income increased $192 million, or 11%, in the six months ended June 30, 2024 compared to the same period of the prior year due to the previously discussed increase in operating income of $361 million partially offset by a decrease of $130 million in other income (expense), net driven primarily by net losses on strategic investments in the current period compared to net gains in the prior period.

IMPACT OF FOREIGN CURRENCY EXCHANGE RATES

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The strengthening or weakening of the United States (“U.S.”) dollar versus foreign currencies in which we conduct our international operations impacts the translation of our net revenues and expenses generated in these foreign currencies into the U.S.

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

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

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

in each of the periods presented.

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

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

In the three months ended March 31, 2024, year-over-year foreign currency exchange rate movements relative to the U.S.

In the three and six months ended June 30, 2024, year-over-year foreign currency exchange rate movements relative to the U.S.

dollar had the following impact on our reported results:

Three Months Ended March 31, 2024

Three Months Ended June 30, 2024 Six Months Ended June 30, 2024

(In millions)

Favorable impact to net revenues (exclusive of hedging impact) $ 32

Unfavorable impact to net revenues (exclusive of hedging impact)

Hedging impact 22 22

Favorable impact to net revenues 32

Unfavorable impact to operating expense (13)

(Unfavorable) favorable impact to net revenues

Favorable impact to operating expense

Net favorable impact to operating income $ 14 $ 33

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Net revenue analysis

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

The components of our net revenues for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Transaction revenues

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

Transaction revenues for the three months ended March 31, 2024 were also impacted unfavorably by lower net gains due to hedging activities as compared to the same period of the prior year.

The graphs below present the respective key metrics (in millions) for the three months ended March 31, 2024 and 2023:

Transaction revenues grew by $597 million, or 9%, and $1.3 billion, or 10%, in the three and six months ended June 30, 2024 compared to the same periods of the prior year driven primarily by growth in TPV and the number of payment transactions from our Braintree products and services and, to a lesser extent, growth in our core PayPal and Venmo products and services.

Transaction revenues for the six months ended June 30, 2024 were also impacted unfavorably by lower net gains due to hedging activities as compared to the same period of the prior year.

The graphs below present the respective key metrics (in millions) for the three and six months ended June 30, 2024 and 2023:

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

Number of payment transactions

The following table provides a summary of related metrics:

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

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

June 30, Percent Increase/(Decrease)

2024 2023 2024 2023

Number of payment transactions per active account 60.9 54.7 11 % 60.9 54.7 11 %

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** Not meaningful

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

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

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

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

We had active accounts of 429 million and 431 million as of June 30, 2024 and 2023, respectively.

Our total number of payment transactions was 6.6 billion and 6.1 billion for the three months ended June 30, 2024 and 2023, respectively, an increase of 8%.

Our total number of payment transactions was 13.1 billion for the six months ended June 30, 2024, compared to 11.9 billion in the six months ended June 30, 2023, an increase of 10%.

TPV was $417 billion and $377 billion for the three months ended June 30, 2024 and 2023, respectively, an increase of 11%.

TPV was $821 billion for the six months ended June 30, 2024 compared to $731 billion in the six months ended June 30, 2023, an increase of 12%.

Transaction revenues growth was lower than the growth in TPV in the three and six months ended June 30, 2024 compared to the same periods in the prior year due primarily to unfavorable changes in mix from core PayPal products and services and unfavorable impact from foreign exchange fees, partially offset by favorable impact from Braintree products and services.

Revenues from other value added services

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

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

Revenues from other value added services remained consistent in the three and six months ended June 30, 2024, compared to the same periods in the prior year due primarily to a decline in the revenue share earned from an independent chartered financial institution and interest and fee revenue on our loans receivable portfolio driven by a decrease in receivables related to PayPal Business Loan (“PPBL”) products and consumer long-term interest-bearing installment products, offset by an increase in interest earned on certain assets underlying customer account balances resulting primarily from higher interest rates.

OPERATING EXPENSES

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

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

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

2024 2023 2024 2023

(In millions, except percentages)

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Transaction expense

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

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

The increase in the transaction expense rate for the three months ended March 31, 2024 compared to the same period of the prior year was also attributable to unfavorable changes in product mix with a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and services, partially offset by favorable changes in regional mix and product mix within our core PayPal products and services.

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

Transaction expense for the three and six months ended June 30, 2024 and 2023 was as follows (in millions):

Transaction expense increased by $401 million, or 11%, and $1.0 billion, or 15%, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year due primarily to the increase in TPV of 11% and 12% for the three and six months ended June 30, 2024, respectively, as well as unfavorable changes in product mix.

The increase in the transaction expense rate for the three and six months ended June 30, 2024 compared to the same periods of the prior year was also attributable to unfavorable changes in product mix with a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than our other products and services, partially offset by favorable changes in regional mix, product mix, and certain third-party pricing incentives within our core PayPal products and services.

For both the three and six months ended June 30, 2024, approximately 36% of TPV was generated outside of the U.S.

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

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

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Transaction and credit losses

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

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

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

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

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

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

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

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

Three Months Ended March 31,

The components of our transaction and credit losses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Transaction and credit losses decreased by $63 million, or 16%, and $184 million, or 22%, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year.

Transaction losses were $259 million in the three months ended June 30, 2024 compared to $286 million in the three months ended June 30, 2023, a decrease of $27 million, or 9%.

Transaction losses were $519 million in the six months ended June 30, 2024 compared to $586 million in the six months ended June 30, 2023, a decrease of $67 million, or 11%.

Transaction loss rate (transaction losses divided by TPV) was 0.06% for the three and six months ended June 30, 2024, compared to 0.08% for the three and six months ended June 30, 2023.

The decrease in transaction losses and the associated transaction loss rate in the three and six months ended June 30, 2024 compared to the same periods of the prior year was primarily due to recoveries and lower losses from our Venmo products and services resulting from fewer fraud events in the current period.

Credit losses decreased by $36 million and $117 million in the three and six months ended June 30, 2024 compared to the same periods of the prior year.

The components of credit losses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

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

2024 2023 2024 2023

Net charge-offs (1)

Reserve build (release) (2)

$ 91 $ 134 $ 214 $ 244

Reserve (release) build (2)

(15) (22) (77) 10

Credit losses $ 76 $ 112 $ 137 $ 254

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

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

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

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

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

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

The provision in the three and six months ended June 30, 2024 was attributable to loan originations partially offset by improvement in credit quality of loans outstanding.

The provision in the three and six months ended June 30, 2023 was attributable to loan originations during the period and a deterioration in the credit quality of loans outstanding, partially offset by the reversal of reserve associated with the reclassification of certain receivables to held for sale at that point in time.

During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments due to uncertain macroeconomic conditions, financial health of our borrowers, and effectiveness of loan modification programs made available to merchants.

Consumer loan portfolio

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

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

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

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

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

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

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

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of United Kingdom (“U.K.”) and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivables, including a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (collectively, “eligible consumer installment receivables”).

As of June 30, 2024 and 2023, loans and interest receivable, held for sale was $369 million and $1.9 billion, respectively, representing the portion of our installment consumer receivables that we intend to sell.

The consumer loans and interest receivable balance as of June 30, 2024 and 2023 was $4.6 billion and $4.5 billion, respectively, net of participation interest sold, representing an increase of 2%.

The increase was driven primarily by growth in our installment credit products in Japan and our revolving credit product in the U.K., partially offset by a decline in our installment credit products in Germany due to the forward flow arrangement with the global investment firm as well as a decrease in our interest-bearing installment credit product in the U.S.

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

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Net charge-off rate (2)

(1) Amounts as of March 31, 2024 exclude loans and interest receivable, held for sale.

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

(3) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2024 and 2023, excluding fraud losses, on consumer loans as a percentage of the average daily amount of consumer loans and interest receivable balance during the same period.

The increase in net charge-off rate for consumer loans and interest receivable at March 31, 2024 as compared to March 31, 2023 was primarily due to the classification of eligible consumer installment receivables as held for sale during the second quarter of 2023, and deterioration in the credit quality of the U.S.

interest-bearing installment product.

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

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

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended June 30, 2024 and 2023, excluding fraud losses, on consumer loans as a percentage of the average daily amount of consumer loans and interest receivable balance during the same period.

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

interest-bearing installment product.

In response to changing portfolio performance, we continue to evaluate and modify our acceptable risk parameters.

Such changes in the second quarter of 2024, combined with enhanced risk monitoring, have resulted in increased U.S.

interest-bearing installment loan originations over the three months ended June 30, 2024.

Merchant loan portfolio

We offer access to merchant finance products for certain small and medium-sized businesses, which we refer to as our merchant finance offerings.

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

Total merchant loans, advances, interest, and fees receivable outstanding, net of participation interest sold, as of June 30, 2024 and 2023 was $1.2 billion and $1.7 billion, respectively, reflecting a decline of 29% attributable to a decrease in originations related to our PPBL product in the U.S.

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

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Net charge-off rate (2)

10.7 % 13.3 %

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

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2024 and 2023, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the same period.

The increase in the net charge-off rate for merchant receivables at March 31, 2024 as compared to March 31, 2023 was primarily due to the significant year-over-year reduction of the PPBL portfolio balance as a result of reduced originations.

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

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

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended June 30, 2024 and 2023, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the same period.

The increase in the percent of current merchant receivables and decrease in percent of merchant receivables greater than 90 days outstanding and the net charge-off rate for merchant receivables at June 30, 2024 as compared to June 30, 2023 was due primarily to the improvement in the credit quality of the PPBL portfolio.

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

In response to changing portfolio performance, we continue to evaluate and modify our acceptable risk parameters.

Such changes in 2024, combined with enhanced risk monitoring, have resulted in an increase in PPBL originations over the six months ended June 30, 2024.

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

Customer support and operations

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

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

Customer support and operations expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Customer support and operations expenses decreased by $56 million, or 11%, and $90 million, or 9%, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year due primarily to a decline in employee-related costs associated with headcount reduction.

The decline in customer support and operations expenses in the six months ended June 30, 2024 was also impacted by a decline in other costs incurred related to delivery of our products, including payment devices, warehouses, and shipping, and a decline in contractors and consulting costs, partially offset by an increase in customer onboarding and compliance costs.

Sales and marketing

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

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

Sales and marketing expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Sales and marketing expenses decreased by $19 million, or 4%, and $34 million, or 4%, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year.

The decline in the three months ended June 30, 2024 was due primarily to lower employee-related costs associated with lower commissions.

The decline in sales and marketing expenses in the six months ended June 30, 2024 was primarily attributable to lower spending on marketing campaigns and user incentives, partially offset by higher revenue share to our partners.

We expect sales and marketing expenses to increase in the second half of 2024 as we invest in brand advertising and marketing campaigns.

Technology and development

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

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

Technology and development expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Technology and development expenses decreased by $25 million, or 3%, and $4 million, or relatively flat, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year due primarily to a decline in employee-related costs associated with headcount reduction.

The decline in technology and development expenses in the six months ended June 30, 2024 was offset by increases in cloud computing services utilized in delivering our products and services, amortization expense associated with internally developed software, and software maintenance costs.

General and administrative

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

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

General and administrative expenses for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

General and administrative expenses increased by $79 million, or 16%, and $36 million, or 4%, in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year due primarily to an increase in indirect tax expense, a contingency reserve, and professional services expense.

The increase in general and administrative expenses in the six months ended June 30, 2024 was partially offset by declines in facilities expense and depreciation expense.

Restructuring and other

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

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

Restructuring and other for the three and six months ended June 30, 2024 and 2023 were as follows (in millions):

Restructuring and other increased by $89 million and $137 million in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year.

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

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

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

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

The associated restructuring charges during the three and six months ended June 30, 2024 were $83 million and $258 million, respectively, and included employee severance and benefits costs and stock-based compensation expense, substantially all of which were accrued for as of June 30, 2024.

The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately $565 million, including approximately $150 million in stock-based compensation.

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

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

The associated restructuring charges during the three and six months ended June 30, 2023 were nil and $117 million, respectively.

We primarily incurred employee severance and benefits costs, which were substantially completed by the fourth quarter of 2023.

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

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

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

During the three months ended March 31, 2024, approximately $37 million of losses were recorded in restructuring and other, which included net loss on sale of loans and interest receivable previously held for sale and fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

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 in the three and six months ended June 30, 2024 and $4 million and $43 million in the three and six months ended June 30, 2023, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements.

We recognized a gain of $14 million due to the sale of an owned property in the three and six months ended June 30, 2023.

In the six months ended June 30, 2023, we also incurred a loss of $8 million upon designation of an owned property as held for sale in that period.

During the three and six months ended June 30, 2024, approximately $27 million and $64 million, respectively, 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.

During the three and six months ended June 30, 2023, approximately $34 million of losses were recorded in restructuring and other, which included fair value adjustments in order to measure loans and interest receivable, held for sale, at the lower of cost or fair value.

Other income (expense), net

Other income (expense), net decreased $34 million in the three months ended March 31, 2024 compared to the same period of the prior year due primarily to net losses on strategic investments in the current period compared to net gains in the prior period, partially offset by higher interest income resulting from an increase in interest rates and cash balances year-over-year.

Other income (expense), net decreased $96 million and $130 million in the three and six months ended June 30, 2024, respectively, compared to the same periods of the prior year due primarily to net losses on strategic investments in the current period compared to net gains in the prior period, partially offset by higher interest income resulting from an increase in cash balances year over year.

Income tax expense

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

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

Our effective income tax rate was 19% and 21% for the three months ended June 30, 2024 and 2023, respectively, and 23% for both the six months ended June 30, 2024 and 2023.

The decrease in our effective income tax rate for the three months ended June 30, 2024 compared to the same period of the prior year was due primarily to discrete tax adjustments.

LIQUIDITY AND CAPITAL RESOURCES

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Cash, cash equivalents, and investments

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

March 31, 2024 December 31, 2023

The following table summarizes our cash, cash equivalents, and investments as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

(In millions)

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$ 16,414 $ 15,493

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

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

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

(1) Excludes assets related to funds receivable and customer accounts of $38.7 billion and $38.9 billion at June 30, 2024 and December 31, 2023, respectively.

(2) Excludes total restricted cash of $3 million at June 30, 2024 and December 31, 2023 and strategic investments of $1.9 billion and $1.8 billion at June 30, 2024 and December 31, 2023, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $8.9 billion and $10.0 billion at June 30, 2024 and December 31, 2023, or 54% and 64% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2023, all of our cash, cash equivalents, and investments held by foreign subsidiaries were subject to U.S.

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

Three Months Ended March 31,

Six Months Ended June 30,

(In millions)

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Effect of exchange rates on cash, cash equivalents, and restricted cash (89) (50)

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

Net decrease in cash, cash equivalents, and restricted cash

$ (2,476) $ (3,541)

Operating activities

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

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

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

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

Cash flows from operating activities was also impacted by changes in other assets and liabilities of $475 million, primarily related to actual cash transaction losses during the period and changes in income taxes payable.

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

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

The net cash provided by operating activities of $3.4 billion in the six months ended June 30, 2024 was due primarily to operating income of $2.5 billion, as well as adjustments for non-cash expenses including stock-based compensation of $663 million, provision for transaction and credit losses of $656 million, and depreciation and amortization of $528 million.

Cash flows from operating activities was also impacted by proceeds from repayments and sales of loans receivable, originally classified as held for sale, of $11.2 billion.

These cash inflows from operating activities were partially offset by originations of loans receivable, held for sale of $11.1 billion and changes in other assets and liabilities of $511 million, primarily related to actual cash transaction losses incurred during the period.

The net cash provided by operating activities of $1.0 billion in the six months ended June 30, 2023 was due primarily to operating income of $2.1 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $840 million, stock-based compensation of $708 million, and depreciation and amortization of $539 million.

Cash flows from operating activities was also impacted by originations of loans receivable, held for sale of $1.5 billion and changes in other assets and liabilities of $1.2 billion primarily related to actual cash transaction losses incurred during the period, a decline in other liabilities, and changes in income taxes payable, partially offset by proceeds from repayments of loans receivable, originally classified as held for sale, of $302 million.

In the six months ended June 30, 2024 and 2023, cash paid for income taxes, net was $822 million and $906 million, respectively.

Investing activities

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

The net cash provided by investing activities of $153 million in the three months ended March 31, 2023 was due primarily to principal repayment of loans receivable of $8.1 billion, maturities and sales of investments of $5.4 billion, and changes in funds receivable from customers of $1.2 billion, partially offset by purchases and originations of loans receivable of $8.3 billion, purchases of investments of $6.1 billion, and purchases of property and equipment of $170 million.

The net cash used in investing activities of $3.7 billion in the six months ended June 30, 2024 was due primarily to purchases of investments of $16.0 billion, purchases and originations of loans receivable of $10.0 billion, changes in funds receivable from customers of $1.4 billion, and purchases of property and equipment of $311 million, partially offset by maturities and sales of investments of $14.2 billion and proceeds from repayments and sales of loans receivable, originally classified as held for investment, of $9.8 billion.

The net cash provided by investing activities of $1.6 billion in the six months ended June 30, 2023 was due primarily to proceeds from repayments and sales of loans receivable, originally classified as held for investment, of $16.0 billion, maturities and sales of investments of $10.7 billion, and changes in funds receivable from customers of $759 million, partially offset by purchases and originations of loans receivable of $15.2 billion, purchases of investments of $10.5 billion, and purchases of property and equipment of $320 million.

Financing activities

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

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

The net cash used in financing activities of $2.8 billion in the three months ended March 31, 2023 was due primarily to the repurchase of $1.4 billion of our common stock under our stock repurchase program, changes in funds payable and amounts due to customers of $1.1 billion, tax withholdings related to net share settlement of equity awards of $149 million, and changes in collateral received related to derivative instruments, net of $129 million.

The net cash used in financing activities of $2.2 billion in the six months ended June 30, 2024 was due primarily to the repurchase of $3.0 billion of our common stock under our stock repurchase program, repayments of borrowings under financing arrangements of $411 million, and tax withholdings related to net share settlement of equity awards of $230 million.

These cash outflows were partially offset by borrowings under financing arrangements of $1.4 billion (including proceeds from the issuance of fixed rate debt in May 2024).

The net cash used in financing activities of $6.1 billion in the six months ended June 30, 2023 was due primarily to the repurchase of $3.0 billion of our common stock under our stock repurchase program, changes in funds payable and amounts due to customers of $2.6 billion, repayments of borrowings under financing arrangements of $942 million (including principal repayment of fixed rate debt under our May 2020 debt issuance and repayment of borrowings under our Paidy credit agreement), tax withholdings related to net share settlement of equity awards of $200 million, and changes in collateral received related to derivative instruments, net of $175 million.

These cash outflows were partially offset by borrowings under financing arrangements of $720 million (including proceeds from the issuance of fixed rate debt in June 2023 and borrowings under our Paidy credit agreement).

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

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

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

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

The negative impact on cash, cash equivalents and restricted cash in the three months ended March 31, 2023 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

dollar to the Australian dollar, partially offset by the impact of favorable fluctuations in the exchange rate of the U.S dollar to the Euro.

Foreign currency exchange rates for the six months ended June 30, 2024 and 2023 had a negative impact of $89 million and $50 million, respectively, on cash, cash equivalents, and restricted cash.

The negative impact on cash, cash equivalents, and restricted cash in the six months ended June 30, 2024 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S.

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

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

dollar to the Australian dollar.

Available credit and debt

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥30.0 billion for a total borrowing capacity of ¥90.0 billion (approximately $595 million as of March 31, 2024.) As of March 31, 2024 and December 31, 2023, ¥61.0 billion (approximately $403 million) and ¥50.0 billion (approximately $355 million), respectively, was outstanding under the Paidy Credit Agreement.

At March 31, 2024, ¥29.0 billion (approximately $192 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

In May 2024, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $1.3 billion.

Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and acquisitions of businesses, assets, or strategic investments.

As of June 30, 2024, we had $11.8 billion in fixed rate debt outstanding with varying maturity dates.

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which 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 $559 million as of June 30, 2024.) As of June 30, 2024 and December 31, 2023, ¥70.0 billion (approximately $435 million) and ¥50.0 billion (approximately $355 million), respectively, was outstanding under the Paidy Credit Agreement.

At June 30, 2024, ¥20.0 billion (approximately $124 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

Other than as described above, there were no significant changes to the available credit and debt disclosed in our 2023 Form 10‑K.

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The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement.

As of March 31, 2024, we had a total of $3.8 billion in cash withdrawals offsetting our $3.8 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

As of June 30, 2024, we had a total of $2.8 billion in cash withdrawals offsetting our $2.8 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

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

As of June 30, 2024, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc.

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

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Credit products

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

Growth in our portfolio of loans receivable increases our liquidity needs and any inability to meet those liquidity needs could adversely affect our business.

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

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

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

credit activities.

As of March 31, 2024, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.0 billion and represented approximately 40% of European customer balances made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

As of June 30, 2024, the cumulative amount approved by management to be designated to fund credit activities aggregated to $3.0 billion and represented approximately 40% of European customer balances made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF.

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

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

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

During the six months ended June 30, 2024, we sold $9.6 billion of loans and interest receivable in connection with this agreement.

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

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Stock repurchases

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

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

During the six months ended June 30, 2024, we repurchased approximately $3.0 billion of our common stock in the open market under our stock repurchase program authorized in June 2022.

As of June 30, 2024, a total of approximately $7.9 billion remained available for future repurchases of our common stock under our June 2022 stock repurchase program.

Other considerations

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis