PayPal Holdings, Inc. 10-Q

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements that involve expectations, plans, or intentions (such as those relating to future business, future results of operations or financial condition, new or planned features or services, mergers or acquisitions, or management strategies). These forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “continue,” “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions. These forward-looking statements involve risks and uncertainties that could cause our actual results and financial condition to differ materially from those expressed or implied in our forward-looking statements. Such risks and uncertainties include, among others, those discussed in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Form 10-K”), as supplemented in the risk factors set forth below in Part II, Item 1A, Risk Factors, of this Form 10-Q, as well as in our unaudited condensed consolidated financial statements, related notes, and the other information appearing in this report and our other filings with the Securities and Exchange Commission. We do not intend, and undertake no obligation except as required by law, to update any of our forward-looking statements after the date of this report to reflect actual results, new information, or future events or circumstances. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. You should read the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear in this report. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” and “PayPal” refer to PayPal Holdings, Inc. and its consolidated subsidiaries. BUSINESS ENVIRONMENT THE COMPANY At PayPal, our mission is to revolutionize commerce globally. Our products are designed to enable digital payments and simplify commerce experiences for consumers and merchants to make selling, shopping, and sending and receiving money simple, personalized, and secure, online or offline, including mobile. Our two-sided platform serves millions of consumers and merchants worldwide. Regulatory environment 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 anti-money laundering, countering terrorist financing, 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. Cybersecurity and information security Cybersecurity and information security risks for global payments and technology companies like us have increased significantly in recent years. Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and enable us to effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we have experienced and expect to continue to experience cybersecurity incidents and remain subject to these risks. There can be no assurance that our security measures will provide sufficient protection or security to prevent breaches or attacks. For additional information regarding our cybersecurity and information security risks, see Part I, Item 1A, Risk Factors in our 2024 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q. MACROECONOMIC ENVIRONMENT A deterioration in macroeconomic conditions resulting from uncertainties and effects from tariffs, higher inflation rates, international conflicts, and higher interest rates could continue to increase the risk of lower consumer spending, merchant and consumer bankruptcy, insolvency, business failure, higher credit losses, foreign exchange fluctuations, or other business interruption, which may adversely impact our business. We are unable to reasonably estimate the total potential impact on our financial results that may ultimately result from such changes in the macroeconomic environment. 44 Table of Contents OVERVIEW OF RESULTS OF OPERATIONS The following table provides a summary of our consolidated financial results for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, Percent Increase/(Decrease) 2025 2024 (In millions, except percentages and per share data) Net revenues $ 7,791 $ 7,699 1 % Operating expenses 6,261 6,531 (4) % Operating income 1,530 1,168 31 % Operating margin 20 % 15 % ** Other income (expense), net 73 41 78 % Income tax expense 316 321 (2) % Effective tax rate 20 % 27 % ** Net income (loss) $ 1,287 $ 888 45 % Net income (loss) per diluted share $ 1.29 $ 0.83 56 % Net cash provided by operating activities $ 1,160 $ 1,917 (39) % All amounts in tables are rounded to the nearest million, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided. ** Not meaningful. THREE MONTHS ENDED MARCH 31, 2025 AND 2024 Net revenues increased $92 million, or 1%, in the three months ended March 31, 2025 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”) of 3% and an increase in interest and fee revenue earned on our loans receivable portfolio, partially offset by changes in TPV mix, which resulted in lower transaction revenue. Total operating expenses decreased $270 million, or 4%, in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to a decline in transaction expense and restructuring and other expenses. Operating income increased $362 million, or 31%, in the three months ended March 31, 2025 compared to the same period of the prior year due to the increase in net revenues and decline in operating expenses. Our operating margin was 20% and 15% in the three months ended March 31, 2025 and 2024, respectively, reflecting the positive impact of lower transaction expense and restructuring and other expenses. Net income increased $399 million, or 45%, in the three months ended March 31, 2025 compared to the same period of the prior year due to the previously discussed increase in operating income of $362 million and an increase in other income (expense), net of $32 million. IMPACT OF FOREIGN EXCHANGE RATES We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, subjecting us to foreign exchange risk which may adversely impact our financial results. 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. dollar. We generated approximately 43% and 42% of our net revenues from customers domiciled outside of the U.S. in the three months ended March 31, 2025 and 2024, respectively. Because we generate substantial net revenues internationally, we are subject to the risks of doing business outside of the U.S. See Part I, Item 1A, Risk Factors in our 2024 Form 10-K, as supplemented and, to the extent inconsistent, superseded (if applicable) below in Part II, Item 1A, Risk Factors of this Form 10-Q. 45 Table of Contents We calculate the year-over-year impact of foreign exchange rate movements on our business using prior period foreign exchange rates applied to current period transactional currency amounts. While changes in foreign exchange rates affect our reported results, we have a foreign currency exposure management program in which we use foreign exchange contracts, designated as cash flow hedges, intended to reduce the impact on earnings from foreign exchange rate movements. Gains and losses from these foreign 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, 2025, year-over-year foreign exchange rate movements relative to the U.S. dollar had the following impact on our reported results: Three Months Ended March 31, 2025 (In millions) Unfavorable impact to net revenues (exclusive of hedging impact) $ (104) Hedging impact 35 Unfavorable impact to net revenues (69) Favorable impact to operating expense 52 Net unfavorable impact to operating income $ (17) While we enter into foreign exchange contracts to help reduce the impact on earnings from foreign exchange rate movements, it is impossible to eliminate the total effects of this exposure. Prior to 2025, we used foreign exchange contracts, designated as net investment hedges, to reduce the foreign exchange risk related to our investment in certain foreign subsidiaries. Gains and losses associated with these instruments will remain in accumulated other comprehensive income (loss) until the underlying foreign subsidiaries are sold or substantially liquidated. Given that we also have foreign exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional balance sheet foreign currency exposure management program in which we use foreign exchange contracts to help offset the impact of foreign exchange rate movements on our assets and liabilities. The foreign exchange gains and losses on our assets and liabilities are recorded in other income (expense), net, and are offset by the gains and losses on the foreign exchange contracts. These foreign exchange contracts reduce, but do not entirely eliminate, the impact of foreign exchange rate movements on our assets and liabilities. Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign exchange rates daily and may face financial exposure if we incorrectly set our foreign exchange rates or as a result of fluctuations in foreign exchange rates between the times that we set our foreign exchange rates and when transactions occur. While we have processes in place to mitigate these risks, it is impossible to eliminate the total effects of any possible exposure associated with setting foreign exchange rates on our payments platform. KEY METRICS AND FINANCIAL RESULTS KEY METRICS TPV, number of payment transactions, active accounts, and number of payment transactions per active account are key non-financial performance metrics (“key metrics”) that management uses to measure the scale of our platform and the relevance of our products and services to our customers, and are defined as follows: • TPV is the value of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions. • Number of payment transactions is the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions. 46 Table of Contents • An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform, not including gateway-exclusive transactions, within the past 12 months. A platform access partner is a third party whose customers are provided access to PayPal’s platform or services through such third-party’s login credentials, including individuals and entities that utilize Hyperwallet’s payout capabilities. A user may register on our platform to access different products and may register more than one account to access a product. Accordingly, a user may have more than one active account. The number of active accounts provides management with additional perspective on the overall scale of our platform, but may not have a direct relationship to our operating results. • Number of payment transactions per active account reflects the total number of payment transactions within the previous 12-month period, divided by active accounts at the end of the period. The number of payment transactions per active account provides management with insight into the average number of times an account engages in payments activity on our payments platform in a given period. The number of times a consumer account or a merchant account transacts on our platform may vary significantly from the average number of payment transactions per active account. As our transaction revenue is typically correlated with TPV growth and the number of payment transactions completed on our payments platform, management uses these metrics to gain insights into the scale and strength of our payments platform, the engagement level of our customers, and underlying activity and trends which may be indicators of current and future performance. We present these key metrics to enhance investors’ evaluation of the performance of our business and operating results. Our key metrics are calculated using internal company data based on the activity we measure on our payments platform and compiled from multiple systems, including systems that are internally developed or acquired through business combinations. While the measurement of our key metrics is based on what we believe to be reasonable methodologies and estimates, there are inherent challenges and limitations in measuring our key metrics globally at scale. The methodologies used to calculate our key metrics require significant judgment. We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve the accuracy or relevance of our metrics. For example, we continuously apply models, processes, and practices designed to detect and prevent fraudulent account creation on our platforms, and work to improve and enhance those capabilities. When we detect a significant volume of illegitimate activity, we generally remove the activity identified from our key metrics. Although such adjustments may impact key metrics reported in prior periods, we generally do not update previously reported key metrics to reflect these subsequent adjustments unless the retrospective impact of process improvements or enhancements is determined by management to be material. NET REVENUES Our revenues are classified into the following two categories: • Transaction revenues : Net transaction fees charged to merchants and consumers on a transaction basis based on the TPV completed on our payments platform. Growth in TPV is directly impacted by the number of payment transactions that we enable on our payments platform. We generate additional revenue from merchants and consumers: on transactions where we perform currency conversion, when we enable cross-border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, to facilitate the purchase and sale of cryptocurrencies, as contractual compensation from sellers that violate our contractual terms (for example, through fraud or counterfeiting), and other miscellaneous fees. • Revenues from other value added services : Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our consumers and merchants. We also earn revenues from interest and fees earned on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances. 47 Table of Contents Net revenue analysis The components of our net revenues for the three months ended March 31, 2025 and 2024 were as follows (in millions): Transaction revenues Transaction revenues remained consistent in the three months ended March 31, 2025 compared to the same period of the prior year driven primarily by a decline in revenues of approximately $200 million from our Braintree products and services resulting from a decline in TPV and the number of payment transactions, partially offset by an increase in revenues of approximately $170 million from our Venmo and PayPal products and services resulting from growth in TPV and the number of payment transactions. As a result of our stronger focus on profitable growth and ongoing negotiations with merchants, we expect lower volume and transaction revenue growth from our Braintree offerings in 2025. The graphs below present the respective key metrics (in millions) for the three months ended March 31, 2025 and 2024: *Reflects active accounts at the end of the applicable period. The following table provides a summary of related metrics: Three Months Ended March 31, Percent Increase/(Decrease) 2025 2024 Number of payment transactions per active account 59.4 60.0 (1) % Percent of cross-border TPV (1) 12 % 12 % ** (1) Cross-border TPV occurs primarily between two PayPal accounts in different countries and includes transactions initiated through our Xoom product. ** Not meaningful. 48 Table of Contents We had active accounts of 436 million and 427 million as of March 31, 2025 and 2024, respectively, an increase of 2%. Our total number of payment transactions was 6.0 billion and 6.5 billion for the three months ended March 31, 2025 and 2024, respectively, a decrease of 7%. TPV was $417 billion and $404 billion for the three months ended March 31, 2025 and 2024, respectively, an increase of 3%. Transaction revenues remained consistent while TPV increased 3% in the three months ended March 31, 2025 compared to the same period in the prior year due primarily to changes in volume mix with a higher proportion of TPV from payout products, which have lower pricing, as well as a decline in volume from large merchants on Braintree products and services as a result of our focus on profitable growth. Revenues from other value added services Revenues from other value added services increased $110 million, or 17% in the three months ended March 31, 2025 compared to the same period in the prior year due primarily to an approximately $70 million increase in interest and fee revenue earned from our loans receivable portfolio driven by consumer interest-bearing installment loans, merchant loans, and consumer revolving loans. 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) 2025 2024 (In millions, except percentages) Transaction expense $ 3,704 $ 3,917 (5) % Transaction and credit losses 371 321 16 % Customer support and operations 398 454 (12) % Sales and marketing 488 421 16 % Technology and development 731 742 (1) % General and administrative 503 464 8 % Restructuring and other 66 212 (69) % Total operating expenses $ 6,261 $ 6,531 (4) % Transaction expense rate (1) 0.89 % 0.97 % ** Transaction and credit loss rate (2) 0.09 % 0.08 % ** (1) Transaction expense rate is calculated by dividing transaction expense by TPV. (2) Transaction and credit loss rate is calculated by dividing transaction and credit losses by TPV. ** Not meaningful. Transaction expense Transaction expense for the three months ended March 31, 2025 and 2024 was as follows (in millions): 49 Table of Contents Transaction expense decreased $213 million, or 5%, in the three months ended March 31, 2025 compared to the same period of the prior year. The decline in transaction expense and the associated transaction expense rate was primarily attributable to favorable changes in merchant mix as well as a volume decline within our Braintree products and services, which generally have a higher expense rate than other products and services. Our transaction expense rate is impacted by changes in product mix, merchant mix, regional mix, funding mix, and fees paid to payment processors and other financial institutions. The cost of funding a transaction with a credit or debit card is generally higher than the cost of funding a transaction from a bank or through internal sources such as a PayPal or Venmo account balance or our consumer credit products. The cost of funding a transaction is also impacted by the geographic region or country in which a transaction occurs, as we generally pay lower rates for transactions funded with credit or debit cards outside the U.S. For the three months ended March 31, 2025 and 2024, approximately 35% and 36% of TPV, respectively, was generated outside of the U.S. Transaction and credit losses The components of our transaction and credit losses for the three months ended March 31, 2025 and 2024 were as follows (in millions): Transaction and credit losses increased $50 million, or 16%, in the three months ended March 31, 2025 compared to the same period of the prior year. Transaction losses were $278 million in the three months ended March 31, 2025 compared to $260 million in the three months ended March 31, 2024, an increase of $18 million, or 7%. Transaction loss rate (transaction losses divided by TPV) was 0.07% for the three months ended March 31, 2025, compared to 0.06% for the three months ended March 31, 2024. The increase in transaction losses and the associated transaction loss rate in the three months ended March 31, 2025 compared to the same period of the prior year was primarily due to an increase in losses from our PayPal products and services driven by fraud incidents. Credit losses increased $32 million in the three months ended March 31, 2025 compared to the same period of the prior year. The components of credit losses for the three months ended March 31, 2025 and 2024 were as follows (in millions): Three Months Ended March 31, 2025 2024 Net charge-offs (1) $ 78 $ 123 Reserve build (release) (2) 15 (62) Credit losses $ 93 $ 61 (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. Credit losses in the three months ended March 31, 2025 were attributable to loan originations during the period. Credit losses in the three months ended March 31, 2024 were attributable to loan originations partially offset by improvement in the credit quality of loans outstanding. 50 Table of Contents Consumer loan portfolio In June 2023, we entered into a multi-year agreement with a global investment firm to sell 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”). In December 2024, this agreement was amended and restated to extend the commitment period to December 2026 and to increase the maximum balance of loans that can be sold at a time. As of March 31, 2025 and 2024, loans and interest receivable, held for sale was $714 million and $307 million, respectively. The consumer loans and interest receivable balance as of March 31, 2025 and 2024 was $5.4 billion and $4.5 billion, respectively, net of participation interest sold, representing an increase of 21%. The increase was driven primarily by growth of approximately $500 million and $300 million in our installment credit products driven by growth in Japan and the U.S., respectively, as well as growth of approximately $230 million in our revolving credit product in the U.K., partially offset by a decline of approximately $100 million in our installment credit products in Germany due to the forward-flow arrangement with the global investment firm. The following table provides information regarding the credit quality of our consumer loans and interest receivable balance: March 31, 2025 2024 Percent of consumer loans and interest receivable current 96.3 % 95.9 % Percent of consumer loans and interest receivable > 90 days outstanding (1) 1.6 % 1.9 % Net charge-off rate (2) 4.5 % 7.2 % (1) Represents percentage of balances which are 90 days past the billing date or contractual repayment date, as applicable. (2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2025 and 2024, 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 decline in net charge-off rate for consumer receivables at March 31, 2025 as compared to March 31, 2024 was due primarily to the improvement in credit quality of the U.S. interest-bearing installment products. In response to changing portfolio performance and macroeconomic environment, we continue to monitor risk and evaluate and modify our acceptable risk parameters. Modifications to the acceptable risk parameters did not have a material impact on our consumer loans for the three months ended March 31, 2025. Merchant loan portfolio We offer access to merchant finance products for certain small and medium-sized businesses, which we refer to as our merchant finance offerings. Total merchant loans, advances, and interest and fees receivable outstanding, net of participation interest sold, as of March 31, 2025 and 2024 was $1.6 billion and $1.2 billion, respectively, reflecting an increase of 32%. The increase was due primarily to growth of approximately $230 million in our PPWC product portfolio, primarily from the U.S., Germany and the U.K., as well as growth of approximately $160 million in our PayPal Business Loans (“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: March 31, 2025 2024 Percent of merchant loans, advances, and interest and fees receivable current 90.0 % 88.7 % Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding (1) 3.2 % 4.4 % Net charge-off rate (2) 4.6 % 14.0 % (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, 2025 and 2024, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the same period. The decrease in net charge-off rate for merchant receivables at March 31, 2025 as compared to March 31, 2024 was due primarily to the improvement in the credit quality of the PPBL portfolio and a significant decline in our outstanding merchant receivables in the prior period which increased the net charge-off rate presented as a percentage of our outstanding loan balance. 51 Table of Contents In response to changing portfolio performance and macroeconomic environment, we continue to monitor risk and evaluate and modify our acceptable risk parameters. Modifications to the acceptable risk parameters did not have a material impact on our merchant loans for the three months ended March 31, 2025. 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, 2025 and 2024 were as follows (in millions): Customer support and operations expenses decreased $56 million, or 12%, in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to a decline of approximately $40 million in employee-related costs associated with the prior year reduction in headcount, and to a lesser extent, a decline in software expenses. Sales and marketing Sales and marketing expenses for the three months ended March 31, 2025 and 2024 were as follows (in millions): Sales and marketing expenses increased $67 million, or 16%, in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to higher spend of approximately $90 million on marketing and brand advertising, including our PayPal Everywhere advertising campaign, partially offset by lower employee-related costs. 52 Table of Contents Technology and development Technology and development expenses for the three months ended March 31, 2025 and 2024 were as follows (in millions): Technology and development expenses decreased $11 million in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to lower employee-related costs associated with the prior year reduction in headcount and a decline in depreciation and amortization expense, partially offset by an increase in contractor and consultant costs and higher costs from cloud computing services utilized in delivering our products and services. General and administrative General and administrative expenses for the three months ended March 31, 2025 and 2024 were as follows (in millions): General and administrative expenses increased $39 million, or 8%, in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to an increase in indirect tax expense and professional services expense, partially offset by lower employee-related costs. 53 Table of Contents Restructuring and other Restructuring and other for the three months ended March 31, 2025 and 2024 were as follows (in millions): Restructuring and other decreased $146 million in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to a decline in restructuring charges as compared to the prior year. During the first quarter of 2025, management initiated a workforce reduction to ensure compliance with a new regulation impacting operations in an international market. The associated restructuring charges during the three months ended March 31, 2025 were $39 million, and included employee severance and benefits costs, substantially all of which were accrued for as of March 31, 2025. We do not anticipate cost savings in conjunction with this reduction. 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, which were substantially completed in the fourth quarter of 2024. During the three months ended March 31, 2025 and 2024, approximately $25 million and $37 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 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 increased $32 million in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to net gains on strategic investments in the current period compared to net losses and impairments in the prior period, which contributed an increase of approximately $100 million year-over-year, partially offset by a decrease of approximately $40 million from a decline in interest income resulting from lower average cash balances year-over-year and an increase in interest expense due in part to incremental expense from the May 2024 debt issuance. Income tax expense Our effective income tax rate was 20% and 27% for the three months ended March 31, 2025 and 2024, respectively. The decrease in our effective income tax rate for the three months ended March 31, 2025 compared to the same period of the prior year was due primarily to discrete tax adjustments including tax effects of stock-based compensation. LIQUIDITY AND CAPITAL RESOURCES We require liquidity and access to capital to fund our global operations, including our customer protection programs, credit products, capital expenditures, investments in our business, potential acquisitions and strategic investments, working capital, and other cash needs. We believe that our existing cash, cash equivalents, and investments, cash expected to be generated from operations, and our expected access to capital markets, together with potential external funding through third-party sources, will be sufficient to meet our cash requirements within the next 12 months and beyond. 54 Table of Contents SOURCES OF LIQUIDITY Cash, cash equivalents, and investments The following table summarizes our cash, cash equivalents, and investments as of March 31, 2025 and December 31, 2024: March 31, 2025 December 31, 2024 (In millions) Cash, cash equivalents, and investments (1),(2) $ 14,192 $ 13,846 (1) Excludes assets related to funds receivable and customer accounts of $39.2 billion and $37.7 billion at March 31, 2025 and December 31, 2024, respectively. (2) Excludes total restricted cash of nil and $1 million at March 31, 2025 and December 31, 2024, respectively, and strategic investments of $1.6 billion at both March 31, 2025 and December 31, 2024. Cash, cash equivalents, and investments held by our foreign subsidiaries were $9.1 billion and $8.5 billion at March 31, 2025 and December 31, 2024, or 64% and 62% of our total cash, cash equivalents, and investments as of those respective dates. At December 31, 2024, all of our cash, cash equivalents, and investments held by foreign subsidiaries were subject to U.S. taxation under Subpart F, Global Intangible Low Taxed Income or the one-time transition tax under the Tax Cuts and Jobs Act of 2017. Subsequent repatriations to the U.S. will not be taxable from a U.S. federal tax perspective except for any tax on foreign exchange gains and losses; however, they may be subject to state income or foreign withholding tax. A significant aspect of our global cash management activities involves meeting our customers’ requirements to access their cash while simultaneously meeting our regulatory financial ratio commitments in various jurisdictions. Our global cash balances are required not only to provide operational liquidity to our businesses, but also to support our global regulatory requirements across our regulated subsidiaries. Accordingly, not all of our cash is available for general corporate purposes. Cash flows The following table summarizes our condensed consolidated statements of cash flows: Three Months Ended March 31, 2025 2024 (In millions) Net cash provided by (used in): Operating activities $ 1,160 $ 1,917 Investing activities (3,657) 980 Financing activities 994 (2,362) Effect of exchange rates on cash, cash equivalents, and restricted cash 94 (94) Net change in cash, cash equivalents, and restricted cash $ (1,409) $ 441 Operating activities Net cash provided by operating activities declined $757 million in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to changes in working capital of approximately $790 million driven by a decline in liabilities, changes in stock-based compensation of approximately $120 million, and an impact of approximately $100 million from net gains on strategic investments, partially offset by an increase in operating income of approximately $360 million. In the three months ended March 31, 2025 and 2024, cash paid for income taxes, net was $95 million and $83 million, respectively. Investing activities Net cash used in investing activities increased $4.6 billion in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to a decline of approximately $2.7 billion in maturities and sales of investments, net of purchases, and changes related to funds receivable of approximately $1.6 billion. 55 Table of Contents Financing activities Net cash provided by financing activities increased $3.4 billion in the three months ended March 31, 2025 compared to the same period of the prior year due primarily to an increase of approximately $1.9 billion from changes related to funds payable and amounts due to customers, and an increase of approximately $1.7 billion in borrowings (including proceeds from the March 2025 debt issuance), net of repayments under financing arrangements. Effect of exchange rate changes on cash, cash equivalents, and restricted cash Foreign currency exchange rates had a positive impact of $94 million and a negative impact of $94 million on cash, cash equivalents, and restricted cash for the three months ended March 31, 2025 and 2024, respectively. The positive impact on cash, cash equivalents, and restricted cash in the three months ended March 31, 2025 was due primarily to favorable fluctuations in the exchange rate of the U.S. dollar to the British pound and, to a lesser extent, the Euro and Australian dollar. 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. Available credit and debt In March 2025, we issued fixed rate and floating rate notes with varying maturity dates for an aggregate principal amount of $1.5 billion. Proceeds from the issuance of these Notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments. As of March 31, 2025, we had an aggregate principal amount of $12.1 billion in debt outstanding with varying maturity dates. Other than as described above, there were no significant changes to the available credit and debt disclosed in our 2024 Form 10‑K. For additional information, see “Note 12—Debt” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q. Depending on market conditions, we may from time to time issue debt, including in private or public offerings, to fund our operating activities, finance acquisitions, make strategic investments, repurchase shares under our stock repurchase program, or reduce our cost of capital. Credit ratings As of March 31, 2025, 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. Our goal is to be rated investment grade, but as circumstances change, there are factors that could result in our credit ratings being downgraded or put on a watch list for possible downgrading. If that were to occur, it could increase our borrowing rates, including the interest rate on borrowings under our credit agreements. CURRENT AND FUTURE CASH REQUIREMENTS Our material cash requirements include funds to support current and potential: operating activities, credit products, customer protection programs, stock repurchases, strategic investments, acquisitions, other commitments, capital expenditures, and other future obligations. Credit products 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. 56 Table of Contents 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, 2025 and December 31, 2024, the cumulative amount approved by PayPal to be designated to fund credit activities was $2.0 billion as of those respective dates and represented approximately 26% of European customer balances made available for our corporate use as of those respective dates, as determined by applying financial regulations maintained by the CSSF. We may periodically seek to change the designation of amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements. Under certain exceptional circumstances, corporate liquidity could be called upon to meet our obligations related to our European customer balances. In June 2023, we entered into a multi-year agreement with a global investment firm to sell our eligible consumer installment receivables portfolio. In December 2024, this agreement was amended and restated to extend the commitment period to December 2026 and to increase the maximum balance of loans that can be sold at a time. During the three months ended March 31, 2025 and 2024, we sold $5.3 billion and $4.8 billion, respectively, of loans and interest receivable in connection with this agreement. See “Note 11—Loans and Interest Receivable” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information. While our objective is to expand the availability of our credit products with capital from external sources, there can be no assurance that we will be successful in achieving that goal. Customer protection programs The risk of losses from our customer protection programs are specific to individual consumers, merchants, and transactions, and may also be impacted by regional variations in, and changes or modifications to, the programs, including as a result of changes in regulatory requirements. For the periods presented in these condensed consolidated financial statements included in this report, our transaction loss rate ranged between 0.06% and 0.07% of TPV. Historical loss rates may not be indicative of future results. Stock repurchases During the three months ended March 31, 2025, 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, 2025, a total of approximately $3.4 billion and $15.0 billion remained available for future repurchases of our common stock under our June 2022 and February 2025 stock repurchase programs, respectively. Other considerations Our liquidity, access to capital, and borrowing costs could be adversely impacted by declines in our credit rating, our financial performance, and global credit market conditions, as well as a broad range of other factors. In addition, our liquidity, access to capital, and borrowing costs could also be negatively impacted by the outcome of any of the legal or regulatory proceedings to which we are a party. See Part I, Item 1A, Risk Factors of our 2024 Form 10-K, as supplemented and, to the extent inconsistent, superseded below in Part II, Item 1A, Risk Factors of this Form 10-Q, as well as “Note 13—Commitments and Contingencies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional discussion of these and other risks that our business faces. 57 Table of Contents