What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-05 compared with 2025-10-28 · 136 added, 165 removed, 205 unchanged (59% of the section changed)

1 unchanged sentence

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.

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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.

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For additional information regarding our cybersecurity and information security risks, see Part I, Item 1A, Risk Factors in our 2025 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q.

1Q 2026 FORM 10-Q

Recent developments

On April 29, 2026, the Company announced a strategic reorganization of its business and executive leadership team intended to accelerate execution of its long-term growth priorities, simplify its operating structure, streamline decision-making, and drive innovation.

This strategic reorganization and business simplification program, which will focus on realigning our operating structure and accelerating the adoption of Artificial Intelligence and automation across the company, is expected to deliver at least $1.5 billion in gross annualized run-rate savings over the next two to three years.

The Company expects to provide additional details regarding the structure of the program and anticipated phasing of savings realization in future periods as the program is developed and implemented.

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.

A deterioration in macroeconomic conditions resulting from uncertainties and effects from tariffs, inflation, international conflicts, and 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.

OVERVIEW OF RESULTS OF OPERATIONS

The following table provides a summary of our condensed consolidated financial results for the three and nine months ended September 30, 2025 and 2024:

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

2025 2024 2025 2024

The following table provides a summary of our condensed consolidated financial results for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31, Increase/(Decrease)

2026 2025 Dollar Percent

(In millions, except percentages and per share data)

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** Not meaningful.

THREE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Net revenues increased $570 million, or 7%, in the three months ended September 30, 2025 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”) of 8% and an increase in interest and fee revenue earned on our loans receivable portfolio.

Total operating expenses increased $441 million, or 7%, in the three months ended September 30, 2025 compared to the same period of the prior year due primarily to an increase in transaction expense and transaction and credit losses.

Operating income increased $129 million, or 9%, in the three months ended September 30, 2025 compared to the same period of the prior year due to the increase in net revenues partially offset by the increase in operating expenses.

Our operating margin remained consistent at 18% for both the three months ended September 30, 2025 and 2024 reflecting the positive impact of a lower transaction expense growth rate offset by a higher transaction and credit losses growth rate.

Net income increased $238 million, or 24%, in the three months ended September 30, 2025 compared to the same period of the prior year due to the previously discussed increase in operating income of $129 million and an increase in other income (expense), net of $93 million.

NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Net revenues increased $1.1 billion, or 5%, in the nine months ended September 30, 2025 compared to the same period of the prior year driven primarily by growth in TPV of 6% and an increase in interest and fee revenue earned on our loans receivable portfolio.

Total operating expenses increased $395 million, or 2%, in the nine months ended September 30, 2025 compared to the same period of the prior year due primarily to an increase in transaction and credit losses and sales and marketing expense partially offset by a decline in restructuring and other expenses.

Operating income increased $670 million, or 17%, in the nine months ended September 30, 2025 compared to the same period of the prior year due to the increase in net revenues partially offset by the increase in operating expenses.

Our operating margin was 19% and 17% in the nine months ended September 30, 2025 and 2024, respectively, reflecting the positive impact of a lower transaction expense growth rate.

Net income increased $770 million, or 25%, in the nine months ended September 30, 2025 compared to the same period of the prior year due to the previously discussed increase in operating income of $670 million and an increase of $76 million in other income (expense), net.

THREE MONTHS ENDED MARCH 31, 2026 AND 2025

The increase in net revenues was driven primarily by growth in total payment volume (“TPV”) of 11% and growth in revenue earned from an independent chartered financial institution (“partner institution”), partially offset by the unfavorable impact of hedging activities.

The increase in operating expenses was due primarily to an increase in transaction expense.

Our operating margin declined, reflecting the unfavorable impact of a higher transaction expense growth rate.

The decrease in net income was due to a decrease in operating income and a decrease in other income (expense), net, which was primarily attributable to net losses and impairments on strategic investments in the current period compared to net gains in the prior period, partially offset by a decrease in income tax expense driven by a lower level of pre-tax income and tax effects of stock-based compensation.

1Q 2026 FORM 10-Q

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.

We have significant international operations that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, Canadian dollar, and Indian rupee, 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.

We generated approximately 42% and 43% of our net revenues from customers domiciled outside of the U.S.

in the three and nine months ended September 30, 2025, respectively.

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

in both the three and nine months ended September 30, 2024.

in the three months ended March 31, 2026 and 2025, respectively.

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

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

In the three and nine months ended September 30, 2025, year-over-year foreign exchange rate movements relative to the U.S.

In the three months ended March 31, 2026, year-over-year foreign exchange rate movements relative to the U.S.

dollar had the following impact on our reported results:

Three Months Ended September 30, 2025 Nine Months Ended September 30, 2025

Three Months Ended March 31, 2026

(In millions)

2 unchanged sentences

Favorable impact to net revenues

Unfavorable impact to operating expenses (exclusive of hedging impact) (137)

Hedging impact (2)

Unfavorable impact to operating expenses (139)

Net favorable (unfavorable) impact to operating income

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.

Net favorable impact to operating income $ 32

KEY METRICS AND FINANCIAL RESULTS

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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.

1Q 2026 FORM 10-Q

• 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.

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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.

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), when we facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their bank account or debit card, when we 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 :

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Net revenue analysis

The components of our net revenues for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

The components of our net revenues for the three months ended March 31, 2026 and 2025 were as follows:

Three Months Ended

March 31, Increase/(Decrease)

2026 2025 Dollar

(In millions, except percentages)

Transaction revenues $ 7,501 $ 7,016 $ 485 7 %

Transaction revenues increased $455 million, or 6%, and $725 million, or 3%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

The increase in the three months ended September 30, 2025 was driven primarily by an increase of approximately $390 million in revenue from PayPal and Venmo products and services, which was largely driven by growth in TPV and number of payment transactions, and an increase in revenue from Braintree products and services of approximately $115 million predominantly attributable to growth in TPV despite a decline in the number of payment transactions over the same period.

The increase in the nine months ended September 30, 2025 was primarily attributable to an increase of approximately $1.0 billion in revenue from PayPal and Venmo products and services, which was largely driven by growth in TPV and number of payment transactions, partially offset by a decline in revenue from Braintree products and services of approximately $140 million resulting from a reduction in number of payment transactions.

The increase in TPV for Braintree products and services despite a decline in the number of payment transactions is due to our strategic shift as we focus on profitable growth.

Transaction revenues in the three and nine months ended September 30, 2025 were also impacted by an unfavorable impact from hedging activities.

As a result of our stronger focus on profitable growth and ongoing negotiations with merchants, we experienced lower volume and transaction revenue from our Braintree offerings in the first half of 2025.

As noted above, in the third quarter of 2025, revenue and TPV from Braintree offerings grew year-over-year.

In the fourth quarter of 2025, we expect volume from our Braintree offerings to continue to grow.

The graphs below present the respective key metrics (in millions) for the three and nine months ended September 30, 2025 and 2024:

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

Revenues from other value added services 852 775 77 10 %

Total revenues $ 8,353 $ 7,791 $ 562 7 %

1Q 2026 FORM 10-Q

Transaction revenues

The increase in transaction revenues for the three months ended March 31, 2026 compared to the same period of the prior year was driven primarily by an increase of approximately $410 million, $140 million, and $70 million in revenue from Braintree, PayPal, and Venmo products and services, respectively, which was largely driven by growth in TPV and number of payment transactions, partially offset by approximately $120 million of unfavorable impact from hedging activities resulting from losses in the current period compared to gains in the prior period.

The following table provides a summary of key metrics:

Three Months Ended

March 31, Percent Increase/(Decrease)

(In millions, except percentages and number of payment transactions per active account)

Active accounts (1)

Number of payment transactions 6,475 6,045 7 %

The following table provides a summary of related metrics:

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

2025 2024 2025 2024

Number of payment transactions per active account 58.7 59.4 (1) %

Percent of cross-border TPV (1)

12 % 12 % ** 12 % 12 % **

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

TPV $ 463,955 $ 417,208 11 %

Percent of TPV generated outside of the U.S.

(1) Reflects active accounts at the end of the applicable period.

** Not meaningful.

We had active accounts of 438 million and 432 million as of September 30, 2025 and 2024, respectively, an increase of 1%.

Our total number of payment transactions was 6.3 billion and 6.6 billion for the three months ended September 30, 2025 and 2024, respectively, a decrease of 5%.

Our total number of payment transactions was 18.6 billion for the nine months ended September 30, 2025, compared to 19.7 billion in the nine months ended September 30, 2024, a decrease of 6%.

TPV was $458 billion and $423 billion for the three months ended September 30, 2025 and 2024, respectively, an increase of 8%.

TPV was $1.3 trillion for the nine months ended September 30, 2025 compared to $1.2 trillion in the nine months ended September 30, 2024, an increase of 6%.

Transaction revenues growth was lower than the growth in TPV in the three and nine months ended September 30, 2025 compared to the same periods in the prior year due primarily to changes in product mix and unfavorable impact from foreign exchange hedging activities.

Transaction revenues growth was lower than the growth in TPV in the three months ended March 31, 2026 compared to the same period in the prior year due primarily to changes in product mix and unfavorable impact from foreign exchange hedging activities.

Revenues from other value added services

Revenues from other value added services increased $115 million, or 15%, and $340 million, or 16%, in the three and nine months ended September 30, 2025 compared to the same periods in the prior year due primarily to an increase of approximately $65 million and $220 million, respectively, in interest and fee revenue earned from our loans receivable portfolios as well as an increase of approximately $50 million and $100 million, respectively, from revenue earned from an independent chartered financial institution (“partner institution”).

Revenue from the partner institution is earned primarily through revenue share associated with our U.S.

revolving consumer credit product and PayPal and Venmo branded credit cards.

The increase in revenues from other value added services for the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to an increase of approximately $90 million from revenue earned from a partner institution as well as approximately $40 million in interest and fee revenue earned from our loans receivable portfolios.

Revenue from the partner institution is earned primarily through a revenue share arrangement based on the economic performance of the program related to our U.S.

revolving consumer credit product and PayPal and Venmo branded credit cards, when such performance exceeds a minimum threshold.

These factors favorably impacting revenues from other value added services were partially offset by lower revenues from interest earned on certain assets underlying customer account balances resulting from lower interest rates.

1Q 2026 FORM 10-Q

OPERATING EXPENSES

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

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

2025 2024 2025 2024

Three Months Ended

March 31, Increase/(Decrease)

2026 2025 Dollar

(In millions, except percentages)

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Transaction expense

Transaction expense for the three and nine months ended September 30, 2025 and 2024 was as follows (in millions):

Transaction expense increased $222 million, or 6%, and stayed relatively consistent, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

The increase in transaction expense for the three and nine months ended September 30, 2025 was primarily attributable to the increase in TPV of 8% and 6%, respectively, partially offset by favorable changes in merchant mix to lower cost merchants within our Braintree products and services.

The decline in transaction expense rate for the three and nine months ended September 30, 2025 compared to the same periods of the prior year was primarily attributable to a lower proportion of TPV from Braintree products and services and changes in merchant mix.

The increase in transaction expense for the three months ended March 31, 2026 compared to the same period in the prior year was primarily attributable to the increase in TPV of 11% and a higher proportion of TPV from our Braintree products and services, which generally have higher expense rates than our other products and services.

The increase in transaction expense rate for the three months ended March 31, 2026 compared to the same period in the prior year was primarily attributable to the unfavorable changes in product mix, partially offset by the favorable impact of changes in merchant mix.

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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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 September 30, 2025 and 2024, approximately 38% and 37%, respectively, of TPV was generated outside of the U.S.

For the nine months ended September 30, 2025 and 2024, approximately 37% and 36%, respectively, of TPV was generated outside of the U.S.

Transaction and credit losses

The components of our transaction and credit losses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

Transaction and credit losses increased $131 million, or 37%, and $322 million, or 32%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

Transaction losses increased $133 million, or 50%, and $275 million, or 35%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

Transaction loss rate (transaction losses divided by TPV) was 0.09% and 0.08% for the three and nine months ended September 30, 2025, respectively, compared to 0.06% for both the three and nine months ended September 30, 2024.

The increase in transaction losses and the associated transaction loss rate in the three and nine months ended September 30, 2025 compared to the same periods of the prior year was primarily due to an increase in losses driven by fraud incidents from our PayPal products and services.

Credit losses decreased $2 million and increased $47 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year.

The components of credit losses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

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

The components of our transaction and credit losses for the three months ended March 31, 2026 and 2025 were as follows:

Three Months Ended

March 31, Increase/(Decrease)

2026 2025 Dollar

(In millions, except percentages)

Transaction losses $ 276 $ 278 $ (2) (1) %

Credit losses 102 93 9 10 %

Transaction and credit losses $ 378 $ 371 $ 7 2 %

Transaction loss rate (1)

0.06 % 0.07 % ** **

(1) Transaction loss rate is calculated by dividing transaction losses by TPV.

** Not meaningful.

Transaction losses and the associated transaction loss rate in the three months ended March 31, 2026 remained consistent compared to the same period in the prior year.

The increase due to TPV growth was offset by benefits realized from risk mitigation strategies and higher recoveries.

1Q 2026 FORM 10-Q

The components of credit losses for the three months ended March 31, 2026 and 2025 were as follows:

Three Months Ended March 31,

(In millions)

Net charge-offs (1)

$ 90 $ 81 $ 243 $ 295

Reserve build (release) (2)

(4) 7 29 (70)

Credit losses $ 102 $ 93

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

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

Credit losses in the three and nine months ended September 30, 2025 were primarily attributable to loan originations during the period, partially offset by the reclassification of certain loans to held for sale.

Credit losses in the three and nine months ended September 30, 2024 were attributable to loan originations during the period partially offset by improvement in the credit quality of loans outstanding.

Credit losses in the three months ended March 31, 2026 and 2025 were primarily attributable to loan originations during the period.

Consumer loan portfolio

We have entered into forward flow arrangements with third-party investors to sell certain loans receivable portfolios.

As of September 30, 2025 and 2024, loans and interest receivable, held for sale was $1.4 billion and $471 million, respectively.

In third quarter of 2025, we reclassified $574 million of U.S.

consumer short-term, non-interest bearing installment loans to held for sale.

The consumer loans and interest receivable balance as of September 30, 2025 and 2024 was $5.2 billion and $5.1 billion, respectively, net of participation interest sold, representing an increase of 1%.

The increase was driven primarily by growth of our installment credit products in the U.S.

and Japan of approximately $225 million and $190 million, respectively, and an increase in our revolving credit product in the United Kingdom (“U.K.”) of approximately $160 million.

The consumer loans and interest receivable balance was also impacted by the reclassification of our U.S.

short-term, non-interest bearing installment loans to held for sale in the third quarter of 2025.

As of March 31, 2026 and 2025, loans and interest receivable, held for sale were $1.8 billion and $714 million, respectively.

The consumer loans and interest receivable balance as of both March 31, 2026 and 2025 was $5.4 billion, net of participation interest sold.

The balance remained relatively consistent driven by growth in our revolving credit product portfolio in the United Kingdom (“U.K.”) of approximately $270 million as well as an increase in our interest-bearing installment credit product portfolio in the U.S.

of approximately $190 million, offset by the impact of the reclassification of our U.S.

short-term, non-interest bearing installment loans to held for sale in the third quarter of 2025 and the associated forward flow arrangement.

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

September 30,

Percent of consumer loans and interest receivable current

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(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 September 30, 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.

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2026 and 2025, 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 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 and nine months ended September 30, 2025.

Modifications to the acceptable risk parameters did not have a material impact on our consumer loans for the three months ended March 31, 2026.

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 September 30, 2025 and 2024 was $1.7 billion and $1.4 billion, respectively, reflecting an increase of 28%.

The increase was due primarily to growth in our PayPal Business Loans product in the U.S.

of approximately $250 million and growth in our PayPal Working Capital product portfolio, primarily from Germany, the U.S., and the U.K., of approximately $130 million.

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

September 30,

Percent of merchant loans, advances, and interest and fees receivable current 90.2 % 91.3 %

Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding (1)

Total merchant loans, advances, and fees receivable outstanding, net of participation interest sold, as of March 31, 2026 and 2025 was $1.9 billion and $1.6 billion, respectively, reflecting an increase of 18%.

The increase was due primarily to growth of approximately $180 million in our PayPal Business Loans product portfolio in the U.S.

and growth in our PayPal Working Capital product portfolio of approximately $100 million, primarily in Germany.

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

Percent of merchant loans, advances, and fees receivable current 89.4 % 90.0 %

Percent of merchant loans, advances, and fees receivable > 90 days outstanding (1)

Net charge-off rate (2)

(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 September 30, 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.

(2) Net charge-off rate is the annualized ratio of net credit losses during the three months ended March 31, 2026 and 2025, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and fees receivable balance during the same period.

1Q 2026 FORM 10-Q

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 and nine months ended September 30, 2025.

Modifications to the acceptable risk parameters did not have a material impact on our merchant loans for the three months ended March 31, 2026.

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

Customer support and operations

Customer support and operations expenses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

Customer support and operations expenses increased $20 million, or 5%, and decreased $59 million, or 4%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

The increase in the three months ended September 30, 2025 was due primarily to an increase in other operating charges, partially offset by a decline in employee-related costs and software expenses.

The decrease in the nine months ended September 30, 2025 was primarily attributable to a decline in employee-related costs and software expenses, partially offset by an increase in other operating charges.

The increase in customer support and operations expenses in the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to an increase in employee-related and contractor and consulting costs.

Sales and marketing

Sales and marketing expenses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

Sales and marketing expenses increased $13 million, or 3%, and $217 million, or 16%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

The increase in the three months ended September 30, 2025 was due primarily to higher spend on marketing and brand advertising, including our Venmo Everything advertising campaign, partially offset by lower costs associated with Honey rewards programs.

The increase in the nine months ended September 30, 2025 was primarily due to higher spend of approximately $265 million on marketing and brand advertising, including our PayPal Everywhere and Venmo Everything advertising campaigns, partially offset by lower employee-related costs and lower costs associated with Honey rewards programs.

The increase in sales and marketing expenses in the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to higher spend on marketing and brand advertising, predominantly for Venmo, partially offset by lower amortization expense for acquired intangible assets.

Technology and development

Technology and development expenses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

Technology and development expenses increased $55 million, or 7%, and $93 million, or 4%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year due primarily to increases in contractor and consultant costs, costs from cloud computing services utilized in delivering our products and services, and software maintenance costs.

Technology and development expenses in the nine months ended September 30, 2025 were also impacted by an increase in employee-related costs, partially offset by a decline in depreciation and amortization expense.

The increase in technology and development expenses in the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to increases in employee-related costs, software maintenance costs, depreciation and amortization expense, and contractor and consulting costs.

General and administrative

General and administrative expenses for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

General and administrative expenses decreased $6 million, or 1%, and $76 million, or 5%, in the three and nine months ended September 30, 2025 compared to the same periods of the prior year.

The decrease in the three months ended September 30, 2025 was due primarily to a decline in employee-related costs, partially offset by an increase in indirect tax expense.

The decrease in the nine months ended September 30, 2025 was primarily attributable to declines in employee-related costs, indirect tax expense, and contingency reserve compared to the prior period, partially offset by increases in professional services expense and costs associated with enterprise software services.

The decrease in general and administrative expenses in the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to a decline in indirect tax expense and professional services expense, partially offset by an increase in employee-related costs.

Restructuring and other

Restructuring and other for the three and nine months ended September 30, 2025 and 2024 were as follows (in millions):

Restructuring and other increased $6 million and decreased $137 million in the three and nine months ended September 30, 2025, respectively, compared to the same periods of the prior year.

During the second quarter of 2025, management undertook a large-scale initiative (the “2Q 2025 Plan”) to reengineer our existing technology infrastructure to improve scalability, reduce network latency, decrease operational costs, and optimize our workforce.

The 2Q 2025 Plan is a transformative unified program designed to streamline operations and includes exiting certain data centers to migrate to more efficient cloud-based solutions.

The plan is expected to be executed over a period of 18 to 42 months with the workforce component to be substantially completed in 2027 and the technology infrastructure component to be substantially completed in 2028.

The associated restructuring charges during the three and nine months ended September 30, 2025 were de minimis and $96 million and included employee severance and benefits costs.

In connection with this restructuring, we expect to incur employee severance and benefits costs of approximately $90 million to $100 million, asset impairment and accelerated depreciation charges of approximately $40 million to $60 million, and other restructuring costs of approximately $110 million to $140 million over the term of the Q2 2025 Plan.

The 2Q 2025 Plan is expected to be executed over a period of 18 to 42 months with the workforce component expected to be substantially completed in 2026 and the technology infrastructure component expected to be substantially completed in 2028.

The associated restructuring charges during the three months ended March 31, 2026 were $11 million, consisting of $2 million in employee severance and benefits costs and $9 million in other restructuring costs.

In connection with this restructuring, we expect to incur employee severance and benefits costs of approximately $100 million, asset impairment and accelerated depreciation charges of approximately $40 million to $60 million, and other restructuring costs of approximately $110 million to $140 million over the term of the 2Q 2025 Plan.

Other restructuring costs relate to process re-engineering and one-time migration to cloud solutions and consist of contractor costs, consulting fees, and prepaid software and maintenance costs without future economic benefit.

We expect annualized cost savings of approximately $280 million associated with the impacted workforce, including stock-based compensation, and operational costs for our technology infrastructure.

We expect annualized cost savings of approximately $280 million associated with the impacted workforce and operational costs for our technology infrastructure.

We expect that we will begin to realize these cost savings upon the completion of the components of the 2Q 2025 Plan, and also expect to reinvest a portion of the reduction in annual costs to drive business priorities.

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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 nine months ended September 30, 2025 were $36 million and included employee severance and benefits costs, which were completed in the third quarter of 2025.

We do not anticipate cost savings in conjunction with this reduction.

The associated restructuring charges during the three months ended March 31, 2025 were $39 million and included employee severance and benefits costs, which were completed in the third quarter of 2025.

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

During the first quarter of 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 and nine months ended September 30, 2024 were $36 million and $294 million, respectively, 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 and nine months ended September 30, 2025, approximately $70 million and $122 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.

During the three and nine months ended September 30, 2024, approximately $28 million and $92 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.

1Q 2026 FORM 10-Q

During the three months ended March 31, 2026 and 2025, approximately $61 million and $25 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 $93 million and $76 million in the three and nine months ended September 30, 2025 compared to the same periods of the prior year due primarily to net gains on strategic investments in the current periods compared to net losses and impairments in the prior periods, which contributed increases of approximately $180 million and $295 million, respectively, partially offset by declines in interest income of approximately $65 million and $115 million, respectively, resulting from lower average cash and investment balances year-over-year and lower interest rates.

The nine months ended September 30, 2025 was also unfavorably impacted by foreign exchange losses in the current period compared to foreign exchange gains in the prior period and an increase in interest expense due to incremental expense from the March 2025 and May 2024 debt issuances.

The decrease in other income (expense), net in the three months ended March 31, 2026 compared to the same period in the prior year was due primarily to net losses and impairments on strategic investments in the current period compared to net gains in the prior period, which contributed a decrease of approximately $150 million.

Income tax expense

Our effective income tax rate was 19% and 23% for the three months ended September 30, 2025 and 2024, respectively.

The decrease in our effective tax rate for the three months ended September 30, 2025 compared to the same period of the prior year was due primarily to the impact of foreign income taxed at different rates, partially offset by discrete tax adjustments.

Our effective income tax rate was 19% and 23% for the nine months ended September 30, 2025 and 2024, respectively.

The decrease in our effective income tax rate for the nine months ended September 30, 2025 compared to the same period of the prior year was due primarily to discrete tax adjustments including tax effects of stock-based compensation, partially offset by the impact of foreign income taxed at different rates.

Our effective income tax rate was 20% for both the three months ended March 31, 2026 and 2025.

Our effective tax rate remained consistent compared to the same period in the prior year and was impacted by offsetting factors including:

foreign and U.S.

income taxed at different rates and discrete tax adjustments, including tax effects of stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

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Cash, cash equivalents, and investments

The following table summarizes our cash, cash equivalents, and investments as of September 30, 2025 and December 31, 2024:

September 30, 2025 December 31, 2024

The following table summarizes our cash, cash equivalents, and investments as of March 31, 2026 and December 31, 2025:

March 31, 2026 December 31, 2025

(In millions)

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$ 11,661 $ 12,848

(1) Excludes assets related to funds receivable and customer accounts of $38.7 billion and $37.7 billion at September 30, 2025 and December 31, 2024, respectively.

(2) Excludes total restricted cash of nil and $1 million at September 30, 2025 and December 31, 2024, respectively, and strategic investments of $1.6 billion at both September 30, 2025 and December 31, 2024.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $7.1 billion and $8.5 billion at September 30, 2025 and December 31, 2024, or 56% and 61% of our total cash, cash equivalents, and investments as of those respective dates.

(1) Excludes assets related to funds receivable and customer accounts of $39.5 billion and $38.2 billion at March 31, 2026 and December 31, 2025, respectively.

(2) Excludes total strategic investments of $1.8 billion and $1.9 billion at March 31, 2026 and December 31, 2025, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were $6.7 billion and $7.5 billion at March 31, 2026 and December 31, 2025, or 57% and 58% of our total cash, cash equivalents, and investments as of those respective dates.

At December 31, 2025, 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.

taxation under Subpart F, Net Controlled Foreign Corporation Tested Income formally known as 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.

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Accordingly, not all of our cash is available for general corporate purposes.

1Q 2026 FORM 10-Q

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

Nine Months Ended September 30,

Three Months Ended March 31,

(In millions)

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Operating activities

Net cash provided by operating activities declined $1.0 billion in the nine months ended September 30, 2025 compared to the same period of the prior year due primarily to changes in working capital of approximately $920 million driven primarily by a decline in current liabilities and an increase in actual cash transaction losses incurred during the period, an increase of approximately $870 million in originations of loans and interest receivable held for sale, net of sales and repayments, and an impact of approximately $300 million from net gains on strategic investments, partially offset by an increase of approximately $320 million in transaction and credit losses, and a decrease of $210 million in the accretion of discounts on investments, net of amortization premiums.

In both the nine months ended September 30, 2025 and 2024, cash paid for income taxes, net was $1.0 billion.

Net cash provided by operating activities remained relatively consistent in the three months ended March 31, 2026 compared to the same period of the prior year due primarily to the impact of changes in deferred income taxes of approximately $280 million and changes in other current and non-current liabilities of approximately $160 million, mostly offset by the impact of changes in other current and non-current assets of approximately $190 million, net losses on strategic investments of approximately $150 million, and changes in accounts receivable of approximately $100 million.

In the three months ended March 31, 2026 and 2025, cash paid for income taxes, net was $7 million and $95 million, respectively.

Investing activities

Net cash provided by investing activities increased $1.9 billion in the nine months ended September 30, 2025 compared to the same period of the prior year due primarily to an increase of approximately $2.7 billion in maturities and sales, net of purchases of investments, and an increase of approximately $700 million in principal repayments of loans receivable, net of purchases and originations, partially offset by changes related to funds receivable of approximately $1.4 billion.

Net cash used in investing activities decreased $1.5 billion in the three months ended March 31, 2026 compared to the same period of the prior year due primarily to the positive impact of changes in funds receivable of approximately $2.4 billion, partially offset by a decrease of approximately $900 million in maturities and sales, net of purchases of investments.

Financing activities

Net cash used in financing activities decreased $682 million in the nine months ended September 30, 2025 compared to the same period of the prior year due primarily to cash inflows of approximately $1.4 billion from changes related to funds payable and amounts due to customers partially offset by a decline of approximately $850 million in borrowings under financing arrangements, net of repayments.

Net cash used in financing activities increased $1.6 billion in the three months ended March 31, 2026 compared to the same period of the prior year due primarily to an increase of approximately $930 million in repayments of borrowings under financing arrangements, a decrease of approximately $560 million in borrowings under financing arrangements, and the negative impact of changes related to funds payable and amounts due to customers of approximately $320 million, partially offset by an increase of $240 million in collateral received related to derivative instruments, net.

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

Foreign currency exchange rates had a positive impact of $245 million and $103 million on cash, cash equivalents, and restricted cash for the nine months ended September 30, 2025 and 2024, respectively.

The positive impact on cash, cash equivalents, and restricted cash in the nine months ended September 30, 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 positive impact on cash, cash equivalents, and restricted cash in the nine months ended September 30, 2024 was due primarily to the favorable impact of fluctuations in the exchange rate of the U.S.

Foreign currency exchange rates had a negative impact of $50 million and a positive impact of $94 million on cash, cash equivalents, and restricted cash for the three months ended March 31, 2026 and 2025, respectively.

The negative impact on cash, cash equivalents, and restricted cash in the three months ended March 31, 2026 was due primarily to unfavorable fluctuations in the exchange rate of the U.S.

dollar to the British pound.

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.

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 September 30, 2025, we had an aggregate principal amount of $10.9 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.

There were no significant changes to the available credit and debt disclosed in our 2025 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.

1Q 2026 FORM 10-Q

Credit ratings

As of September 30, 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.

As of March 31, 2026, 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.

Our goal is to be rated investment grade, but as circumstances change, various factors 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.

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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”) 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 September 30, 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.

As of March 31, 2026 and December 31, 2025, 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.

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We have entered into forward flow arrangements with third-party investors to sell certain loans receivable portfolios.

In the third quarter of 2025, we entered into an arrangement with a third-party which has a duration of two years and up to $7.0 billion of loans receivable sales over the term.

During the nine months ended September 30, 2025 and 2024, we had net proceeds of $18.2 billion and $14.7 billion, respectively, from loans and interest receivable sold.

During the three months ended March 31, 2026 and 2025, we had net proceeds of $7.4 billion and $5.3 billion, respectively, from loans and interest receivable sold under these arrangements.

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 nine months ended September 30, 2025, we repurchased approximately $4.5 billion of our common stock in the open market under our stock repurchase program authorized in June 2022.

As of September 30, 2025, a total of approximately $355 million and $15.0 billion remained available for future repurchases of our common stock under our June 2022 and February 2025 stock repurchase programs, respectively.

Implementation of dividend program

On October 28, 2025, we announced that our Board of Directors approved the initiation of a quarterly cash dividend program and declared a cash dividend of $0.14 per share on our common stock, totaling approximately $130 million.

The dividend will be payable on December 10, 2025, to stockholders of record of our common stock as of the close of business on November 19, 2025.

Dividend payments in future quarters will be subject to and contingent upon market conditions and approval by our Board of Directors in its sole discretion.

During the three months ended March 31, 2026, we repurchased approximately $1.5 billion of our common stock in the open market under our stock repurchase program authorized in February 2025.

As of March 31, 2026, a total of approximately $12.4 billion remained available for future repurchases of our common stock under our February 2025 stock repurchase program.

1Q 2026 FORM 10-Q

Dividend program

In February 2026, the Company’s Board of Directors declared a cash dividend of $0.14 per share on our common stock, totaling approximately $130 million.

The dividend was paid on March 25, 2026, to stockholders of record of our common stock as of the close of business on March 4, 2026.

Dividend payments in future quarters will be subject to and contingent upon market conditions and approval by our Board of Directors at its sole discretion.

Other considerations

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See Part I, Item 1A, Risk Factors of our 2025 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.

1Q 2026 FORM 10-Q

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