UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2022.~~2023.


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to .

Commission file number 001-36859

PayPal Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Delaware			47-2989869
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification No.)
2211 North First Street	San Jose,	California	95131
(Address of Principal Executive Offices)			(Zip Code)

(408) 967-1000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $0.0001 par value per share	PYPL	NASDAQ Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☒

As of ~~October 28, 2022,~~July 27, 2023, there were ~~1,140,027,732~~1,098,037,471 shares of the registrant’s common stock, $0.0001 par value, outstanding, which is the only class of common or voting stock of the registrant issued.

PayPal Holdings, Inc.

TABLE OF CONTENTS

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(In millions, except par value)					(In millions, except par value)
		(Unaudited)					(Unaudited)
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	6,659	$	5,197	Cash and cash equivalents	$	5,504	$	7,776
Short-term investments	Short-term investments	4,190		4,303		Short-term investments	4,398		3,092
Accounts receivable, net	Accounts receivable, net	889		800		Accounts receivable, net	928		963
Loans and interest receivable, net of allowances of $478 and $491 as of September 30, 2022 and December 31, 2021, respectively		6,002		4,846

Loans and interest receivable, held for sale						Loans and interest receivable, held for sale	1,903		—
Loans and interest receivable, net of allowances of $617 and $598 as of June 30, 2023 and December 31, 2022, respectively						Loans and interest receivable, net of allowances of $617 and $598 as of June 30, 2023 and December 31, 2022, respectively	5,547		7,431
Funds receivable and customer accounts	Funds receivable and customer accounts	34,824		36,141		Funds receivable and customer accounts	33,643		36,264
Prepaid expenses and other current assets	Prepaid expenses and other current assets	2,541		1,287		Prepaid expenses and other current assets	2,202		1,898
Total current assets	Total current assets	55,105		52,574		Total current assets	54,125		57,424
Long-term investments	Long-term investments	5,215		6,797		Long-term investments	4,543		5,018
Property and equipment, net	Property and equipment, net	1,773		1,909		Property and equipment, net	1,589		1,730
Goodwill	Goodwill	11,053		11,454		Goodwill	11,067		11,209
Intangible assets, net	Intangible assets, net	855		1,332		Intangible assets, net	640		788
Other assets	Other assets	2,434		1,737		Other assets	2,615		2,455
Total assets	Total assets	$	76,435	$	75,803	Total assets	$	74,579	$	78,624
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	114	$	197	Accounts payable	$	137	$	126

Funds payable and amounts due to customers	Funds payable and amounts due to customers	37,824		38,841		Funds payable and amounts due to customers	37,393		40,014
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	4,638		3,755		Accrued expenses and other current liabilities	3,433		4,055
Income taxes payable	Income taxes payable	652		236		Income taxes payable	791		813
Total current liabilities	Total current liabilities	43,228		43,029		Total current liabilities	41,754		45,008
Deferred tax liability and other long-term liabilities	Deferred tax liability and other long-term liabilities	2,702		2,998		Deferred tax liability and other long-term liabilities	2,615		2,925
Long-term debt	Long-term debt	10,241		8,049		Long-term debt	10,549		10,417
Total liabilities	Total liabilities	56,171		54,076		Total liabilities	54,918		58,350
Commitments and contingencies (Note 13)	Commitments and contingencies (Note 13)					Commitments and contingencies (Note 13)
Equity:	Equity:					Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,147 and 1,168 shares outstanding as of September 30, 2022 and December 31, 2021, respectively		—		—
Common stock, $0.0001 par value; 4,000 shares authorized; 1,102 and 1,136 shares outstanding as of June 30, 2023 and December 31, 2022, respectively						Common stock, $0.0001 par value; 4,000 shares authorized; 1,102 and 1,136 shares outstanding as of June 30, 2023 and December 31, 2022, respectively	—		—
Preferred stock, $0.0001 par value; 100 shares authorized, unissued	Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—		—		Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—		—
Treasury stock at cost, 161 and 132 shares as of September 30, 2022 and December 31, 2021, respectively		(15,069)		(11,880)
Treasury stock at cost, 214 and 173 shares as of June 30, 2023 and December 31, 2022, respectively						Treasury stock at cost, 214 and 173 shares as of June 30, 2023 and December 31, 2022, respectively	(19,064)		(16,079)
Additional paid-in-capital	Additional paid-in-capital	17,981		17,208		Additional paid-in-capital	18,943		18,327
Retained earnings	Retained earnings	18,033		16,535		Retained earnings	20,778		18,954
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(681)		(136)		Accumulated other comprehensive income (loss)	(996)		(928)

Total equity	Total equity	20,264		21,727		Total equity	19,661		20,274
Total liabilities and equity	Total liabilities and equity	$	76,435	$	75,803	Total liabilities and equity	$	74,579	$	78,624

The accompanying notes are an integral part of these condensed consolidated financial statements.


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Table of Contents

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions, except per share data)									(In millions, except per share data)
		(Unaudited)									(Unaudited)
Net revenues	Net revenues	$	6,846	$	6,182	$	20,135	$	18,453	Net revenues	$	7,287	$	6,806	$	14,327	$	13,289
Operating expenses:	Operating expenses:									Operating expenses:
Transaction expense	Transaction expense	2,988		2,564		8,849		7,363		Transaction expense	3,541		3,044		6,824		5,861
Transaction and credit losses	Transaction and credit losses	367		268		1,184		710		Transaction and credit losses	398		448		840		817
Customer support and operations	Customer support and operations	509		504		1,579		1,543		Customer support and operations	492		536		980		1,070
Sales and marketing	Sales and marketing	544		549		1,733		1,779		Sales and marketing	465		595		901		1,189
Technology and development	Technology and development	801		755		2,431		2,242		Technology and development	743		815		1,464		1,630
General and administrative	General and administrative	463		498		1,584		1,544		General and administrative	491		514		998		1,121
Restructuring and other charges	Restructuring and other charges	56		1		182		60		Restructuring and other charges	24		90		188		126
Total operating expenses	Total operating expenses	5,728		5,139		17,542		15,241		Total operating expenses	6,154		6,042		12,195		11,814
Operating income	Operating income	1,118		1,043		2,593		3,212		Operating income	1,133		764		2,132		1,475
Other income (expense), net	Other income (expense), net	460		122		(337)		181		Other income (expense), net	170		(715)		245		(797)
Income before income taxes	Income before income taxes	1,578		1,165		2,256		3,393		Income before income taxes	1,303		49		2,377		678
Income tax expense	Income tax expense	248		78		758		25		Income tax expense	274		390		553		510
Net income (loss)	Net income (loss)	$	1,330	$	1,087	$	1,498	$	3,368	Net income (loss)	$	1,029	$	(341)	$	1,824	$	168

Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	1.15	$	0.93	$	1.29	$	2.87	Basic	$	0.93	$	(0.29)	$	1.63	$	0.14
Diluted	Diluted	$	1.15	$	0.92	$	1.29	$	2.84	Diluted	$	0.92	$	(0.29)	$	1.62	$	0.14

Weighted average shares:	Weighted average shares:									Weighted average shares:
Basic	Basic	1,154		1,174		1,159		1,174		Basic	1,111		1,158		1,120		1,161
Diluted	Diluted	1,157		1,187		1,163		1,187		Diluted	1,114		1,158		1,124		1,166

The accompanying notes are an integral part of these condensed consolidated financial statements.


									5

Table of Contents

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
		(Unaudited)									(Unaudited)
Net income (loss)	Net income (loss)	$	1,330	$	1,087	$	1,498	$	3,368	Net income (loss)	$	1,029	$	(341)	$	1,824	$	168
Other comprehensive income (loss), net of reclassification adjustments:	Other comprehensive income (loss), net of reclassification adjustments:									Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)	Foreign currency translation adjustments (“CTA”)	(206)		(29)		(601)		(51)		Foreign currency translation adjustments (“CTA”)	(216)		(300)		(236)		(395)
Net investment hedges CTA gains, net	Net investment hedges CTA gains, net	97		—		253		—		Net investment hedges CTA gains, net	169		135		196		156
Tax expense on net investment hedges CTA gains, net	Tax expense on net investment hedges CTA gains, net	(23)		—		(59)		—		Tax expense on net investment hedges CTA gains, net	(39)		(31)		(45)		(36)
Unrealized gains on cash flow hedges, net		138		204		348		434
Tax expense on unrealized gains on cash flow hedges, net		(7)		(7)		(18)		(10)
Unrealized losses on investments, net		(157)		—		(614)		(17)
Tax benefit on unrealized losses on investments, net		41		—		146		4
Unrealized (losses) gains on cash flow hedges, net										Unrealized (losses) gains on cash flow hedges, net	(23)		213		(134)		210
Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net										Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net	1		(11)		7		(11)
Unrealized gains (losses) on investments, net										Unrealized gains (losses) on investments, net	13		(164)		188		(457)
Tax (expense) benefit on unrealized gains (losses) on investments, net										Tax (expense) benefit on unrealized gains (losses) on investments, net	(3)		38		(44)		105
Other comprehensive income (loss), net of tax	Other comprehensive income (loss), net of tax	(117)		168		(545)		360		Other comprehensive income (loss), net of tax	(98)		(120)		(68)		(428)
Comprehensive income (loss)	Comprehensive income (loss)	$	1,213	$	1,255	$	953	$	3,728	Comprehensive income (loss)	$	931	$	(461)	$	1,756	$	(260)

The accompanying notes are an integral part of these condensed consolidated financial statements.


									6

Table of Contents

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Common Stock
Shares Treasury Stock Additional Paid-In Capital Accumulated Other
Comprehensive Income (Loss) Retained Earnings Total
Equity
(In millions)
(Unaudited)
Balances at December 31, 2021 1,168 $ (11,880) $ 17,208 $ (136) $ 16,535 $ 21,727
Net income — — — — 509 509
Foreign CTA — — — (95) — (95)
Net investment hedges CTA gains, net — — — 21 — 21
Tax expense on net investment hedges CTA gains, net — — — (5) — (5)
Unrealized losses on cash flow hedges, net — — — (3) — (3)
Unrealized losses on investments, net — — — (293) — (293)
Tax benefit on unrealized losses on investments, net — — — 67 — 67
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 4 — (273) — — (273)
Common stock repurchased (11) (1,500) — — — (1,500)
Stock-based compensation — — 447 — — 447
Other — — 1 — — 1
Balances at March 31, 2022 1,161 $ (13,380) $ 17,383 $ (444) $ 17,044 $ 20,603
Net loss — — — — (341) (341)
Foreign CTA — — — (300) — (300)
Net investment hedge CTA gains, net — — — 135 — 135
Tax expense on net investment hedges CTA gains, net — — — (31) — (31)
Unrealized gains on cash flow hedges, net — — — 213 — 213
Tax expense on unrealized gains on cash flow hedges, net — — — (11) — (11)
Unrealized losses on investments, net — — — (164) — (164)
Tax benefit on unrealized losses on investments, net — — — 38 — 38
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 3 — 51 — — 51
Common stock repurchased (8) (750) — — — (750)
Stock-based compensation — — 324 — — 324
Balances at June 30, 2022 1,156 $ (14,130) $ 17,758 $ (564) $ 16,703 $ 19,767
Net income — — — — 1,330 1,330
Foreign CTA — — — (206) — (206)
Net investment hedge CTA gains, net — — — 97 — 97
Tax expense on net investment hedges CTA gains, net — — — (23) — (23)
Unrealized gains on cash flow hedges, net — — — 138 — 138
Tax expense on unrealized gains on cash flow hedges, net — — — (7) — (7)
Unrealized losses on investments, net — — — (157) — (157)
Tax benefit on unrealized losses on investments, net — — — 41 — 41
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes 1 — (14) — — (14)
Common stock repurchased (10) (939) — — — (939)
Stock-based compensation — — 237 — — 237
Balances at September 30, 2022 1,147 $ (15,069) $ 17,981 $ (681) $ 18,033 $ 20,264


	Common Stock Shares	Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Equity

	(In millions)
	(Unaudited)
Balances at December 31, 2022	1,136	$	(16,079)	$	18,327	$	(928)	$	18,954	$	20,274

Net income	—	—		—		—		795		795
Foreign CTA	—	—		—		(20)		—		(20)
Net investment hedges CTA gains, net	—	—		—		27		—		27
Tax expense on net investment hedges CTA gains, net	—	—		—		(6)		—		(6)
Unrealized losses on cash flow hedges, net	—	—		—		(111)		—		(111)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		6		—		6
Unrealized gains on investments, net	—	—		—		175		—		175
Tax expense on unrealized gains on investments, net	—	—		—		(41)		—		(41)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	5	—		(157)		—		—		(157)
Common stock repurchased	(19)	(1,443)		—		—		—		(1,443)

Stock-based compensation	—	—		359		—		—		359

Balances at March 31, 2023	1,122	$	(17,522)	$	18,529	$	(898)	$	19,749	$	19,858
Net income	—	—		—		—		1,029		1,029
Foreign CTA	—	—		—		(216)		—		(216)
Net investment hedges CTA gains, net	—	—		—		169		—		169
Tax expense on net investment hedges CTA gains, net	—	—		—		(39)		—		(39)
Unrealized losses on cash flow hedges, net	—	—		—		(23)		—		(23)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		1		—		1
Unrealized gains on investments, net	—	—		—		13		—		13
Tax expense on unrealized gains on investments, net	—	—		—		(3)		—		(3)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	2	—		39		—		—		39
Common stock repurchased	(22)	(1,542)		—		—		—		(1,542)
Stock-based compensation	—	—		375		—		—		375
Balances at June 30, 2023	1,102	$	(19,064)	$	18,943	$	(996)	$	20,778	$	19,661


									7

Table of Contents

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ ~~EQUITY~~ EQUITY—(continued)


		Common Stock Shares		Treasury Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)				Retained Earnings		Noncontrolling Interest				Total Equity				Common Stock Shares				Treasury Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total Equity

			(In millions)																						(In millions)
		(Unaudited)																						(Unaudited)
Balances at December 31, 2020		1,172				$	(8,507)					$	16,644					$	(484)			$	12,366			$	44			$	20,063
Balances at December 31, 2021																						Balances at December 31, 2021		1,168				$	(11,880)			$	17,208	$	(136)	$	16,535	$	21,727
Net income	Net income	—		—				—		—				1,097		—				1,097		Net income		—				—				—		—		509		509
Foreign CTA	Foreign CTA	—		—				—		(53)				—		—				(53)		Foreign CTA		—				—				—		(95)		—		(95)
Net investment hedges CTA gains, net																						Net investment hedges CTA gains, net		—				—				—		21		—		21
Tax expense on net investment hedges CTA gains, net																						Tax expense on net investment hedges CTA gains, net		—				—				—		(5)		—		(5)
Unrealized losses on cash flow hedges, net																						Unrealized losses on cash flow hedges, net		—				—				—		(3)		—		(3)

Unrealized losses on investments, net																						Unrealized losses on investments, net		—				—				—		(293)		—		(293)
Tax benefit on unrealized losses on investments, net																						Tax benefit on unrealized losses on investments, net		—				—				—		67		—		67
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes																						Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes		4				—				(273)		—		—		(273)
Common stock repurchased																						Common stock repurchased		(11)				(1,500)				—		—		—		(1,500)
Stock-based compensation																						Stock-based compensation		—				—				447		—		—		447

Other																						Other		—				—				1		—		—		1
Balances at March 31, 2022																						Balances at March 31, 2022		1,161				$	(13,380)			$	17,383	$	(444)	$	17,044	$	20,603
Net loss																						Net loss		—				—				—		—		(341)		(341)
Foreign CTA																						Foreign CTA		—				—				—		(300)		—		(300)
Net investment hedges CTA gains, net																						Net investment hedges CTA gains, net		—				—				—		135		—		135
Tax expense on net investment hedges CTA gains, net																						Tax expense on net investment hedges CTA gains, net		—				—				—		(31)		—		(31)
Unrealized gains on cash flow hedges, net	Unrealized gains on cash flow hedges, net	—		—				—		198				—		—				198		Unrealized gains on cash flow hedges, net		—				—				—		213		—		213
Tax expense on unrealized gains on cash flow hedges, net	Tax expense on unrealized gains on cash flow hedges, net	—		—				—		(3)				—		—				(3)		Tax expense on unrealized gains on cash flow hedges, net		—				—				—		(11)		—		(11)
Unrealized losses on investments, net	Unrealized losses on investments, net	—		—				—		(15)				—		—				(15)		Unrealized losses on investments, net		—				—				—		(164)		—		(164)
Tax benefit on unrealized losses on investments, net	Tax benefit on unrealized losses on investments, net	—		—				—		4				—		—				4		Tax benefit on unrealized losses on investments, net		—				—				—		38		—		38
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	7		—				(870)		—				—		—				(870)		Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes		3				—				51		—		—		51
Common stock repurchased	Common stock repurchased	(5)		(1,323)				—		—				—		—				(1,323)		Common stock repurchased		(8)				(750)				—		—		—		(750)
Stock-based compensation	Stock-based compensation	—		—				387		—				—		—				387		Stock-based compensation		—				—				324		—		—		324
Change in noncontrolling interest		—		—				—		—				—		(44)				(44)
Balances at March 31, 2021		1,174		$	(9,830)			$	16,161	$	(353)			$	13,463	$	—			$	19,441
Net income		—		—				—		—				1,184		—				1,184
Foreign CTA		—		—				—		31				—		—				31

Unrealized gains on cash flow hedges, net		—		—				—		32				—		—				32

Unrealized losses on investments, net		—		—				—		(2)				—		—				(2)

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes		2		—				12		—				—		—				12
Common stock repurchased		(1)		(200)				—		—				—		—				(200)
Stock-based compensation		—		—				407		—				—		—				407
Balances at June 30, 2021		1,175		$	(10,030)			$	16,580	$	(292)			$	14,647	$	—			$	20,905
Net income		—		—				—		—				1,087						1,087
Foreign CTA		—		—				—		(29)				—		—				(29)
Unrealized gains on cash flow hedges, net		—		—				—		204				—		—				204
Tax expense on unrealized gains on cash flow hedges, net		—		—				—		(7)				—		—				(7)
Balances at June 30, 2022																						Balances at June 30, 2022		1,156				$	(14,130)			$	17,758	$	(564)	$	16,703	$	19,767

Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes		—		—				(37)		—				—		—				(37)
Common stock repurchased		(1)		(350)				—		—				—		—				(350)
Stock-based compensation		—		—				317		—				—		—				317
Balances at September 30, 2021		1,174		$	(10,380)			$	16,860	$	(124)			$	15,734	$	—			$	22,090

The accompanying notes are an integral part of these condensed consolidated financial statements.


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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
		(In millions)					(In millions)
		(Unaudited)					(Unaudited)
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income		$	1,498	$	3,368
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	1,824	$	168
Adjustments to reconcile net income (loss) to net cash provided by operating activities:						Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Transaction and credit losses	Transaction and credit losses	1,184		710		Transaction and credit losses	840		817
Depreciation and amortization	Depreciation and amortization	991		939		Depreciation and amortization	539		661
Stock-based compensation	Stock-based compensation	967		1,058		Stock-based compensation	708		741
Deferred income taxes	Deferred income taxes	(538)		(175)		Deferred income taxes	(146)		(457)
Net (gains) losses on strategic investments	Net (gains) losses on strategic investments	163		(336)		Net (gains) losses on strategic investments	(181)		658
Adjustments to loans and interest receivable, held for sale						Adjustments to loans and interest receivable, held for sale	34		—
Other	Other	567		92		Other	(276)		295
Originations of loans receivable, held for sale						Originations of loans receivable, held for sale	(1,521)		—
Proceeds from repayments of loans receivable, originally classified as held for sale						Proceeds from repayments of loans receivable, originally classified as held for sale	302		—
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable	Accounts receivable	(89)		(155)		Accounts receivable	36		(67)

Accounts payable	Accounts payable	(55)		(50)		Accounts payable	(12)		(27)
Income taxes payable	Income taxes payable	109		18		Income taxes payable	(326)		86
Other assets and liabilities	Other assets and liabilities	(141)		(892)		Other assets and liabilities	(851)		(408)
Net cash provided by operating activities	Net cash provided by operating activities	4,656		4,577		Net cash provided by operating activities	970		2,467
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchases of property and equipment	Purchases of property and equipment	(548)		(695)		Purchases of property and equipment	(320)		(366)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	5		3		Proceeds from sales of property and equipment	40		5
Purchases and originations of loans receivable	Purchases and originations of loans receivable	(19,167)		(8,241)		Purchases and originations of loans receivable	(15,167)		(12,300)
Principal repayment of loans receivable		17,164		7,598
Proceeds from repayments of loans receivable, originally classified as held for investment						Proceeds from repayments of loans receivable, originally classified as held for investment	15,990		10,910
Purchases of investments	Purchases of investments	(16,455)		(30,905)		Purchases of investments	(10,523)		(13,151)
Maturities and sales of investments	Maturities and sales of investments	16,770		30,390		Maturities and sales of investments	10,742		11,087
Acquisitions, net of cash and restricted cash acquired		—		(469)

Funds receivable	Funds receivable	(1,085)		(37)		Funds receivable	759		(882)
Collateral posted related to derivative instruments, net						Collateral posted related to derivative instruments, net	(11)		5
Other investing activities	Other investing activities	30		—		Other investing activities	83		30
Net cash used in investing activities		(3,286)		(2,356)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	1,593		(4,662)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from issuance of common stock	Proceeds from issuance of common stock	86		90		Proceeds from issuance of common stock	82		86
Purchases of treasury stock	Purchases of treasury stock	(3,189)		(1,873)		Purchases of treasury stock	(2,961)		(2,250)
Tax withholdings related to net share settlements of equity awards	Tax withholdings related to net share settlements of equity awards	(321)		(978)		Tax withholdings related to net share settlements of equity awards	(200)		(275)
Borrowings under financing arrangements	Borrowings under financing arrangements	3,346		—		Borrowings under financing arrangements	720		3,288
Repayments under financing arrangements	Repayments under financing arrangements	(1,686)		—		Repayments under financing arrangements	(942)		(1,686)
Funds payable and amounts due to customers	Funds payable and amounts due to customers	(659)		2,575		Funds payable and amounts due to customers	(2,578)		1,586
Collateral received related to derivative instruments, net						Collateral received related to derivative instruments, net	(175)		236
Other financing activities	Other financing activities	1		—		Other financing activities	—		1
Net cash used in financing activities		(2,422)		(186)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash		(253)		(106)
Net change in cash, cash equivalents, and restricted cash		(1,305)		1,929
Cash, cash equivalents, and restricted cash at beginning of period		18,029		18,040
Cash, cash equivalents, and restricted cash at end of period		$	16,724	$	19,969
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(6,054)		986


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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
		(In millions)					(In millions)
							(Unaudited)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash						Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(50)		(136)
Net change in cash, cash equivalents, and restricted cash						Net change in cash, cash equivalents, and restricted cash	(3,541)		(1,345)
Cash, cash equivalents, and restricted cash at beginning of period						Cash, cash equivalents, and restricted cash at beginning of period	19,156		18,029
Cash, cash equivalents, and restricted cash at end of period						Cash, cash equivalents, and restricted cash at end of period	$	15,615	$	16,684
		(Unaudited)
Supplemental cash flow disclosures:	Supplemental cash flow disclosures:					Supplemental cash flow disclosures:
Cash paid for interest	Cash paid for interest	$	114	$	121	Cash paid for interest	$	167	$	112
Cash paid for income taxes, net	Cash paid for income taxes, net	$	666	$	436	Cash paid for income taxes, net	$	906	$	444

The table below reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:	The table below reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:					The table below reconciles cash, cash equivalents, and restricted cash as reported in the condensed consolidated balance sheets to the total of the same amounts shown in the condensed consolidated statements of cash flows:
Cash and cash equivalents	Cash and cash equivalents	$	6,659	$	7,782	Cash and cash equivalents	$	5,504	$	4,583
Short-term investments	Short-term investments	21		23		Short-term investments	11		22
Funds receivable and customer accounts	Funds receivable and customer accounts	10,044		12,164		Funds receivable and customer accounts	10,100		12,079
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	16,724	$	19,969	Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	15,615	$	16,684

The accompanying notes are an integral part of these condensed consolidated financial statements.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

OVERVIEW AND ORGANIZATION

PayPal Holdings, Inc. (“PayPal,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in January 2015 and is a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide. PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world. Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments.

We operate globally and in a rapidly evolving regulatory environment characterized by a heightened focus by regulators globally on all aspects of the payments industry, including countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, ~~are continuing~~continue to evolve through legislative and regulatory action and judicial interpretation. New or changing laws and regulations, including ~~the~~ changes to their interpretation and implementation, as well as increased penalties and enforcement actions related to non-compliance, could have a material adverse impact on our business, results of operations, and financial condition. We monitor these areas closely and are focused on designing compliant solutions for our customers.

SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The accompanying condensed consolidated financial statements include the financial statements of PayPal and our wholly- and majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Investments in entities where we have the ability to exercise significant influence, but not control, over the investee are accounted for using the equity method of accounting. For such investments, our share of the investee’s results of operations is included in other income (expense), net on our condensed consolidated statements of income (loss). Investments in entities where we do not have the ability to exercise significant influence over the investee are accounted for at fair value or cost minus impairment, if any, adjusted for changes resulting from observable price changes, which are included in other income (expense), net on our condensed consolidated statements of income (loss). Our investment balance is included in long-term investments on our condensed consolidated balance sheets.

We determine at the inception of each investment, and re-evaluate if certain events occur, whether an entity in which we have made an investment is considered a variable interest entity (“VIE”). If we determine an investment is in a VIE, we then assess if we are the primary beneficiary, which would require consolidation.

As of December 31, 2021, we had consolidated two VIEs that provided financing for and held loans receivable of Paidy, Inc. (“Paidy”). We were the primary beneficiary of the VIEs as we performed the servicing and collection for the loans receivable, which were the activities that most significantly impacted the VIE’s economic performance, and we had the obligation to absorb the losses and/or the right to receive the benefits of the VIE that could potentially be significant to these entities. The financial results of our consolidated VIEs were included in our condensed consolidated financial statements. As of December 31, 2021, the carrying value of the assets and liabilities of our consolidated VIEs was included as short-term investments of $87 million, loans and interest receivable, net of $21 million, and long-term debt of $98 million. Cash of $87 million, included in short-term investments, was restricted to settle the debt obligations. In the first quarter of 2022, we terminated Paidy’s legacy debt structure and replaced it with a new credit agreement executed in February 2022. As a result, we no longer have any consolidated VIEs as of SeptemberJune 30, ~~2022. See “Note 12—Debt” for additional information.~~

~~As of September 30, 2022~~2023 and December 31, ~~2021,~~2022, no VIEs qualified for consolidation as the structures of these entities do not provide us with the ability to direct activities that would significantly impact their economic performance. As of June 30, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was ~~$116~~$146 million and ~~$74~~$128 million, respectively, and is included ~~in long-term investments on our condensed consolidated balance sheets~~ as non-marketable equity securities applying the equity method of ~~accounting.~~accounting in long-term investments on our condensed consolidated balance sheets. Our maximum exposure to loss related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was ~~$231~~$233 million and ~~$205~~$232 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the ~~“2021~~“2022 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February ~~3, 2022.~~10, 2023.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the condensed consolidated financial statements for all interim periods presented. Certain amounts for prior periods have been reclassified to conform to the financial statement presentation as of and for the three and ~~nine~~six months ended ~~September~~June 30, 2023.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Reclassifications

Beginning with the fourth quarter of 2022, we reclassified certain cash flows related to our collateral security arrangements for derivative instruments from cash flows from operating activities to cash flows from investing activities and cash flows from financing activities within the condensed consolidated statements of cash flows. Prior period amounts have been reclassified to conform to the current period presentation.

The current period presentation classifies all changes in collateral posted and collateral received related to derivative instruments on our condensed consolidated statements of cash flows as cash flows from investing activities and cash flows from financing activities, respectively. We believe that the current period presentation provides a more meaningful representation of the nature of the cash flows and allows for greater transparency as the cash flows related to the derivatives impact operating cash flows upon settlement exclusive of the offsetting cash flows from collateral.

The following table presents the effects of the changes on the presentation of these cash flows to the previously reported condensed consolidated statements of cash flows:


	Six Months Ended June 30, 2022
	(In millions)

	As Previously Reported (1)		Adjustments		Reclassified

Net cash provided by (used in):
Operating activities(2)	$	2,708	$	(241)	$	2,467
Investing activities(3)	(4,667)		5		(4,662)
Financing activities(4)	750		236		986
Effect of exchange rates on cash, cash equivalents, and restricted cash	(136)		—		(136)
Net decrease in cash, cash equivalents, and restricted cash	$	(1,345)	$	—	$	(1,345)

(1) As reported in our Form 10-Q for the quarter ended June 30, 2022 filed with the SEC on August 3, 2022.

(2) Financial statement line impacted in operating activities was “Other assets and liabilities.”

(3) Financial statement line impacted in investing activities was “Collateral posted related to derivative instruments, net.”

(4) Financial statement line impacted in financing activities was “Collateral received related to derivative instruments, net.”

Use of estimates

The preparation of condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to provisions for transaction and credit losses, income taxes, loss contingencies, revenue recognition, ~~and~~ the valuation of goodwill and intangible ~~assets.~~assets, and the valuation of strategic investments. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. Actual results could materially differ ~~materially~~ from these estimates.

~~Recent~~Loans and interest receivable, held for sale

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

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of U.K. and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivable, held for sale at the closing of the transaction and a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (together, “eligible consumer installment receivables”). Following the closing of this transaction, which is expected to occur in the second half of 2023, the global investment firm will become the owner of the eligible consumer installment receivables and we will no longer hold an ownership interest in these receivables. We will maintain the servicing rights and receive a servicing fee for the entire pool of the eligible consumer installment receivables outstanding.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other charges on our condensed consolidated statements of income (loss). Prior to the decision to sell, this portfolio was reported at outstanding principal balances, net of allowances, including unamortized deferred origination costs and estimated collectible interest and fees. At the time of reclassification, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $33 million in transaction and credit losses in our condensed consolidated statements of income (loss) for the three and six months ended June 30, 2023. Interest income on interest bearing held-for-sale loans is accrued and recognized based on the contractual rate of interest.

Recently adopted accounting guidance

In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-02, Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures (Topic 326): Financial Instruments – Credit Losses. This amended guidance ~~will eliminate~~eliminated the accounting designation of a loan modification as a TDR ~~including eliminating~~and the measurement guidance for TDRs. The amendments also ~~enhance~~enhanced existing disclosure requirements and ~~introduce~~introduced new requirements related to modifications of receivables due from borrowers experiencing financial difficulty. Additionally, this guidance ~~requires~~required entities to disclose gross ~~write-offs~~charge-offs by year of origination for financing receivables, such as loans and interest receivable. The amended guidance iswas effective for fiscal years beginning after December 15, 2022 and iswas required to be applied prospectively, except for the recognition and measurement of TDRs, which ~~can~~could be applied on a modified retrospective basis. We ~~have concluded that our financial statements will not be materially impacted upon adoption. We will adopt the~~adopted this guidance oneffective January 1, 2023 on a prospective ~~basis and expand certain disclosures as required.~~

~~In 2020, the FASB issued ASU 2020-04,~~ ~~Reference Rate Reform~~ ~~(Topic 848):~~ ~~Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~. This amended guidance provides transition relief for the accounting impact of reference rate reform. For a limited period, this guidance provides optional expedients and exceptions for applying GAAP to certain contract modifications, hedging relationships, and other transactions affected by a reference rate expected to be discontinued due to reference rate reform. The amended guidance is effective through December 31, 2022.basis. Our exposure to London Interbank Offered Rate is primarily limited to an insignificant portion of our available-for-sale debt securities. Accordingly, we do not expect reference rate reform to have a material impact on our condensed consolidated financial statements.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

~~Recently adopted accounting guidance~~

In March 2022, the SEC released Staff Accounting Bulletin No. 121 (“SAB 121”), which provides guidance for an entity to consider when it has obligations to safeguard customers’ crypto assets, whether directly or through an agent or another third party acting on its behalf. The interpretive guidance requires a reporting entity to record a liability to reflect its obligation to safeguard the crypto assets held for its platform users with a corresponding safeguarding asset. The crypto asset safeguarding liability and the corresponding safeguarding asset will be measured at the fair value of the crypto assets held for the platform users with the measurement of the safeguarding asset taking into account any potential loss events. SAB 121 also requires disclosures related to the entity’s safeguarding obligations for crypto assets held for its platform users. SAB 121 is effective in the first interim or annual financial statements ending after June 15, 2022 with retrospective application as of the beginning of the fiscal year. We adopted this guidance for the quarter ended June 30, 2022 with retrospective application as of January 1, 2022. As of June 30, 2022, we recorded $596 million for both the crypto asset safeguarding liability and corresponding safeguarding asset, which are classified as accrued expenses and other current liabilities and prepaid expenses and other current assets, respectively, on our condensed consolidated balance sheet.were not materially impacted upon adoption. For additional information, see “Note ~~7—Other Financial Statement Details.~~11—Loans and Interest Receivable.”

There are other new accounting pronouncements issued by the FASB that we have adopted or will adopt, as applicable. We do not believe any of these accounting pronouncements have had, or will have, a material impact on our condensed consolidated financial statements or disclosures.

NOTE 2—REVENUE

We enable our customers to send and receive payments. We earn revenue primarily by completing payment transactions for our customers on our payments platform and from other value added services. Our revenues are classified into two categories: transaction revenues and revenues from other value added services.

DISAGGREGATION OF REVENUE

We determine operating segments based on how our chief operating decision maker (“CODM”) manages the business, makes operating decisions around the allocation of resources, and evaluates operating performance. Our CODM is our Chief Executive Officer, who regularly reviews our operating results on a consolidated basis. We operate as one segment and have one reportable segment. Based on the information provided to and reviewed by our CODM, we believe that the nature, amount, timing, and uncertainty of our revenue and cash flows and how they are affected by economic factors are most appropriately depicted through our primary geographical markets and types of revenue categories (transaction revenues and revenues from other value added services). Revenues recorded within these categories are earned from similar products and services for which the nature of associated fees and the related revenue recognition models are substantially the same.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table presents our revenue disaggregated by primary geographical market and category:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Primary geographical markets	Primary geographical markets									Primary geographical markets
U.S.	U.S.	$	3,978	$	3,476	$	11,512	$	9,811	U.S.	$	4,210	$	3,863	$	8,357	$	7,534
United Kingdom (“U.K.”)		490		529		1,552		1,741

Other countries(1)	Other countries(1)	2,378		2,177		7,071		6,901		Other countries(1)	3,077		2,943		5,970		5,755
Total net revenues(2)	Total net revenues(2)	$	6,846	$	6,182	$	20,135	$	18,453	Total net revenues(2)	$	7,287	$	6,806	$	14,327	$	13,289

Revenue category	Revenue category									Revenue category
Transaction revenues	Transaction revenues	$	6,234	$	5,607	$	18,504	$	17,025	Transaction revenues	$	6,556	$	6,272	$	12,920	$	12,270
Revenues from other value added services	Revenues from other value added services	612		575		1,631		1,428		Revenues from other value added services	731		534		1,407		1,019
Total net revenues(2)	Total net revenues(2)	$	6,846	$	6,182	$	20,135	$	18,453	Total net revenues(2)	$	7,287	$	6,806	$	14,327	$	13,289

(1) No single country included in the other countries category generated more than 10% of total net revenues.

(2) Total net revenues include ~~$391~~$452 million and ~~$168~~$296 million for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$874~~$903 million and ~~$289~~$483 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, which do not represent revenues recognized in the scope of Accounting Standards Codification Topic 606, Revenue from contracts with customers. Such revenues relate to interest and fees earned on loans and interest receivable, ~~as well as~~including loans and interest receivable held for sale, hedging gains or losses, and interest earned on certain assets underlying customer balances.

Net revenues are attributed to the country in which the ~~merchant~~party paying our fee is located, or in the case of a cross-border transaction, may be earned from the country in which the consumer and the merchant respectively reside. Revenues earned from other value added services are typically attributed to the country in which either the customer or partner reside.located.

NOTE 3—NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common ~~shares~~stock outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding for the period. The dilutive effect of outstanding equity incentive awards is reflected in diluted net income (loss) per share by application of the treasury stock method. The calculation of diluted net income (loss) per share excludes all anti-dilutive common shares. During periods when we report net loss, diluted net loss per share is the same as basic net loss per share because the effects of potentially dilutive items would decrease the net loss per share.

The following table sets forth the computation of basic and diluted net income (loss) per share for the periods indicated:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions, except per share amounts)									(In millions, except per share amounts)
Numerator:	Numerator:									Numerator:
Net income (loss)	Net income (loss)	$	1,330	$	1,087	$	1,498	$	3,368	Net income (loss)	$	1,029	$	(341)	$	1,824	$	168
Denominator:	Denominator:									Denominator:
Weighted average shares of common stock - basic	Weighted average shares of common stock - basic	1,154		1,174		1,159		1,174		Weighted average shares of common stock - basic	1,111		1,158		1,120		1,161
Dilutive effect of equity incentive awards	Dilutive effect of equity incentive awards	3		13		4		13		Dilutive effect of equity incentive awards	3		—		4		5
Weighted average shares of common stock - diluted	Weighted average shares of common stock - diluted	1,157		1,187		1,163		1,187		Weighted average shares of common stock - diluted	1,114		1,158		1,124		1,166
Net income (loss) per share:	Net income (loss) per share:									Net income (loss) per share:
Basic	Basic	$	1.15	$	0.93	$	1.29	$	2.87	Basic	$	0.93	$	(0.29)	$	1.63	$	0.14
Diluted	Diluted	$	1.15	$	0.92	$	1.29	$	2.84	Diluted	$	0.92	$	(0.29)	$	1.62	$	0.14
Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive	Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive	14		—		13		2		Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive	25		20		19		12


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 4—BUSINESS COMBINATIONS

There were no acquisitions accounted for as business combinations or divestitures completed in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022.~~

~~ACQUISITIONS COMPLETED IN 2021~~

~~Paidy~~

~~We completed the acquisition of Paidy in October 2021 by acquiring all outstanding shares for total consideration of approximately $2.7 billion, consisting of approximately $2.6 billion in cash,~~2023 and approximately $161 million in assumed restricted stock and restricted stock units, subject to vesting conditions. Paidy is a two-sided payments platform that primarily provides buy now, pay later solutions (installment credit offerings) in Japan. With the acquisition of Paidy, we intend to expand our capabilities and relevance in Japan.

~~The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:~~


	~~(In millions)~~
~~Goodwill~~	$	~~1,897~~
~~Customer lists and user base~~	~~512~~
~~Marketing related~~	83
~~Developed technology~~	47
~~Total intangibles~~	$	~~642~~
~~Loans and interest receivable, net~~	~~197~~
~~Cash and cash equivalents~~	~~102~~
~~Other net assets~~	87
~~Short-term and long-term debt~~	~~(188)~~
~~Deferred tax liabilities, net~~	~~(166)~~
~~Total purchase price~~	$	~~2,571~~

~~The intangible assets acquired consist primarily of merchant contracts, trade names/trademarks, and developed technology with estimated useful lives of~~ ~~three~~ to seven years. Contractual gross loans and interest receivable acquired were $216 million. We expect to collect substantially all of these receivables. The excess of the purchase consideration, including the fair value of our equity investment, over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is attributable to the workforce of Paidy and the synergies expected to arise from the acquisition, including continued customer acquisition. We do not expect goodwill to be deductible for income tax purposes. The allocation of the purchase price for this acquisition has been prepared on a preliminary basis and changes to the allocation to certain assets, liabilities, and tax estimates may occur as additional information becomes available.

In connection with the acquisition, we issued restricted stock and restricted stock units with an approximate grant date fair value of $161 million, which represents post-business combination expense. The equity granted is a combination of shares issued to certain former Paidy employees subject to a holdback arrangement and assumed Paidy employee equity grants, which vest over a period of up to approximately four years subject to continued employment.


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

~~Other acquisitions~~

In 2021, we completed four other acquisitions accounted for as business combinations. The total purchase price for these acquisitions was $542 million, consisting primarily of cash consideration. The allocation of purchase consideration resulted in approximately $90 million of technology, customer, and marketing related intangible assets with estimated useful lives ranging from approximately ~~one~~ to seven years, net assets of $17 million, and goodwill of approximately $435 million attributable to the workforce of the acquired companies and the synergies expected to arise from these acquisitions, including the integration of the acquired technology with our existing product offerings. Goodwill was not considered deductible for income tax purposes.

~~OTHER INFORMATION~~

Prior to acquisition, we held minority interests in certain of the companies we acquired in 2021. We remeasured these investments immediately before the completion of the respective acquisitions at a total acquisition-date fair value of $64 million, which resulted in an aggregate gain of $36 million recognized as other income (expense), net in our condensed consolidated statements of income (loss). The acquisition-date fair value was derived using the value paid less a control premium based on market analysis performed by a third party.2022.

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

GOODWILL

The following table presents goodwill balances and adjustments to those balances during the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:

December 31,
2021 Goodwill Acquired Adjustments September 30,
2022
(In millions)
Total goodwill $ 11,454 $ — $ (401) $ 11,053


	December 31, 2022		Goodwill Acquired		Adjustments		June 30, 2023
	(In millions)
Total goodwill	$	11,209	$	—	$	(142)	$	11,067

The adjustments to goodwill during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 pertained to foreign currency translation adjustments.

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:


		September 30, 2022							December 31, 2021								June 30, 2023							December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life (Years)
		(In millions, except years)															(In millions, except years)
Intangible assets:	Intangible assets:															Intangible assets:
Customer lists and user base	Customer lists and user base	$	1,623	$	(1,043)	$	580	7	$	1,726	$	(919)	$	807	7	Customer lists and user base	$	1,561	$	(1,088)	$	473	7	$	1,664	$	(1,092)	$	572	7
Marketing related	Marketing related	388		(332)		56		5	405		(315)		90		5	Marketing related	388		(345)		43		5	395		(339)		56		5
Developed technology	Developed technology	1,095		(989)		106		3	1,109		(822)		287		3	Developed technology	1,068		(1,035)		33		3	1,099		(1,048)		51		3
All other	All other	432		(319)		113		7	454		(306)		148		7	All other	429		(338)		91		7	438		(329)		109		7
Intangible assets, net	Intangible assets, net	$	3,538	$	(2,683)	$	855		$	3,694	$	(2,362)	$	1,332		Intangible assets, net	$	3,446	$	(2,806)	$	640		$	3,596	$	(2,808)	$	788

~~Amortization expense for intangible assets was $118 million and $110 million for~~In the three months ended ~~September~~June 30, ~~2022~~2023, we retired approximately $8 million of fully amortized intangible assets, all of which were included in developed technology. In the six months ended June 30, 2023, we retired approximately $92 million of fully amortized intangible assets, of which $65 million and ~~2021,~~$27 million were included in customer lists and user base and developed technology, respectively. Amortization expense for intangible assets was ~~$356~~$58 million and ~~$326~~$120 million for the ~~nine~~three months ended ~~September~~June 30, 2023 and 2022, respectively. Amortization expense for intangible assets was $115 million and ~~2021,~~$238 million for the six months ended June 30, 2023 and 2022, respectively.

Expected future intangible asset amortization as of June 30, 2023 was as follows (in millions):


Fiscal years:
Remaining 2023	$	102
2024	186
2025	152
2026	95
2027	59
Thereafter	46
Total	$	640


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~Expected future intangible asset amortization as of September 30, 2022 was as follows (in millions):~~

Fiscal years:
Remaining 2022 $ 111
2023 206
2024 186
2025 152
2026 95
Thereafter 105
Total $ 855

NOTE 6—LEASES

PayPal enters into various leases, which are primarily real estate operating leases. We use these properties for executive and administrative offices, data centers, product development offices, customer services and operations centers, and warehouses.

While a majority of our lease agreements do not contain an explicit interest rate, certain of our lease agreements are subject to changes based on the Consumer Price Index or another referenced index. In the event of changes to the relevant index, lease liabilities are not remeasured and instead are treated as variable lease payments and recognized in the period in which the obligation for those payments is incurred.

The short-term lease exemption has been adopted for all leases with a duration of less than 12 months.

PayPal’s lease portfolio includes a small number of subleases. A sublease situation can arise when currently leased real estate space is available and is surplus to operational requirements.

As of ~~September~~June 30, ~~2022,~~2023, we had no finance leases.

The components of lease expense were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Lease expense	Lease expense									Lease expense
Operating lease expense	Operating lease expense	$	43	$	42	$	128	$	129	Operating lease expense	$	39	$	43	$	80	$	85

Sublease income	Sublease income	(2)		(2)		(6)		(6)		Sublease income	(2)		(2)		(4)		(4)
Lease expense, net	Lease expense, net	$	41	$	40	$	122	$	123	Lease expense, net	$	37	$	41	$	76	$	81

Supplemental cash flow information related to leases was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:									Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	44	$	42	$	127	$	126	Operating cash flows from operating leases	$	43	$	42	$	86	$	83
Right-of-use (“ROU”) lease assets obtained in exchange for new operating lease liabilities	Right-of-use (“ROU”) lease assets obtained in exchange for new operating lease liabilities	$	5	$	47	$	99	$	79	Right-of-use (“ROU”) lease assets obtained in exchange for new operating lease liabilities	$	23	$	11	$	22	$	94
Other non-cash ROU lease asset activity	Other non-cash ROU lease asset activity	$	(11)	$	—	$	(36)	$	(21)	Other non-cash ROU lease asset activity	$	(4)	$	(15)	$	(25)	$	(25)

Supplemental balance sheet information related to leases was as follows:


	June 30, 2023			December 31, 2022
	(In millions, except weighted-average figures)
Operating ROU lease assets	$	495		$	574
Current operating lease liabilities	152			151
Operating lease liabilities	509			569
Total operating lease liabilities	$	661		$	720
Weighted-average remaining lease term—operating leases	5.6 years			5.7 years
Weighted-average discount rate—operating leases	4		%	3		%


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~Supplemental balance sheet information related to leases was as follows:~~

September 30,
2022 December 31,
2021
(In millions, except weighted-average figures)
Operating ROU lease assets $ 588 $ 659
Current operating lease liabilities 152 142
Operating lease liabilities 566 620
Total operating lease liabilities $ 718 $ 762
Weighted-average remaining lease term—operating leases
5.7 years 6.1 years
Weighted-average discount rate—operating leases
3 % 3 %

Future minimum lease payments for our operating leases as of ~~September~~June 30, ~~2022~~2023 were as follows:


		Operating Leases			Operating Leases
Fiscal years:	Fiscal years:	(In millions)		Fiscal years:	(In millions)
Remaining 2022		$	44
2023		170
Remaining 2023				Remaining 2023	$	88
2024	2024	154		2024	162
2025	2025	115		2025	118
2026	2026	94		2026	108
2027				2027	95
Thereafter	Thereafter	211		Thereafter	164
Total	Total	$	788	Total	$	735
Less: present value discount	Less: present value discount	(70)		Less: present value discount	(74)
Lease liability	Lease liability	$	718	Lease liability	$	661

Operating lease amounts include minimum lease payments under our non-cancelable operating leases primarily for office and data center facilities. The amounts presented are consistent with contractual terms and are not expected to differ significantly from actual results under our existing leases.

In the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we incurred asset impairment charges of ~~$29~~$4 million and ~~$64~~$43 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss). The impairments in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 included a reduction to our ROU lease assets in the amount of ~~$11~~$4 million and ~~$36~~$25 million, respectively, which were attributed to certain leased space we are no longer utilizing for our business operations, a portion of which is being subleased. In the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, we incurred asset impairment charges of ~~nil~~$19 million and ~~$26~~$35 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss). The impairments in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 included a reduction to our ROU lease assets in the amount of ~~nil~~$15 million and ~~$21~~$25 million, respectively, which ~~was~~were attributed to certain leased space we are no longer utilizing for our business operations, a portion of which is being subleased.

As of September 30, 2022, we have an additional operating lease for real estate, which will commence in the fourth quarter of 2022 or later with minimum lease payments aggregating to $3 million and a lease term of eight years.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

NOTE 7—OTHER FINANCIAL STATEMENT DETAILS

CRYPTO ASSET SAFEGUARDING LIABILITY AND CORRESPONDING SAFEGUARDING ASSET

We allow our customers in certain markets to buy, hold, sell, receive, and send certain cryptocurrencies as well as use the proceeds from sales of cryptocurrencies to pay for purchases at checkout. These cryptocurrencies consist of Bitcoin, Ethereum, Bitcoin Cash, and Litecoin (collectively, “our customers’ crypto assets”). We engage third parties, which are licensed trust companies, to provide certain custodial services, including holding our customers’ cryptographic key information, securing our customers’ crypto assets, and protecting them from loss or theft, including indemnification against certain types of losses such as theft. Our third-party ~~custodian holds~~custodians hold the crypto assets in a custodial account in PayPal’s name for the benefit of PayPal’s customers. We maintain the internal recordkeeping of our customers’ crypto assets, including the amount and type of crypto asset owned by each of our customers in that custodial account. ~~Given that~~As of June 30, 2023, we ~~currently~~ utilize ~~one~~two third-party ~~custodian,~~custodians; as such, there is concentration risk in the event ~~the custodian is~~these custodians are not able to perform in accordance with our agreement.

Due to the unique risks associated with cryptocurrencies, including technological, legal, and regulatory risks, we recognize a crypto asset safeguarding liability to reflect our obligation to safeguard the crypto assets held for the benefit of our customers, which is recorded in accrued expenses and other current liabilities on our condensed consolidated balance ~~sheet.~~sheets. We also recognize a corresponding safeguarding asset which is recorded in prepaid expenses and other current assets on our condensed consolidated balance ~~sheet.~~sheets. The crypto asset safeguarding liability and corresponding safeguarding asset are measured and recorded at fair value on a recurring basis using prices available in the market we determine to be the principal market at the balance sheet date. The corresponding safeguarding asset may be adjusted for loss events, ~~(e.g., uninsured losses),~~ as applicable. As of ~~September~~June 30, ~~2022,~~2023, the Company has not incurred any safeguarding loss events, and therefore, the crypto asset safeguarding liability and corresponding safeguarding asset were recorded at the same value.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the significant crypto assets we hold for the benefit of our customers and the crypto asset safeguarding liability and corresponding safeguarding asset as of ~~September~~June 30, ~~2022 (in millions):~~2023 and December 31, 2022:




~~Bitcoin~~	$	~~343~~
~~Ethereum~~	~~290~~
~~Other~~	57
~~Crypto asset safeguarding liability~~	$	~~690~~
~~Crypto asset safeguarding asset~~	$	~~690~~


	June 30, 2023		December 31, 2022
	(In millions)
Bitcoin	$	532	$	291
Ethereum	369		250
Other	115		63
Crypto asset safeguarding liability	$	1,016	$	604
Crypto asset safeguarding asset	$	1,016	$	604

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended ~~September~~June 30, 2023:


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign Currency Translation Adjustment (“CTA”)		Net Investment Hedges CTA Gains (Losses)		Estimated Tax (Expense) Benefit		Total
	(In millions)
Beginning balance	$	—	$	(416)	$	(595)	$	26	$	87	$	(898)
Other comprehensive income (loss) before reclassifications	11		13		(216)		169		(41)		(64)
Less: Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”)	34		—		—		—		—		34
Net current period other comprehensive income (loss)	(23)		13		(216)		169		(41)		(98)
Ending balance	$	(23)	$	(403)	$	(811)	$	195	$	46	$	(996)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended June 30, 2022:


		Unrealized Gains on Cash Flow Hedges		Unrealized Losses on Investments		Foreign Currency Translation Adjustment (“CTA”)		Net Investment Hedges CTA Gains		Estimated Tax Benefit		Total			Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign CTA		Net Investment Hedges CTA Gains (Losses)		Estimated Tax (Expense) Benefit		Total
		(In millions)													(In millions)
Beginning balance	Beginning balance	$	409	$	(544)	$	(665)	$	180	$	56	$	(564)	Beginning balance	$	196	$	(380)	$	(365)	$	45	$	60	$	(444)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	294		(157)		(206)		97		11		39		Other comprehensive income (loss) before reclassifications	320		(164)		(300)		135		(4)		(13)
Less: Amount of gain reclassified from accumulated other comprehensive income (loss) (“AOCI”)		156		—		—		—		—		156
Less: Amount of gain reclassified from AOCI														Less: Amount of gain reclassified from AOCI	107		—		—		—		—		107
Net current period other comprehensive income (loss)	Net current period other comprehensive income (loss)	138		(157)		(206)		97		11		(117)		Net current period other comprehensive income (loss)	213		(164)		(300)		135		(4)		(120)
Ending balance	Ending balance	$	547	$	(701)	$	(871)	$	277	$	67	$	(681)	Ending balance	$	409	$	(544)	$	(665)	$	180	$	56	$	(564)


									18

Table of Contents

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2023:


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign CTA		Net Investment Hedges CTA Gains (Losses)		Estimated Tax (Expense) Benefit		Total
	(In millions)
Beginning balance	$	111	$	(591)	$	(575)	$	(1)	$	128	$	(928)
Other comprehensive income (loss) before reclassifications	(24)		163		(236)		196		(82)		17
Less: Amount of gain (loss) reclassified from AOCI	110		(25)		—		—		—		85
Net current period other comprehensive income (loss)	(134)		188		(236)		196		(82)		(68)
Ending balance	$	(23)	$	(403)	$	(811)	$	195	$	46	$	(996)

The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the six months ended June 30, 2022:


	Unrealized Gains (Losses) on Cash Flow Hedges		Unrealized Gains (Losses) on Investments		Foreign CTA		Net Investment Hedges CTA Gains (Losses)		Estimated Tax (Expense) Benefit		Total
	(In millions)
Beginning balance	$	199	$	(87)	$	(270)	$	24	$	(2)	$	(136)
Other comprehensive income (loss) before reclassifications	364		(457)		(395)		156		58		(274)
Less: Amount of gain reclassified from AOCI	154		—		—		—		—		154
Net current period other comprehensive income (loss)	210		(457)		(395)		156		58		(428)
Ending balance	$	409	$	(544)	$	(665)	$	180	$	56	$	(564)

The following table provides details about reclassifications out of AOCI for the periods presented below:


Details about AOCI Components	Amount of Gains (Losses) Reclassified from AOCI								Affected Line Item in the Statements of Income (Loss)
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Gains on cash flow hedges—foreign currency exchange contracts	$	34	$	107	$	110	$	154	Net revenues
Losses on investments	—		—		(23)				Net revenues
Losses on investments	—		—		(2)		—		Other income (expense), net
	34		107		85		154		Income before income taxes
	—		—		—		—		Income tax expense
Total reclassifications for the period	$	34	$	107	$	85	$	154	Net income (loss)


									19

Table of Contents

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

~~The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the three months ended September 30, 2021:~~

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Losses on Investments Foreign CTA Net Investment Hedges CTA Gains Estimated Tax (Expense) Benefit Total
(In millions)
Beginning balance $ (93) $ (6) $ (220) $ 24 $ 3 $ (292)
Other comprehensive income (loss) before reclassifications 160 — (29) — (7) 124
Less: Amount of loss reclassified from AOCI (44) — — — — (44)
Net current period other comprehensive income (loss) 204 — (29) — (7) 168
Ending balance $ 111 $ (6) $ (249) $ 24 $ (4) $ (124)

~~The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the nine months ended September 30, 2022:~~

Unrealized Gains on Cash Flow Hedges Unrealized Losses on Investments Foreign CTA Net Investment Hedges CTA Gains Estimated Tax (Expense) Benefit Total
(In millions)
Beginning balance $ 199 $ (87) $ (270) $ 24 $ (2) $ (136)
Other comprehensive income (loss) before reclassifications 658 (614) (601) 253 69 (235)
Less: Amount of gain reclassified from AOCI 310 — — — — 310
Net current period other comprehensive income (loss) 348 (614) (601) 253 69 (545)
Ending balance $ 547 $ (701) $ (871) $ 277 $ 67 $ (681)

~~The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the nine months ended September 30, 2021:~~

Unrealized Gains (Losses) on Cash Flow Hedges Unrealized Gains (Losses) on Investments Foreign CTA Net Investment Hedges CTA Gains Estimated Tax (Expense) Benefit Total
(In millions)
Beginning balance $ (323) $ 11 $ (198) $ 24 $ 2 $ (484)
Other comprehensive income (loss) before reclassifications 242 (17) (51) — (6) 168
Less: Amount of loss reclassified from AOCI (192) — — — — (192)
Net current period other comprehensive income (loss) 434 (17) (51) — (6) 360
Ending balance $ 111 $ (6) $ (249) $ 24 $ (4) $ (124)


									20

~~Table of Contents~~

~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

~~The following table provides details about reclassifications out of AOCI for the periods presented below:~~

Details about AOCI Components Amount of Gains (Losses) Reclassified from AOCI Affected Line Item in the Statement of Income (Loss)
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Gains (losses) on cash flow hedges—foreign currency exchange contracts
$ 156 $ (44) $ 310 $ (192) Net revenues
Unrealized gains (losses) on investments — — — — Other income (expense), net
156 (44) 310 (192) Income before income taxes
— — — — Income tax expense
Total reclassifications for the period $ 156 $ (44) $ 310 $ (192) Net income (loss)

OTHER INCOME (EXPENSE), NET

The following table reconciles the components of other income (expense), net for the periods presented below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Interest income	Interest income	$	48	$	15	$	90	$	43	Interest income	$	116	$	27	$	224	$	42
Interest expense	Interest expense	(87)		(58)		(215)		(173)		Interest expense	(87)		(69)		(174)		(128)
Net gains (losses) on strategic investments	Net gains (losses) on strategic investments	495		173		(163)		336		Net gains (losses) on strategic investments	133		(672)		181		(658)
Other	Other	4		(8)		(49)		(25)		Other	8		(1)		14		(53)
Other income (expense), net	Other income (expense), net	$	460	$	122	$	(337)	$	181	Other income (expense), net	$	170	$	(715)	$	245	$	(797)


									21

~~Table of Contents~~

~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

NOTE 8—FUNDS RECEIVABLE AND CUSTOMER ACCOUNTS AND INVESTMENTS

The following table summarizes the assets underlying our funds receivable and customer accounts, short-term investments, and long-term investments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(In millions)					(In millions)
Funds receivable and customer accounts:	Funds receivable and customer accounts:					Funds receivable and customer accounts:
Cash and cash equivalents	Cash and cash equivalents	$	10,044	$	12,723	Cash and cash equivalents	$	10,100	$	11,363
Time deposits	Time deposits	39		334		Time deposits	118		95
Available-for-sale debt securities	Available-for-sale debt securities	18,916		18,336		Available-for-sale debt securities	16,738		17,349
Funds receivable	Funds receivable	5,825		4,748		Funds receivable	6,687		7,457
Total funds receivable and customer accounts	Total funds receivable and customer accounts	$	34,824	$	36,141	Total funds receivable and customer accounts	$	33,643	$	36,264
Short-term investments:	Short-term investments:					Short-term investments:
Time deposits	Time deposits	$	383	$	590	Time deposits	$	609	$	482
Available-for-sale debt securities	Available-for-sale debt securities	3,786		3,604		Available-for-sale debt securities	3,778		2,593
Restricted cash	Restricted cash	21		109		Restricted cash	11		17
Total short-term investments	Total short-term investments	$	4,190	$	4,303	Total short-term investments	$	4,398	$	3,092
Long-term investments:	Long-term investments:					Long-term investments:
Time deposits	Time deposits	$	55	$	45	Time deposits	$	65	$	55
Available-for-sale debt securities	Available-for-sale debt securities	2,912		3,545		Available-for-sale debt securities	2,120		2,817

Strategic investments	Strategic investments	2,248		3,207		Strategic investments	2,358		2,146
Total long-term investments	Total long-term investments	$	5,215	$	6,797	Total long-term investments	$	4,543	$	5,018


									20

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments was as follows:


		September 30, 2022(1)									June 30, 2023(1)
		Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
		(In millions)									(In millions)
Funds receivable and customer accounts:	Funds receivable and customer accounts:									Funds receivable and customer accounts:
U.S. government and agency securities	U.S. government and agency securities	$	9,698	$	—	$	(288)	$	9,410	U.S. government and agency securities	$	9,139	$	—	$	(188)	$	8,951
Foreign government and agency securities	Foreign government and agency securities	1,671		—		(52)		1,619		Foreign government and agency securities	964		—		(22)		942
Corporate debt securities	Corporate debt securities	1,698		—		(93)		1,605		Corporate debt securities	1,508		—		(53)		1,455
Asset-backed securities	Asset-backed securities	1,379		—		(36)		1,343		Asset-backed securities	1,287		1		(11)		1,277
Municipal securities	Municipal securities	328		—		(4)		324		Municipal securities	661		—		(6)		655
Commercial paper	Commercial paper	3,793		—		(25)		3,768		Commercial paper	2,961		—		(7)		2,954
Short-term investments:	Short-term investments:									Short-term investments:
U.S. government and agency securities	U.S. government and agency securities	75		—		(3)		72		U.S. government and agency securities	693		—		(4)		689
Foreign government and agency securities	Foreign government and agency securities	480		—		(13)		467		Foreign government and agency securities	646		—		(12)		634
Corporate debt securities	Corporate debt securities	969		—		(14)		955		Corporate debt securities	993		—		(22)		971
Asset-backed securities	Asset-backed securities	522		—		(9)		513		Asset-backed securities	484		—		(7)		477
Commercial paper	Commercial paper	1,781		—		(2)		1,779		Commercial paper	1,009		—		(2)		1,007
Long-term investments:	Long-term investments:									Long-term investments:
U.S. government and agency securities	U.S. government and agency securities	493		—		(39)		454		U.S. government and agency securities	412		—		(28)		384
Foreign government and agency securities	Foreign government and agency securities	400		—		(24)		376		Foreign government and agency securities	152		—		(9)		143
Corporate debt securities	Corporate debt securities	1,076		—		(70)		1,006		Corporate debt securities	499		—		(23)		476
Asset-backed securities	Asset-backed securities	1,105		—		(29)		1,076		Asset-backed securities	1,127		—		(10)		1,117
Total available-for-sale debt securities(2)	Total available-for-sale debt securities(2)	$	25,468	$	—	$	(701)	$	24,767	Total available-for-sale debt securities(2)	$	22,535	$	1	$	(404)	$	22,132

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9—Fair Value Measurement of Assets and Liabilities.”


	December 31, 2022(1)
	Gross Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In millions)
Funds receivable and customer accounts:
U.S. government and agency securities	$	8,736	$	—	$	(252)	$	8,484
Foreign government and agency securities	1,479		—		(44)		1,435
Corporate debt securities	1,637		—		(82)		1,555
Asset-backed securities	1,324		—		(26)		1,298
Municipal securities	410		—		(3)		407
Commercial paper	3,702		1		(14)		3,689
Short-term investments:
U.S. government and agency securities	815		—		(3)		812
Foreign government and agency securities	435		—		(11)		424
Corporate debt securities	641		—		(14)		627
Asset-backed securities	415		—		(9)		406
Commercial paper	324		—		—		324
Long-term investments:
U.S. government and agency securities	493		—		(36)		457
Foreign government and agency securities	386		—		(22)		364
Corporate debt securities	987		—		(58)		929
Asset-backed securities	1,085		—		(18)		1,067
Total available-for-sale debt securities(2)	$	22,869	$	1	$	(592)	$	22,278

(1) “—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.

(2) Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9—Fair Value Measurement of Assets and Liabilities.”


									2221

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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

December 31, 2021(1)
Gross
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
(In millions)
Funds receivable and customer accounts:
U.S. government and agency securities $ 8,754 $ — $ (31) $ 8,723
Foreign government and agency securities 1,849 — (9) 1,840
Corporate debt securities 3,377 — (15) 3,362
Asset-backed securities 1,552 — (3) 1,549
Municipal securities 535 — — 535
Short-term investments:
U.S. government and agency securities 537 — — 537
Foreign government and agency securities 493 — (1) 492
Corporate debt securities 2,285 — — 2,285
Asset-backed securities 278 — (1) 277
Long-term investments:
U.S. government and agency securities 568 — (6) 562
Foreign government and agency securities 742 — (6) 736
Corporate debt securities 1,445 — (11) 1,434
Asset-backed securities 817 — (4) 813
Total available-for-sale debt securities(2)
$ 23,232 $ — $ (87) $ 23,145

~~(1)~~ ~~“—” Denotes gross unrealized gain or unrealized loss of less than $1 million in a given position.~~

~~(2)~~ ~~Excludes foreign currency denominated available-for-sale debt securities accounted for under the fair value option. Refer to “Note 9~~—~~Fair Value Measurement of Assets and Liabilities.”~~


									23

~~Table of Contents~~

~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

Gross amortized cost and estimated fair value balances exclude accrued interest receivable on available-for-sale debt securities, which totaled ~~$61~~$88 million and ~~$36~~$65 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and were included in other current assets on our condensed consolidated balance sheets.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the gross unrealized losses and estimated fair value of our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments for which an allowance for credit losses was not deemed necessary in the current period, aggregated by the length of time those individual securities have been in a continuous loss position, was as follows:


		September 30, 2022(1)													June 30, 2023(1)
		Less than 12 months				12 months or longer				Total					Less than 12 months				12 months or longer				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
		(In millions)													(In millions)
Funds receivable and customer accounts:	Funds receivable and customer accounts:													Funds receivable and customer accounts:
U.S. government and agency securities	U.S. government and agency securities	$	7,297	$	(186)	$	1,939	$	(102)	$	9,236	$	(288)	U.S. government and agency securities	$	3,815	$	(36)	$	4,373	$	(152)	$	8,188	$	(188)
Foreign government and agency securities	Foreign government and agency securities	1,057		(32)		562		(20)		1,619		(52)		Foreign government and agency securities	196		(2)		640		(20)		836		(22)
Corporate debt securities	Corporate debt securities	1,017		(62)		589		(31)		1,606		(93)		Corporate debt securities	50		—		1,405		(53)		1,455		(53)
Asset-backed securities	Asset-backed securities	1,148		(30)		195		(6)		1,343		(36)		Asset-backed securities	614		(5)		502		(6)		1,116		(11)
Municipal securities	Municipal securities	307		(4)		—		—		307		(4)		Municipal securities	618		(6)		10		—		628		(6)
Commercial paper	Commercial paper	3,768		(25)		—		—		3,768		(25)		Commercial paper	2,869		(7)		—		—		2,869		(7)
Short-term investments:	Short-term investments:													Short-term investments:
U.S. government and agency securities	U.S. government and agency securities	72		(3)		—		—		72		(3)		U.S. government and agency securities	44		—		152		(4)		196		(4)
Foreign government and agency securities	Foreign government and agency securities	361		(9)		106		(3)		467		(12)		Foreign government and agency securities	119		—		499		(12)		618		(12)
Corporate debt securities	Corporate debt securities	926		(14)		28		(1)		954		(15)		Corporate debt securities	101		—		782		(22)		883		(22)
Asset-backed securities	Asset-backed securities	420		(7)		62		(2)		482		(9)		Asset-backed securities	215		(2)		144		(5)		359		(7)
Commercial paper	Commercial paper	1,779		(2)		—		—		1,779		(2)		Commercial paper	909		(2)		—		—		909		(2)
Long-term investments:	Long-term investments:													Long-term investments:
U.S. government and agency securities	U.S. government and agency securities	247		(19)		206		(20)		453		(39)		U.S. government and agency securities	—		—		384		(28)		384		(28)
Foreign government and agency securities	Foreign government and agency securities	31		(2)		345		(22)		376		(24)		Foreign government and agency securities	—		—		143		(9)		143		(9)
Corporate debt securities	Corporate debt securities	590		(43)		407		(27)		997		(70)		Corporate debt securities	121		(1)		345		(22)		466		(23)
Asset-backed securities	Asset-backed securities	972		(23)		104		(6)		1,076		(29)		Asset-backed securities	489		(3)		429		(7)		918		(10)
Total available-for-sale debt securities	Total available-for-sale debt securities	$	19,992	$	(461)	$	4,543	$	(240)	$	24,535	$	(701)	Total available-for-sale debt securities	$	10,160	$	(64)	$	9,808	$	(340)	$	19,968	$	(404)

(1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position.


									2422

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


		December 31, 2021(1)													December 31, 2022(1)
		Less than 12 months				12 months or longer				Total					Less than 12 months				12 months or longer				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
		(In millions)													(In millions)
Funds receivable and customer accounts:	Funds receivable and customer accounts:													Funds receivable and customer accounts:
U.S. government and agency securities	U.S. government and agency securities	$	8,224	$	(31)	$	—	$	—	$	8,224	$	(31)	U.S. government and agency securities	$	3,730	$	(89)	$	4,246	$	(163)	$	7,976	$	(252)
Foreign government and agency securities	Foreign government and agency securities	1,703		(9)		20		—		1,723		(9)		Foreign government and agency securities	410		(10)		997		(34)		1,407		(44)
Corporate debt securities	Corporate debt securities	1,816		(15)		—		—		1,816		(15)		Corporate debt securities	9		(1)		1,545		(81)		1,554		(82)
Asset-backed securities	Asset-backed securities	1,302		(3)		—		—		1,302		(3)		Asset-backed securities	773		(12)		508		(14)		1,281		(26)
Municipal securities	Municipal securities	50		—		—		—		50		—		Municipal securities	264		(3)		50		—		314		(3)

Commercial paper														Commercial paper	3,079		(14)		—		—		3,079		(14)
Short-term investments:	Short-term investments:													Short-term investments:
U.S. government and agency securities	U.S. government and agency securities	440		—		—		—		440		—		U.S. government and agency securities	345		—		73		(3)		418		(3)
Foreign government and agency securities	Foreign government and agency securities	485		(1)		—		—		485		(1)		Foreign government and agency securities	61		—		362		(11)		423		(11)
Corporate debt securities	Corporate debt securities	336		—		—		—		336		—		Corporate debt securities	97		(2)		465		(12)		562		(14)
Asset-backed securities	Asset-backed securities	273		(1)		—		—		273		(1)		Asset-backed securities	175		(2)		217		(7)		392		(9)

Commercial paper														Commercial paper	224		—		—		—		224		—
Long-term investments:	Long-term investments:													Long-term investments:
U.S. government and agency securities	U.S. government and agency securities	562		(6)		—		—		562		(6)		U.S. government and agency securities	—		—		457		(36)		457		(36)
Foreign government and agency securities	Foreign government and agency securities	736		(6)		—		—		736		(6)		Foreign government and agency securities	31		(2)		333		(20)		364		(22)
Corporate debt securities	Corporate debt securities	1,355		(11)		—		—		1,355		(11)		Corporate debt securities	85		(6)		834		(52)		919		(58)
Asset-backed securities	Asset-backed securities	707		(4)		—		—		707		(4)		Asset-backed securities	872		(9)		195		(9)		1,067		(18)
Total available-for-sale debt securities	Total available-for-sale debt securities	$	17,989	$	(87)	$	20	$	—	$	18,009	$	(87)	Total available-for-sale debt securities	$	10,155	$	(150)	$	10,282	$	(442)	$	20,437	$	(592)

(1) “—” Denotes gross unrealized loss or fair value of less than $1 million in a given position.

Unrealized losses have not been recognized into income as we neither intend to sell, nor anticipate that it is more likely than not that we will be required to sell, the securities before recovery of their amortized cost basis. The decline in fair value is due primarily to changes in market interest rates, rather than credit losses. We will continue to monitor the performance of the investment portfolio and assess whether impairment due to expected credit losses has occurred. ~~Amounts reclassified to earnings~~During the three months ended June 30, 2023, we received $749 million in proceeds from ~~unrealized~~the sale of available-for-sale debt securities, incurring gross realized gains and losses which were ~~not material for~~de minimis and determined using the ~~three and nine~~specific identification method. During the six months ended ~~September~~June 30, ~~2022 and 2021.~~2023, we received $1.8 billion in proceeds from the sale of available-for-sale debt securities, incurring gross realized losses of $25 million, which were determined using the specific identification method.


									23

Table of Contents

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Our available-for-sale debt securities included within funds receivable and customer accounts, short-term investments, and long-term investments classified by date of contractual maturity were as follows:


		September 30, 2022					June 30, 2023
		Amortized Cost		Fair Value			Amortized Cost		Fair Value
		(In millions)					(In millions)
One year or less	One year or less	$	13,266	$	13,119	One year or less	$	13,639	$	13,466
After one year through five years	After one year through five years	10,164		9,656		After one year through five years	6,619		6,405
After five years through ten years	After five years through ten years	1,952		1,908		After five years through ten years	2,214		2,199
After ten years	After ten years	86		84		After ten years	63		62
Total	Total	$	25,468	$	24,767	Total	$	22,535	$	22,132

STRATEGIC INVESTMENTS

Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies. Our marketable equity securities have readily determinable fair values and are recorded as long-term investments on our condensed consolidated balance sheets at fair value with changes in fair value recorded in other income (expense), net on our condensed consolidated statements of income (loss). Marketable equity securities totaled ~~$361~~$513 million and ~~$1.9 billion~~$323 million as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021, respectively, including the impact of the sale of marketable equity securities during the three months ended September 30, 2022.~~2022, respectively.


									25

~~Table of Contents~~

~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

Our non-marketable equity securities are recorded in long-term investments on our condensed consolidated balance sheets. AsThe carrying value of ~~September~~our non-marketable equity securities totaled $1.8 billion as of June 30, ~~2022~~2023 and December 31, ~~2021,~~2022. As of June 30, 2023 and December 31, 2022, we had non-marketable equity securities of ~~$122~~$154 million and ~~$79~~$136 million, respectively, where we have the ability to exercise significant influence, but not control, over the investee. We account for these equity securities using the equity method of accounting. The remaining non-marketable equity securities do not have a readily determinable fair value and we measure these equity investments at cost minus impairment, if any, and adjust for changes resulting from observable price changes in orderly transactions for an identical or similar investment in the same issuer (the “Measurement Alternative”). All gains and losses on these investments, realized and unrealized, and our share of earnings or losses from investments accounted for using the equity method are recognized in other income (expense), net on our condensed consolidated statements of income (loss). ~~The carrying value of our non-marketable equity securities totaled $1.9 billion and $1.3 billion as of September 30, 2022 and December 31, 2021, respectively.~~

Measurement Alternative adjustments

The adjustments to the carrying value of our non-marketable equity securities accounted for under the Measurement Alternative in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Carrying amount, beginning of period	Carrying amount, beginning of period	$	1,574	$	1,009	$	1,268	$	779	Carrying amount, beginning of period	$	1,680	$	1,469	$	1,687	$	1,268
Adjustments related to non-marketable equity securities:	Adjustments related to non-marketable equity securities:									Adjustments related to non-marketable equity securities:
Net additions(1)	Net additions(1)	17		97		74		110		Net additions(1)	10		44		26		57
Gross unrealized gains	Gross unrealized gains	174		90		423		307		Gross unrealized gains	1		61		23		249

Gross unrealized losses and impairments										Gross unrealized losses and impairments	—		—		(45)		—
Carrying amount, end of period	Carrying amount, end of period	$	1,765	$	1,196	$	1,765	$	1,196	Carrying amount, end of period	$	1,691	$	1,574	$	1,691	$	1,574

(1) Net additions include purchases, reductions due to sales of securities, and reclassifications when the Measurement Alternative is subsequently elected or no longer applies.


									24

Table of Contents

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table summarizes the cumulative gross unrealized gains and cumulative gross unrealized losses and impairment related to non-marketable equity securities accounted for under the Measurement Alternative, held at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively:


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(In millions)					(In millions)
Cumulative gross unrealized gains	Cumulative gross unrealized gains	$	1,137	$	733	Cumulative gross unrealized gains	$	1,160	$	1,137
Cumulative gross unrealized losses and impairments	Cumulative gross unrealized losses and impairments	$	(27)	$	(27)	Cumulative gross unrealized losses and impairments	$	(175)	$	(131)

Unrealized gains (losses) on strategic investments, excluding those accounted for using the equity method

The following table summarizes the net unrealized gains (losses) on marketable and non-marketable equity securities, excluding those accounted for using the equity method, held at ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Net unrealized gains (losses) $ 232 $ 173 $ 220 $ 265


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Net unrealized gains (losses)	$	136	$	(673)	$	188	$	(709)


									2625

Table of Contents

PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 9—FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES

FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


		September 30, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			June 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In millions)							(In millions)
Assets:	Assets:							Assets:
Cash and cash equivalents(1)	Cash and cash equivalents(1)	$	893	$	—	$	893	Cash and cash equivalents(1)	$	155	$	—	$	155
Short-term investments(2):	Short-term investments(2):							Short-term investments(2):

U.S. government and agency securities	U.S. government and agency securities	72		—		72		U.S. government and agency securities	689		—		689
Foreign government and agency securities	Foreign government and agency securities	467		—		467		Foreign government and agency securities	634		—		634
Corporate debt securities	Corporate debt securities	955		—		955		Corporate debt securities	971		—		971
Asset-backed securities	Asset-backed securities	513		—		513		Asset-backed securities	477		—		477
Commercial paper	Commercial paper	1,779		—		1,779		Commercial paper	1,007		—		1,007

Total short-term investments	Total short-term investments	3,786		—		3,786		Total short-term investments	3,778		—		3,778
Funds receivable and customer accounts(3):	Funds receivable and customer accounts(3):							Funds receivable and customer accounts(3):
Cash and cash equivalents	Cash and cash equivalents	400		—		400		Cash and cash equivalents	26		—		26
U.S. government and agency securities	U.S. government and agency securities	9,410		—		9,410		U.S. government and agency securities	8,951		—		8,951
Foreign government and agency securities	Foreign government and agency securities	2,290		—		2,290		Foreign government and agency securities	1,315		—		1,315
Corporate debt securities	Corporate debt securities	1,748		—		1,748		Corporate debt securities	1,586		—		1,586
Asset-backed securities	Asset-backed securities	1,343		—		1,343		Asset-backed securities	1,277		—		1,277
Municipal securities	Municipal securities	324		—		324		Municipal securities	655		—		655
Commercial paper	Commercial paper	3,801		—		3,801		Commercial paper	2,954		—		2,954
Total funds receivable and customer accounts	Total funds receivable and customer accounts	19,316		—		19,316		Total funds receivable and customer accounts	16,764		—		16,764
Derivatives	Derivatives	1,015		—		1,015		Derivatives	201		—		201
Crypto asset safeguarding asset	Crypto asset safeguarding asset	690		—		690		Crypto asset safeguarding asset	1,016		—		1,016
Long-term investments(2),(4):	Long-term investments(2),(4):							Long-term investments(2),(4):
U.S. government and agency securities	U.S. government and agency securities	454		—		454		U.S. government and agency securities	384		—		384
Foreign government and agency securities	Foreign government and agency securities	376		—		376		Foreign government and agency securities	143		—		143
Corporate debt securities	Corporate debt securities	1,006		—		1,006		Corporate debt securities	476		—		476
Asset-backed securities	Asset-backed securities	1,076		—		1,076		Asset-backed securities	1,117		—		1,117
Marketable equity securities	Marketable equity securities	361		361		—		Marketable equity securities	513		513		—
Total long-term investments	Total long-term investments	3,273		361		2,912		Total long-term investments	2,633		513		2,120
Total financial assets	Total financial assets	$	28,973	$	361	$	28,612	Total financial assets	$	24,547	$	513	$	24,034
Liabilities:	Liabilities:							Liabilities:
Derivatives	Derivatives	$	187	$	—	$	187	Derivatives	$	113	$	—	$	113
Crypto asset safeguarding liability	Crypto asset safeguarding liability	690		—		690		Crypto asset safeguarding liability	1,016		—		1,016
Total financial liabilities	Total financial liabilities	$	877	$	—	$	877	Total financial liabilities	$	1,129	$	—	$	1,129

(1) Excludes cash of ~~$5.8~~$5.3 billion not measured and recorded at fair value.

(2) Excludes restricted cash of ~~$21~~$11 million and time deposits of ~~$438~~$674 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of ~~$15.5~~$16.9 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of ~~$1.9~~$1.8 billion measured using the Measurement Alternative or equity method accounting.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


		December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
		(In millions)							(In millions)
Assets:	Assets:							Assets:
Cash and cash equivalents(1)	Cash and cash equivalents(1)	$	400	$	—	$	400	Cash and cash equivalents(1)	$	932	$	—	$	932
Short-term investments(2):	Short-term investments(2):							Short-term investments(2):
U.S. government and agency securities	U.S. government and agency securities	537		—		537		U.S. government and agency securities	812		—		812
Foreign government and agency securities	Foreign government and agency securities	505		—		505		Foreign government and agency securities	424		—		424
Corporate debt securities	Corporate debt securities	2,285		—		2,285		Corporate debt securities	627		—		627
Asset-backed securities	Asset-backed securities	277		—		277		Asset-backed securities	406		—		406

Commercial paper								Commercial paper	324		—		324
Total short-term investments	Total short-term investments	3,604		—		3,604		Total short-term investments	2,593		—		2,593
Funds receivable and customer accounts(3):	Funds receivable and customer accounts(3):							Funds receivable and customer accounts(3):
Cash and cash equivalents	Cash and cash equivalents	622		—		622		Cash and cash equivalents	192		—		192
U.S. government and agency securities	U.S. government and agency securities	8,723		—		8,723		U.S. government and agency securities	8,484		—		8,484
Foreign government and agency securities	Foreign government and agency securities	4,090		—		4,090		Foreign government and agency securities	1,777		—		1,777
Corporate debt securities	Corporate debt securities	3,439		—		3,439		Corporate debt securities	1,694		—		1,694
Asset-backed securities	Asset-backed securities	1,549		—		1,549		Asset-backed securities	1,298		—		1,298
Municipal securities	Municipal securities	535		—		535		Municipal securities	407		—		407

Commercial paper								Commercial paper	3,689		—		3,689
Total funds receivable and customer accounts	Total funds receivable and customer accounts	18,958		—		18,958		Total funds receivable and customer accounts	17,541		—		17,541
Derivatives	Derivatives	304		—		304		Derivatives	244		—		244
Crypto asset safeguarding asset								Crypto asset safeguarding asset	604		—		604
Long-term investments(2), (4):	Long-term investments(2), (4):							Long-term investments(2), (4):
U.S. government and agency securities	U.S. government and agency securities	562		—		562		U.S. government and agency securities	457		—		457
Foreign government and agency securities	Foreign government and agency securities	736		—		736		Foreign government and agency securities	364		—		364
Corporate debt securities	Corporate debt securities	1,434		—		1,434		Corporate debt securities	929		—		929
Asset-backed securities	Asset-backed securities	813		—		813		Asset-backed securities	1,067		—		1,067
Marketable equity securities	Marketable equity securities	1,860		1,860		—		Marketable equity securities	323		323		—
Total long-term investments	Total long-term investments	5,405		1,860		3,545		Total long-term investments	3,140		323		2,817
Total financial assets	Total financial assets	$	28,671	$	1,860	$	26,811	Total financial assets	$	25,054	$	323	$	24,731
Liabilities:	Liabilities:							Liabilities:
Derivatives	Derivatives	$	130	$	—	$	130	Derivatives	$	298	$	—	$	298
Crypto asset safeguarding liability								Crypto asset safeguarding liability	604		—		604
Total financial liabilities								Total financial liabilities	$	902	$	—	$	902

(1) Excludes cash of ~~$4.8~~$6.8 billion not measured and recorded at fair value.

(2) Excludes restricted cash of ~~$109~~$17 million and time deposits of ~~$635~~$537 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of ~~$17.2~~$18.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of ~~$1.3~~$1.8 billion measured using the Measurement Alternative or equity method accounting.

Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1). There are no active markets for our crypto asset safeguarding liability or the corresponding safeguarding asset. Accordingly, we have valued the asset and liability using quoted prices on the active exchange that has been identified as the principal market for the underlying crypto assets (Level 2). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2).


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices. Our derivative instruments are primarily short-term in nature, generally one month to one year in duration. Certain foreign currency contracts designated as cash flow hedges may have a duration of up to 18 months.


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we did not have any assets or liabilities requiring measurement at fair value ~~without observable market values~~on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3).

We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries under the fair value option. Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the condensed consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities. The following table summarizes the estimated fair value and amortized cost of our available-for-sale debt securities under the fair value option as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

September 30,
2022 December 31,
2021
(In millions)
Funds receivable and customer accounts $ 847 $ 2,327
Short-term investments $ — $ 13


	June 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In millions)				(In millions)
Funds receivable and customer accounts	$	442	$	504	$	441	$	481

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(In millions)
Funds receivable and customer accounts $ (70) $ (45) $ (213) $ (85)
Short-term investments $ — $ (18) $ — $ (25)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Funds receivable and customer accounts	$	4	$	(109)	$	11	$	(143)

ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

The following tables summarize our assets held as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 for which a non-recurring fair value measurement was recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and the year ended December 31, ~~2021,~~2022, respectively:


		September 30, 2022		Significant Other Observable Inputs (Level 2)				June 30, 2023		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
		(In millions)					(In millions)
Non-marketable equity investments measured using the Measurement Alternative(1)		$	1,054	$	1,054
Loans and interest receivable, held for sale						Loans and interest receivable, held for sale		$	1,903	$	—	$	1,903
Non-marketable equity securities measured using the Measurement Alternative(1)						Non-marketable equity securities measured using the Measurement Alternative(1)		146		106		40
Other assets(2)	Other assets(2)	128		128		Other assets(2)		102		102		—
Total	Total	$	1,182	$	1,182	Total		$	2,151	$	208	$	1,943

(1) Excludes non-marketable equity ~~investments~~securities of ~~$711 million~~$1.5 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the ~~nine~~six months ended ~~September~~June 30, ~~2022. See “Note 6—Leases” for additional information.~~

December 31, 2021
Significant Other
Observable Inputs
(Level 2)
(In millions)
Non-marketable equity investments measured using the Measurement Alternative(1)
$ 611 $ 611
Other assets(2)
86 86
Total $ 697 $ 697

~~(1)~~ ~~Excludes non-marketable equity investments of $657 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2021.~~

~~(2)~~ ~~Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2021.~~2023. See “Note 6—Leases” for additional information.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


	December 31, 2022		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(In millions)
Non-marketable equity investments measured using the Measurement Alternative(1)	$	1,122	$	724	$	398
Other assets(2)	165		165		—
Total	$	1,287	$	889	$	398

(1) Excludes non-marketable equity securities of $565 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2022.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2022. See “Note 6—Leases” for additional information.

The fair value of loans and interest receivables held for sale is classified within Level 3 as we estimate fair value using significant unobservable inputs. The significant unobservable input is the price at which the Company expects to sell the loans based upon our agreement with the global investment firm that will purchase these loans. The price is determined based upon certain loan and risk classifications of the portfolio. The following table presents the valuation techniques covering the majority of Level 3 non-recurring fair value measurements and the most significant unobservable inputs used in those measurements as of June 30, 2023:


	Fair Value (In millions)		Methodology	Input	Low(1)		High(1)		Weighted Average(1)(2)
Loans and interest receivable, held for sale	$	1,903	Price-based	Price	$	0.98	$	0.99	$	0.99

(1) Prices are measured in relation to $1.00 par.

(2) Weighted average is calculated based on the fair value of the loans.

We measure the non-marketable equity ~~investments~~securities accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer. Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within Level 2 in the fair value hierarchy because we estimate the fair value based on valuation methods which only include significant inputs that are observable, such as the observable transaction price at the transaction date. The fair value of non-marketable equity securities are classified within Level 3 when we estimate fair value using significant unobservable inputs such as when we remeasure due to impairment and use discount rates, forecasted cash flows, and market data of comparable companies, among others.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market ~~data.~~data, and the impaired asset is classified within Level 2 in the fair value hierarchy.

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and long-term debt related to borrowings on our credit facilities, are carried at amortized cost, which approximates their fair value. Our notes receivable had a carrying value of approximately ~~$404~~$461 million and fair value of approximately ~~$337~~$389 million as of ~~September~~June 30, ~~2022.~~2023. Our notes receivable had a carrying value of approximately ~~$381~~$441 million and fair value of approximately ~~$424~~$396 million as of December 31, ~~2021.~~2022. Our ~~long-term~~term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $10.5 billion and fair value of approximately $9.7 billion as of June 30, 2023. Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $10.3 billion and fair value of approximately ~~$9.2 billion as of September 30, 2022. Our fixed rate notes had a carrying value of approximately $9.0 billion and fair value of approximately $9.3~~$9.5 billion as of December 31, ~~2021.~~

2022. If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1; restricted cash, time deposits, certain customer accounts, and ~~long-term~~term debt (including current portion) would be classified as Level 2; and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

NOTE 10—DERIVATIVE INSTRUMENTS

SUMMARY OF DERIVATIVE INSTRUMENTS

Our primary objective in holding derivatives is to reduce the volatility of earnings and cash flows associated with changes in foreign currency exchange rates. Our derivatives expose us to credit risk to the extent that our counterparties may be unable to meet the terms of the arrangement. We seek to mitigate such risk by limiting our counterparties to, and by spreading the risk across, major financial institutions and by entering into collateral security arrangements. In addition, the potential risk of loss with any one counterparty resulting from this type of credit risk is monitored on an ongoing basis. We do not use any derivative instruments for trading or speculative purposes.

Cash flow hedges

We have significant international revenues and costs denominated in foreign currencies, which subjects us to foreign currency exchange risk. We have a foreign currency exposure management program in which we designate certain foreign currency exchange contracts, generally with maturities of 1812 months or less, to reduce the volatility of cash flows primarily related to forecasted revenues and expenses denominated in certain foreign currencies. The objective of these foreign currency exchange contracts is to help mitigate the risk that the U.S. dollar-equivalent cash flows are adversely affected by changes in the applicable U.S. dollar/foreign currency exchange rate. These derivative instruments are designated as cash flow hedges and accordingly, the derivative’s gain or loss is initially reported as a component of AOCI and subsequently reclassified into revenue or applicable expense line item in the condensed consolidated statements of income (loss) in the same period the forecasted transaction affects earnings. We evaluate the effectiveness of our foreign currency exchange contracts on a quarterly basis by comparing the critical terms of the derivative instruments with the critical terms of the forecasted cash flows of the hedged item; if the critical terms are the same, we conclude the hedge will be perfectly effective. We do not exclude any component of the changes in fair value of the derivative instruments from the assessment of hedge effectiveness. We report cash flows arising from derivative instruments consistent with the classification of cash flows from the underlying hedged items that these derivatives are hedging. Accordingly, the cash flows associated with derivatives designated as cash flow hedges are classified in cash flows from operating activities on our condensed consolidated statements of cash flows.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

As of ~~September~~June 30, ~~2022,~~2023, we estimated that ~~$504~~$23 million of net derivative ~~gains~~losses related to our cash flow hedges included in AOCI are expected to be reclassified into earnings within the next 12 months. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, we did not discontinue any cash flow hedges because it was probable that the original forecasted transaction would not occur and as such, did not reclassify any gains or losses to earnings prior to the occurrence of the hedged transaction. If we elect to discontinue our cash flow hedges and it is probable that the original forecasted transaction will occur, we continue to report the derivative’s gain or loss in AOCI until the forecasted transaction affects earnings, at which point we also reclassify it into earnings. Gains and losses on derivatives held after we discontinue our cash flow hedges and on derivative instruments that are not designated as cash flow hedges are recorded in the same financial statement line item to which the derivative relates.

Net investment ~~hedge~~hedges

We use forward foreign currency exchange contracts to reduce the foreign currency exchange risk related to our investment in certain foreign subsidiaries. These derivatives are designated as net investment hedges and accordingly, the ~~gain~~gains and ~~loss~~losses on the portion of the ~~derivative~~derivatives included in the assessment of hedge effectiveness is recorded in AOCI as part of foreign currency translation. We exclude forward points from the assessment of hedge effectiveness and recognize them in other income (expense), net on a straight-line basis over the life of the hedge.

The accumulated gains and losses associated with these instruments will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings. The cash flows associated with derivatives designated as a net investment hedge are classified in cash flows from investing activities on our condensed consolidated statements of cash flows.

We have not reclassified any gains or losses related to ~~the~~ net investment hedges from AOCI into earnings during any of the periods presented.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Foreign currency exchange contracts not designated as hedging instruments

We have a foreign currency exposure management program in which we use foreign currency exchange contracts to offset the foreign currency exchange risk of our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities. The gains and losses due to remeasurement of certain foreign currency denominated monetary assets and liabilities are recorded in other income (expense), net, which are offset by the gains and losses on these foreign currency exchange contracts. The cash flows associated with our non-designated derivatives used to hedge foreign currency denominated monetary assets and liabilities are classified in cash flows from operating activities on our condensed consolidated statements of cash flows.


									31

~~Table of Contents~~

~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

FAIR VALUE OF DERIVATIVE CONTRACTS

The fair value of our outstanding derivative instruments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was as follows:


		Balance Sheet Location	September 30, 2022		December 31, 2021			Balance Sheet Location	June 30, 2023		December 31, 2022
			(In millions)						(In millions)
Derivative Assets:	Derivative Assets:						Derivative Assets:
Foreign currency exchange contracts designated as hedging instruments	Foreign currency exchange contracts designated as hedging instruments	Other current assets	$	638	$	205	Foreign currency exchange contracts designated as hedging instruments	Other current assets	$	47	$	167
Foreign currency exchange contracts designated as hedging instruments	Foreign currency exchange contracts designated as hedging instruments	Other assets (non-current)	223		21		Foreign currency exchange contracts designated as hedging instruments	Other assets (non-current)	42		15
Foreign currency exchange contracts not designated as hedging instruments	Foreign currency exchange contracts not designated as hedging instruments	Other current assets	154		78		Foreign currency exchange contracts not designated as hedging instruments	Other current assets	112		62
Total derivative assets	Total derivative assets		$	1,015	$	304	Total derivative assets		$	201	$	244

Derivative Liabilities:	Derivative Liabilities:						Derivative Liabilities:
Foreign currency exchange contracts designated as hedging instruments	Foreign currency exchange contracts designated as hedging instruments	Other current liabilities	$	39	$	27	Foreign currency exchange contracts designated as hedging instruments	Other current liabilities	$	69	$	68

Foreign currency exchange contracts designated as hedging instruments							Foreign currency exchange contracts designated as hedging instruments	Other long-term liabilities	—		133
Foreign currency exchange contracts not designated as hedging instruments	Foreign currency exchange contracts not designated as hedging instruments	Other current liabilities	148		103		Foreign currency exchange contracts not designated as hedging instruments	Other current liabilities	44		97
Total derivative liabilities	Total derivative liabilities		$	187	$	130	Total derivative liabilities		$	113	$	298

MASTER NETTING AGREEMENTS - RIGHTS OF SET-OFF

Under master netting agreements with certain counterparties to our foreign currency exchange contracts, subject to applicable requirements, we are allowed to net settle transactions of the same type with a single net amount payable by one party to the other. However, we have elected to present the derivative assets and derivative liabilities on a gross basis on our condensed consolidated balance sheets. Rights of set-off associated with our foreign currency exchange contracts represented a potential offset to both assets and liabilities of ~~$74~~$52 million as of ~~September~~June 30, ~~2022~~2023 and ~~$102~~$70 million as of December 31, ~~2021.~~2022.

We have entered into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain financial instruments fluctuates from contractually established thresholds. The following table provides the collateral posted and received:


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(In millions)					(In millions)
Cash collateral posted(1)	Cash collateral posted(1)	$	9	$	5	Cash collateral posted(1)	$	35	$	24
Cash collateral received(2)	Cash collateral received(2)	$	639	$	209	Cash collateral received(2)	$	28	$	203

(1) Right to reclaim cash collateral related to our derivative liabilities recognized in other current assets on our condensed consolidated balance sheets.

(2) Obligation to return counterparty cash collateral related to our derivative assets recognized in other current liabilities on our condensed consolidated balance sheets.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

EFFECT OF DERIVATIVE CONTRACTS ON CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following ~~table provides~~tables provide the location in the condensed consolidated statements of income (loss) and amount of recognized gains or losses related to our derivative instruments:

Three Months Ended September 30,
2022 2021
(In millions)
Net revenues Other income (expense), net Net revenues Other income (expense), net
Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded $ 6,846 $ 460 $ 6,182 $ 122
Gains (losses) on derivatives in cash flow hedging relationship:
Amount of gains (losses) on foreign currency exchange contracts reclassified from AOCI 156 — (44) —
Gains on derivatives in net investment hedging relationship:
Amount of gains on foreign currency exchange contracts excluded from the assessment of effectiveness — 27 — —
Gains (losses) on derivatives not designated as hedging instruments:
Amount of gains on foreign currency exchange contracts — 52 — 111
Amount of losses on equity derivative contracts (1)
— (174) — —
Total gains (losses) $ 156 $ (95) $ (44) $ 111

~~(1)~~ ~~During the three months ended September 30, 2022, equity derivative contracts were entered into and matured which related to the sale of marketable equity securities related to a strategic investment.~~


	Three Months Ended June 30,
	2023				2022
	(In millions)
	Net revenues		Other income (expense), net		Net revenues		Other income (expense), net
Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded	$	7,287	$	170	$	6,806	$	(715)

Gains (losses) on derivatives in cash flow hedging relationship:
Amount of gains on foreign currency exchange contracts reclassified from AOCI	34		—		107		—
Gains (losses) on derivatives in net investment hedging relationship:
Amount of gains on foreign currency exchange contracts excluded from the assessment of effectiveness	—		29		—		17
Gains (losses) on derivatives not designated as hedging instruments:
Amount of (losses) gains on foreign currency exchange contracts	—		(81)		—		147

Total gains (losses)	$	34	$	(52)	$	107	$	164


		Nine Months Ended September 30,									Six Months Ended June 30,
		2022				2021							2023				2022
		(In millions)								(In millions)
		Net revenues		Other income (expense), net		Net revenues		Other income (expense), net					Net revenues		Other income (expense), net		Net revenues		Other income (expense), net
Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded	Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded	$	20,135	$	(337)	$	18,453	$	181			Total amounts presented in the condensed consolidated statements of income (loss) in which the effects of cash flow hedges and net investment hedges are recorded	$	14,327	$	245	$	13,289	$	(797)

Gains (losses) on derivatives in cash flow hedging relationship:	Gains (losses) on derivatives in cash flow hedging relationship:											Gains (losses) on derivatives in cash flow hedging relationship:
Amount of gains (losses) on foreign exchange contracts reclassified from AOCI		310		—		(192)		—
Gains on derivatives in net investment hedging relationship:
Amount of gains on foreign exchange contracts reclassified from AOCI												Amount of gains on foreign exchange contracts reclassified from AOCI	110		—		154		—
Gains (losses) on derivatives in net investment hedging relationship:												Gains (losses) on derivatives in net investment hedging relationship:
Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness	Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness	—		53		—		—				Amount of gains on foreign exchange contracts excluded from the assessment of effectiveness	—		59		—		26
Gains (losses) on derivatives not designated as hedging instruments:	Gains (losses) on derivatives not designated as hedging instruments:											Gains (losses) on derivatives not designated as hedging instruments:
Amount of gains on foreign exchange contracts		—		160		—		109
Amount of losses on equity derivative contracts (1)		—		(174)		—		—
Amount of (losses) gains on foreign exchange contracts												Amount of (losses) gains on foreign exchange contracts	—		(156)		—		108

Total gains (losses)	Total gains (losses)	$	310	$	39	$	(192)	$	109			Total gains (losses)	$	110	$	(97)	$	154	$	134

~~(1)~~ During the nine months ended September 30, 2022, equity derivative contracts were entered into and matured which related to the sale of marketable equity securities related to a strategic investment. The cash flows associated with the equity derivative contracts were classified in cash flows from investing activities on our condensed consolidated statements of cash flows.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The following table provides the amount of pre-tax unrealized gains or losses included in the assessment of hedge effectiveness related to our derivative instruments designated as hedging instruments that are recognized in other comprehensive income (loss):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Unrealized gains on foreign exchange contracts designated as cash flow hedges		$	294	$	160	$	658	$	242
Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges										Unrealized gains (losses) on foreign exchange contracts designated as cash flow hedges	$	11	$	320	$	(24)	$	364
Unrealized gains on foreign exchange contracts designated as net investment hedges	Unrealized gains on foreign exchange contracts designated as net investment hedges	97		—		253		—		Unrealized gains on foreign exchange contracts designated as net investment hedges	169		135		196		156
Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss)	Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss)	$	391	$	160	$	911	$	242	Total unrealized gains recognized from derivative contracts designated as hedging instruments in the condensed consolidated statements of comprehensive income (loss)	$	180	$	455	$	172	$	520

NOTIONAL AMOUNTS OF DERIVATIVE CONTRACTS

Derivative transactions are measured in terms of the notional amount; however, this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the underlying basis on which the value of foreign currency exchange payments under these contracts is determined. The following table provides the notional amounts of our outstanding derivatives:


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
		(In millions)					(In millions)
Foreign exchange contracts designated as hedging instruments	Foreign exchange contracts designated as hedging instruments	$	8,341	$	5,349	Foreign exchange contracts designated as hedging instruments	$	6,154	$	7,149
Foreign exchange contracts not designated as hedging instruments	Foreign exchange contracts not designated as hedging instruments	10,249		20,414		Foreign exchange contracts not designated as hedging instruments	10,222		11,840
Total	Total	$	18,590	$	25,763	Total	$	16,376	$	18,989

NOTE 11—LOANS AND INTEREST RECEIVABLE

~~CONSUMER RECEIVABLES~~LOANS AND INTEREST RECEIVABLE, HELD FOR SALE

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of our eligible consumer installment receivables portfolio including those held on our balance sheet at closing of the transaction and a forward-flow arrangement for the sale of future originations. Loans and interest receivable, held for sale are recorded at the lower of cost or fair value, determined on an aggregate basis, with valuation changes and any associated charge-offs recorded in restructuring and other charges on our condensed consolidated statements of income (loss). Prior to the decision to sell, this portfolio was reported at outstanding principal balances, net of allowances, including unamortized deferred origination costs and estimated collectible interest and fees. At the time of reclassification, any previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $33 million in transaction and credit losses in our condensed consolidated statements of income (loss). See “Note 1—Overview and Summary of Significant Accounting Policies” for additional information.

During the six months ended June 30, 2023, we reclassified approximately $1.2 billion of eligible consumer installment receivables from loans and interest receivable, net to loans and interest receivable, held for sale. As of June 30, 2023, the total outstanding balance in our held for sale portfolio was $1.9 billion, including loans reclassified as held for sale and loans originated as held for sale.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

LOANS AND INTEREST RECEIVABLE, NET

Consumer receivables

We offer revolving and installment credit products as a funding option for consumers in certain checkout transactions on our payments platform. Our revolving credit product consists of PayPal Credit in the U.K. ~~Once a consumer is approved for credit, it~~, which is made available to ~~them~~consumers as a funding source in their PayPal ~~wallet.~~wallet once they are approved for credit. Additionally, we offer installment credit products at the time of checkout in various markets, including the U.S., several markets across Europe, Australia, and Japan. ~~The majority of~~We offer non interest-bearing installment credit products in these markets as well as interest-bearing installment credit products in the ~~installment loans allow consumers to pay for purchases over periods of 12 months or less.~~U.S. and Germany. Beginning in June 2022, we ~~purchase~~have purchased receivables related to ~~long-term~~interest-bearing installment loans extended to U.S. consumers by an independent chartered financial institution (“partner institution”) and are responsible for the servicing functions related to that portfolio. During the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, we purchased approximately ~~$106~~$514 million and nil in ~~credit receivables.~~consumer receivables, respectively. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the outstanding balance of consumer receivables, which consisted of revolving and installment loans and interest receivable, was ~~$4.4~~$4.5 billion and ~~$3.8~~$5.9 billion, respectively, net of the participation interest sold to the ~~independent chartered financial~~partner institution of $5$26 million and ~~nil,~~$17 million, respectively.

We closely monitor the credit quality of our consumer receivables to evaluate and manage our related exposure to credit risk. Credit risk management begins with initial underwriting and continues through the full repayment of a loan. To assess a consumer who requests a loan, we use, among other indicators, internally developed risk models using detailed information from external sources, such as credit bureaus where available, and internal data, including the consumer’s prior repayment history with our credit products where available. We use delinquency status and trends to assist in making (or, for ~~long-term~~interest-bearing installment loans in the U.S., to assist the ~~independent chartered financial~~partner institution in making) new and ongoing credit decisions, to adjust our models, to plan our collection practices and strategies, and in determining our allowance for consumer loans and interest receivable.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

Consumer receivables delinquency and allowance

The following tables present the delinquency status and gross charge-offs of consumer loans and interest receivable by year of origination. The amounts are based on the number of days past the billing date for revolving loans or contractual repayment date for installment loans. The “current” category represents balances that are within 29 days of the billing date or contractual repayment date, as applicable.

September 30, 2022
(In millions, except percentages)
Installment Loans Amortized Cost Basis
Revolving Loans
Amortized Cost Basis 2022 2021 2020 2019 2018 Total Percent
Current $ 1,567 $ 2,543 $ 169 $ — $ — $ — $ 4,279 96.3%
30 - 59 Days 24 23 2 — — — 49 1.1%
60 - 89 Days 17 19 2 — — — 38 0.8%
90 - 179 Days 33 40 5 — — — 78 1.8%
Total(1)
$ 1,641 $ 2,625 $ 178 $ — $ — $ — $ 4,444 100%


June 30, 2023
(In millions, except percentages)

	Revolving Loans Amortized Cost Basis		Installment Loans Amortized Cost Basis
			2023		2022		2021		2020		2019		Total		Percent
Consumer loans and interest receivable:
Current	$	2,009	$	1,631	$	613	$	42	$	—	$	—	$	4,295	95.5%
30 - 59 Days	28		26		9		1		—		—		64		1.5%
60 - 89 Days	15		20		9		1		—		—		45		1.0%
90 - 179 Days	37		22		31		2		—		—		92		2.0%
Total(1)	$	2,089	$	1,699	$	662	$	46	$	—	$	—	$	4,496	100%
Gross charge-offs for the six months ended June 30, 2023	$	61	$	4	$	101	$	3	$	—	$	—	$	169

(1) Excludes receivables from other consumer credit products of ~~$30~~$4 million at ~~September~~June 30, ~~2022.~~2023.

December 31, 2021
(In millions, except percentages)
Installment Loans Amortized Cost Basis
Revolving Loans
Amortized Cost Basis 2021 2020 2019 2018 2017 Total Percent
Current $ 1,790 $ 1,939 $ 3 $ — $ — $ — $ 3,732 97.0%
30 - 59 Days 18 16 — — — — 34 0.9%
60 - 89 Days 12 13 — — — — 25 0.6%
90 - 179 Days 27 28 1 — — — 56 1.5%
Total(1)
$ 1,847 $ 1,996 $ 4 $ — $ — $ — $ 3,847 100%

~~(1)~~ ~~Excludes receivables from other consumer credit products of $44 million at December 31, 2021.~~

~~The following table summarizes the activity in the allowance for consumer loans and interest receivable for the nine months ended September 30, 2022 and 2021:~~

September 30, 2022 September 30, 2021
Consumer Loans Receivable Interest Receivable
Total Allowance(1)
Consumer Loans Receivable Interest Receivable
Total Allowance(1)
(In millions)
Beginning balance $ 243 $ 43 $ 286 $ 299 $ 53 $ 352
Provisions 198 9 207 (52) — (52)
Charge-offs (149) (22) (171) (78) (13) (91)
Recoveries 14 — 14 25 — 25
Other(2)
(41) (6) (47) — — —
Ending balance $ 265 $ 24 $ 289 $ 194 $ 40 $ 234

~~(1)~~ ~~Excludes allowances from other consumer credit products of $2 million and $3 million at September 30, 2022 and 2021, respectively.~~

~~(2)~~ ~~Includes amounts related to foreign currency remeasurement.~~

The provision for the nine months ended September 30, 2022 was primarily attributable to originations in the consumer receivable portfolio. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to macroeconomic conditions and the financial health of our borrowers.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)


December 31, 2022
(In millions, except percentages)

	Revolving Loans Amortized Cost Basis		Installment Loans Amortized Cost Basis
			2022		2021		2020		2019		2018		Total		Percent
Consumer loans and interest receivable:
Current	$	1,850	$	3,726	$	123	$	—	$	—	$	—	$	5,699	97.1%
30 - 59 Days	23		26		2		—		—		—		51		0.9%
60 - 89 Days	15		20		2		—		—		—		37		0.6%
90 - 179 Days	34		47		4		—		—		—		85		1.4%
Total(1)	$	1,922	$	3,819	$	131	$	—	$	—	$	—	$	5,872	100%

(1) Excludes receivables from other consumer credit products of $11 million at December 31, 2022.

The following table summarizes the activity in the allowance for consumer loans and interest receivable for the six months ended June 30, 2023 and 2022:


	June 30, 2023						June 30, 2022
	Consumer Loans Receivable		Interest Receivable		Total Allowance(1), (2)		Consumer Loans Receivable		Interest Receivable		Total Allowance(1)
	(In millions)
Beginning balance	$	322	$	25	$	347	$	243	$	43	$	286
Reversal of allowance due to reclassification of loans and interest receivable to held for sale	(33)		—		(33)		—		—		—
Provisions	182		13		195		118		4		122
Charge-offs	(154)		(15)		(169)		(92)		(15)		(107)
Recoveries	18		—		18		9		—		9
Other(3)	2		1		3		(24)		(4)		(28)
Ending balance	$	337	$	24	$	361	$	254	$	28	$	282

(1) Excludes allowances from other consumer credit products of nil and $3 million at June 30, 2023 and 2022, respectively.

(2) Beginning balances, provisions and charge-offs include amounts related to loans and interest receivable prior to their reclassification to loan and interest receivable, held for sale.

(3) Includes amounts related to foreign currency remeasurement.

The provision for the six months ended June 30, 2023 was primarily attributable to growth in the U.S. installment loans and U.K. revolving loans within our consumer receivable portfolio. In the second quarter of 2023, we updated our expected credit loss models for the consumer receivables. The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in household disposable income and retail e-commerce sales, and no longer consider unemployment. These changes did not have a material impact on our provision recorded in the period. Qualitative adjustments were made to account for limitations in our current expected credit loss models due to uncertainty with respect to the financial health of our borrowers.

The increase in charge-offs for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period in the prior year was due to the expansion of our ~~short-term~~ installment products and growth of revolving credit products.

The provision for current expected credit losses relating to our consumer receivable portfolio is recognized in transaction and credit losses on our condensed consolidated statements of income (loss). The provision for interest receivable for interest earned on our consumer receivable portfolio is recognized in revenues from other value added services as a reduction to revenue. Loans receivable continue to accrue interest until they are charged off.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

We charge off consumer receivable balances in the month in which a customer’s balance becomes 180 days past the billing date or contractual repayment date, except for the U.S. consumer interest-bearing installment receivables, which are charged off 120 days past the contractual repayment date. Bankrupt accounts are charged off within 60 days after receipt of notification of bankruptcy. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

~~MERCHANT RECEIVABLES~~Merchant receivables

We offer access to merchant finance products for certain small and medium-sized businesses through our PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products, which we collectively refer to as our merchant finance offerings. We purchase receivables related to credit extended to U.S. merchants by ~~WebBank~~a partner institution and are responsible for the servicing functions related to that portfolio. During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, we purchased approximately ~~$2.3 billion~~$975 million and ~~$1.3~~$1.4 billion in ~~credit~~merchant receivables, respectively. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the total outstanding balance in our pool of merchant loans, advances, and interest and fees receivable was ~~$2.0~~$1.7 billion and ~~$1.4~~$2.1 billion, respectively, net of the participation interest sold to ~~WebBank~~the partner institution of ~~$91~~$69 million and ~~$63~~$97 million, respectively.

Through our PPWC product, merchants can borrow a certain percentage of their annual payment volume processed by PayPal and are charged a fixed fee for the loan or advance based on the overall credit assessment of the merchant. Loans and advances are repaid through a fixed percentage of the merchant’s future payment volume that PayPal processes. Through our PPBL product, we provide merchants access to short-term business financing for a fixed fee based on an evaluation of the applying business as well as the business owner. PPBL repayments are collected through periodic payments until the balance has been satisfied.

The interest or fee is fixed at the time the loan or advance is extended and is recognized as deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. The fixed interest or fee is amortized into revenues from other value added services based on the amount repaid over the repayment period. We estimate the repayment period for PPWC based on the merchant’s payment processing history with PayPal. For PPWC, there is a general requirement that at least 10% of the original amount of the loan or advance plus the fixed fee must be repaid every 90 days. We calculate the repayment rate of the merchant’s future payment volume so that repayment of the loan or advance and fixed fee is expected to generally occur within 9 to 12 months from the date of the loan or advance. On a monthly basis, we recalculate the repayment period based on the repayment activity on the receivable. As such, actual repayment periods are dependent on actual merchant payment processing volumes. For PPBL, we receive fixed periodic payments over the contractual term of the loan, which generally ranges from 3 to 12 months.

We actively monitor receivables with repayment periods greater than the original expected or contractual repayment period, as well as the credit quality of our merchant loans and advances that we extend or purchase, so that we can evaluate, quantify, and manage our credit risk exposure. To assess a merchant seeking a loan or advance, we use, among other indicators, risk models developed internally which utilize information obtained from multiple internal and external data sources to predict the likelihood of timely and satisfactory repayment by the merchant of the loan or advance amount and the related interest or fee. Primary drivers of the models include the merchant’s annual payment volume, payment processing history with PayPal, prior repayment history with PayPal’s credit products where available, information sourced from consumer and business credit bureau reports, and other information obtained during the application process. We use delinquency status and trends to assist in making (or, in the U.S., to assist ~~WebBank~~the partner institution in making) ongoing credit decisions, to adjust our internal models, to plan our collection strategies, and in determining our allowance for these loans, advances, and interest and fees receivable.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Merchant receivables delinquency and allowance

The following tables present the delinquency status and gross charge-offs of merchant loans, advances, and interest and fees receivable by year of origination. The amounts are based on the number of days past the expected or contractual repayment date for amounts outstanding. The “current” category represents balances that are within 29 days of the expected repayment date or contractual repayment date, as applicable.

September 30, 2022
(In millions, except percentages)
2022 2021 2020 2019 2018 Total Percent
Current $ 1,691 $ 57 $ 70 $ 52 $ 3 $ 1,873 93.4%
30 - 59 Days 35 10 5 4 — 54 2.7%
60 - 89 Days 16 7 3 3 — 29 1.4%
90 - 179 Days 21 13 4 4 — 42 2.1%
180+ Days — 2 2 4 — 8 0.4%
Total $ 1,763 $ 89 $ 84 $ 67 $ 3 $ 2,006 100%


June 30, 2023
(In millions, except percentages)
	2023		2022		2021		2020		2019		Total		Percent
Merchant loans, advances, and interest and fees receivable:
Current	$	918	$	451	$	7	$	38	$	26	$	1,440	86.5%
30 - 59 Days	23		37		3		2		2		67		4.0%
60 - 89 Days	9		26		2		1		2		40		2.4%
90 - 179 Days	11		92		3		2		2		110		6.6%
180+ Days	—		2		2		1		2		7		0.5%
Total	$	961	$	608	$	17	$	44	$	34	$	1,664	100%
Gross charge-offs for the six months ended June 30, 2023	$	—	$	109	$	10	$	10	$	3	$	132

December 31, 2021
(In millions, except percentages)
2021 2020 2019 2018 2017 Total Percent
Current $ 1,100 $ 129 $ 95 $ 3 $ — $ 1,327 91.8%
30 - 59 Days 24 12 12 1 — 49 3.4%
60 - 89 Days 10 8 7 — — 25 1.7%
90 - 179 Days 10 11 11 1 — 33 2.3%
180+ Days — 4 7 1 — 12 0.8%
Total(1)
$ 1,144 $ 164 $ 132 $ 6 $ — $ 1,446 100%

~~(1)~~ ~~Balances include the impact of modification programs offered by the Company as a part of our novel coronavirus (“COVID-19”) pandemic payment relief initiatives (as discussed further below).~~


December 31, 2022
(In millions, except percentages)
	2022		2021		2020		2019		2018		Total		Percent
Merchant loans, advances, and interest and fees receivable:
Current	$	1,826	$	20	$	57	$	42	$	2	$	1,947	90.7%
30 - 59 Days	63		7		3		4		—		77		3.6%
60 - 89 Days	34		4		4		2		—		44		2.0%
90 - 179 Days	55		9		3		3		—		70		3.3%
180+ Days	1		2		2		3		—		8		0.4%
Total	$	1,979	$	42	$	69	$	54	$	2	$	2,146	100%

The following table summarizes the activity in the allowance for merchant loans, advances, and interest and fees receivable for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		September 30, 2022						September 30, 2021							June 30, 2023						June 30, 2022
		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance			Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance		Merchant Loans and Advances		Interest and Fees Receivable		Total Allowance
		(In millions)													(In millions)
Beginning balance	Beginning balance	$	192	$	9	$	201	$	440	$	43	$	483	Beginning balance	$	230	$	18	$	248	$	192	$	9	$	201
Provisions	Provisions	31		9		40		(87)		(19)		(106)		Provisions	107		21		128		(3)		5		2
Charge-offs	Charge-offs	(75)		(6)		(81)		(145)		(11)		(156)		Charge-offs	(117)		(15)		(132)		(47)		(5)		(52)
Recoveries	Recoveries	27		—		27		31		—		31		Recoveries	12		—		12		19		—		19
Ending balance	Ending balance	$	175	$	12	$	187	$	239	$	13	$	252	Ending balance	$	232	$	24	$	256	$	161	$	9	$	170

The provision for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was primarily attributable to ~~originations~~a deterioration in ~~the merchant portfolio.~~credit quality of loans outstanding. Qualitative adjustments were made to account for ~~historical~~limitations in our current expected credit loss ~~rates and~~models due to uncertainty around the financial health of our borrowers including the effectiveness of loan modification programs made available to ~~merchants, as described further below.~~

The decrease in the charge-offs for the nine months ended September 30, 2022 compared to the same period in the prior year was due to the charge-off of accounts that experienced financial difficulties as a result of the COVID-19 pandemic in the prior period and improved credit quality of our merchant loan portfolio due to modifications in the acceptable risk parameters, which included stricter eligibility requirements.

merchants.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The increase in the ~~third quarter of 2022, our expected credit loss models~~charge-offs for the merchant receivables were updated. The expected credit loss models utilize certain macroeconomic factors such as forecasted trends in unemployment and retail sales, and no longer consider benchmark credit card charge-off rates. These changes did not have a material impact on our provision recordedsix months ended June 30, 2023 compared to the same period in the ~~period.~~prior year was due to the expansion of acceptable risk parameters in 2022, which resulted in a deterioration of the overall credit quality of loans outstanding.

For merchant loans and advances, the determination of delinquency is based on the current expected or contractual repayment period of the loan or advance and fixed interest or fee payment as compared to the original expected or contractual repayment period. We charge off the receivables outstanding under our PPBL product when the repayments are 180 days past the contractual repayment date. We charge off the receivables outstanding under our PPWC product when the repayments are 180 days past our expectation of repayments and the merchant has not made a payment in the last 60 days, or when the repayments are 360 days past due regardless of whether the merchant has made a payment in the last 60 days. Bankrupt accounts are charged off within 60 days after receipt of ~~receiving~~ notification of bankruptcy. The provision for credit losses on merchant loans and advances is recognized in transaction and credit losses on our condensed consolidated statements of income (loss), and the provision for interest and fees receivable is recognized as a reduction of deferred revenue in accrued expenses and other current liabilities on our condensed consolidated balance sheets. Charge-offs are recorded as a reduction to our allowance for loans and interest receivable and subsequent recoveries, if any, are recorded as an increase to the allowance for loans and interest receivable.

~~Troubled debt restructurings~~

In certain instances where a merchant is able to demonstrate that it is experiencing financial difficulty, there may be a modification of the loan or advance and the related interest or fee receivable for which it is probable that, without modification, we would be unable to collect all amounts due. These modifications are intended to provide merchants with financial relief, and help enable us to mitigate losses.

These modifications include an increase in term by approximately 1 to 5.5 years while moving the delinquency status to current. The fee on certain of these loans or advances remains unchanged over the extended term. Alternatively, certain loans and advances have been modified to replace the initial fixed fee structure at the time the loan or advance was extended with a fixed annual percentage rate applied over the amended remaining term, which will continue to accrue interest at the fixed rate until the earlier of maturity or charge-off. These modifications had a de minimis impact on our condensed consolidated statements of income (loss) in the nine months ended September 30, 2022 and 2021.

Allowances for TDRs are assessed separately from other loans and advances within our portfolio and are determined by estimating current expected credit losses utilizing the modified term and interest rate assumptions. Historical loss estimates are utilized in addition to macroeconomic assumptions to determine expected credit loss rates. Further, we may include qualitative adjustments that incorporate incremental information not captured in the quantitative estimates of our current expected credit losses.

During the three and nine months ended September 30, 2022, merchant loans, advances, and interest and fees receivables which have been modified as TDRs were de minimis. The following table shows merchant loans, advances and interest and fees receivables which were modified as TDRs in the three and nine months ended September 30, 2021:

Three Months Ended September 30, 2021
Number of Accounts
(in thousands)(1)
Outstanding Balances(2)
(in millions)
Weighted Average Payment Term Extensions
(in months)
Loans and interest receivable — $ 4 34

~~(1)~~ ~~“—” Denotes less than five hundred accounts.~~

~~(2)~~ ~~Balances are as of modification date.~~

Nine Months Ended September 30, 2021
Number of Accounts
(in thousands)
Outstanding Balances(1)
(in millions)
Weighted Average Payment Term Extensions
(in months)
Loans and interest receivable 3 $ 43 36

~~(1)~~ ~~Balances are as of modification date.~~


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

A merchant is considered in payment default after a modification when the merchant’s payment becomes 60 days past their expected or contractual repayment date. For loans or advances that have defaulted after being modified, the increased estimate of current expected credit loss is factored into overall expected credit losses. In the three and nine months ended September 30, 2022 and 2021, the amount of merchant loans, advances, and interest and fees receivables classified as TDRs that have subsequently defaulted on payments was de minimis.

NOTE 12—DEBT

FIXED RATE NOTES

In June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ¥90 billion (approximately $622 million as of June 30, 2023). Interest on these notes is payable on June 9 and December 9 of each year, beginning on December 9, 2023.

In May 2022, May 2020, and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $3.0 ~~billion. Interest on these~~billion, $4.0 billion and $5.0 billion, respectively.

The notes ~~is payable on~~issued from the June 12023, May 2022, May 2020, and ~~December 1 of each year, beginning on December 1, 2022.~~September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.” We may redeem the ~~notes~~Notes in whole, at any time, or in part (except for the June 2023 notes), from time to time, prior to maturity, at ~~the~~their redemption ~~price.~~prices. Upon the occurrence of both a change of control of the Company and a downgrade of the ~~notes~~Notes below an investment grade rating, we will be required to offer to repurchase each series of ~~notes~~Notes at a price equal to 101% of the then outstanding principal ~~amount,~~amounts, plus accrued and unpaid interest. The ~~notes~~Notes are subject to covenants, including limitations on our ability to create liens on our assets, enter into sale and leaseback transactions, and merge or consolidate with another entity, in each case subject to certain exceptions, limitations, and qualifications. Proceeds from the issuance of these ~~notes~~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, or assets, or strategic investments.

In May 2020 and September 2019, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of $4.0 billion and $5.0 billion, respectively. The notes issued from the May 2022, May 2020, and September 2019 debt issuances are senior unsecured obligations and are collectively referred to as the “Notes.”

In May 2022, we repurchased certain notes under the September 2019 and May 2020 debt issuances prior to maturity through tender offers. In addition, in June 2022, we redeemed the outstanding balance of the notes maturing in September 2022 through a make-whole redemption. We repurchased and redeemed $1.6 billion of outstanding notes, as described above, which resulted in de minimis debt extinguishment net gains that were recorded as interest expense within other income (expense), net on our condensed consolidated ~~statement~~statements of income (loss).


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had an outstanding aggregate principal amount of ~~$10.4~~$10.6 billion and ~~$9.0~~$10.4 billion, respectively, related to the Notes. The following table summarizes the Notes:


		Maturities	Effective Interest Rate	September 30, 2022	December 31, 2021		Maturities			Effective Interest Rate		June 30, 2023	December 31, 2022
				(in millions)									(in millions)
September 2019 debt issuance of $5.0 billion:
Fixed-rate 2.200% notes		9/26/2022	2.39%		$	—		$	1,000
September 2019 debt issuance:											September 2019 debt issuance:

Fixed-rate 2.400% notes	Fixed-rate 2.400% notes	10/1/2024	2.52%		1,250			1,250			Fixed-rate 2.400% notes	10/1/2024	2.52%	$	1,250	$	1,250
Fixed-rate 2.650% notes	Fixed-rate 2.650% notes	10/1/2026	2.78%		1,250			1,250			Fixed-rate 2.650% notes	10/1/2026	2.78%	1,250		1,250
Fixed-rate 2.850% notes	Fixed-rate 2.850% notes	10/1/2029	2.96%		1,500			1,500			Fixed-rate 2.850% notes	10/1/2029	2.96%	1,500		1,500

May 2020 debt issuance of $4.0 billion:
May 2020 debt issuance:											May 2020 debt issuance:
Fixed-rate 1.350% notes	Fixed-rate 1.350% notes	6/1/2023	1.55%		418			1,000			Fixed-rate 1.350% notes	6/1/2023	1.55%	—		418
Fixed-rate 1.650% notes	Fixed-rate 1.650% notes	6/1/2025	1.78%		1,000			1,000			Fixed-rate 1.650% notes	6/1/2025	1.78%	1,000		1,000
Fixed-rate 2.300% notes	Fixed-rate 2.300% notes	6/1/2030	2.39%		1,000			1,000			Fixed-rate 2.300% notes	6/1/2030	2.39%	1,000		1,000
Fixed-rate 3.250% notes	Fixed-rate 3.250% notes	6/1/2050	3.33%		1,000			1,000			Fixed-rate 3.250% notes	6/1/2050	3.33%	1,000		1,000

May 2022 debt issuance of $3.0 billion:
May 2022 debt issuance:											May 2022 debt issuance:
Fixed-rate 3.900% notes	Fixed-rate 3.900% notes	6/1/2027	4.06%		500			—			Fixed-rate 3.900% notes	6/1/2027	4.06%	500		500
Fixed-rate 4.400% notes	Fixed-rate 4.400% notes	6/1/2032	4.53%		1,000			—			Fixed-rate 4.400% notes	6/1/2032	4.53%	1,000		1,000
Fixed-rate 5.050% notes	Fixed-rate 5.050% notes	6/1/2052	5.14%		1,000			—			Fixed-rate 5.050% notes	6/1/2052	5.14%	1,000		1,000
Fixed-rate 5.250% notes	Fixed-rate 5.250% notes	6/1/2062	5.34%		500			—			Fixed-rate 5.250% notes	6/1/2062	5.34%	500		500

June 2023 debt issuance(1):											June 2023 debt issuance(1):
¥30 billion fixed-rate 0.813% notes											¥30 billion fixed-rate 0.813% notes	6/9/2025	0.89%	207		—
¥23 billion fixed-rate 0.972% notes											¥23 billion fixed-rate 0.972% notes	6/9/2026	1.06%	159		—
¥37 billion fixed-rate 1.240% notes											¥37 billion fixed-rate 1.240% notes	6/9/2028	1.31%	256		—
Total term debt	Total term debt				$	10,418		$	9,000		Total term debt			$	10,622	$	10,418

Unamortized premium (discount) and issuance costs, net	Unamortized premium (discount) and issuance costs, net				(76)			(50)			Unamortized premium (discount) and issuance costs, net			(73)		(74)
Less: current portion of long-term debt(1)					(418)			(999)
Total carrying amount of long-term debt					$	9,924		$	7,951
Less: current portion of term debt(2)											Less: current portion of term debt(2)			—		(418)
Total carrying amount of term debt											Total carrying amount of term debt			$	10,549	$	9,926

(1)Principal amounts represent the U.S. dollar equivalent as of June 30, 2023 and December 31, 2022, respectively.

(2) The current portion of ~~long-term~~term debt is included within accrued expenses and other current liabilities on our condensed consolidated balance sheets.

The effective interest rates for the Notes include interest on the Notes, amortization of debt issuance costs, and amortization of the debt discount. The interest expense recorded for the Notes, including amortization of the debt discount and debt issuance costs, ~~and debt extinguishment net gains,~~ was $83 million and ~~$206~~$166 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. The interest expense recorded for the Notes, including amortization of the debt discount, ~~and~~ debt issuance costs, and debt extinguishment net gains, was ~~$56~~$67 million and ~~$168~~$123 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

CREDIT FACILITIES

~~Paidy~~Five-year revolving credit ~~agreement~~facility

In ~~February 2022,~~June 2023, we entered into a credit agreement (the ~~“Paidy Credit~~“Credit Agreement”) ~~with Paidy as co-borrower, which~~that provides for an unsecured $5.0 billion, five-year revolving credit facility ~~of ¥60.0 billion. In~~and terminated the facility entered into in September ~~2022, the Paidy~~2019. The Credit Agreement ~~was modified to increase the borrowing capacity by ¥30.0 billion for~~includes a ~~total borrowing capacity~~$150 million letter of ~~¥90.0 billion (approximately $623~~credit sub-facility and a $600 million ~~as of September 30, 2022.) Borrowings~~swingline sub-facility, with available borrowings under the ~~Paidy~~revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time. Loans borrowed under the Credit Agreement are ~~for use~~available in U.S. dollar, Euro, British pound, and Australian dollar, and in each case subject to the sub-limits and other limitations provided in the Credit Agreement. We may also, subject to the agreement of the applicable lenders and satisfaction of specified conditions, increase the commitments under the revolving credit facility by ~~Paidy~~up to $2.0 billion. Subject to specific conditions, we may designate one or more of our subsidiaries as additional borrowers under the Credit Agreement, provided PayPal Holdings, Inc. guarantees the portion of borrowings made available and other obligations of any such subsidiaries under the Credit Agreement. As of June 30, 2023, certain subsidiaries were designated as additional borrowers. Funds borrowed under the Credit Agreement may be used for working capital, capital expenditures, acquisitions, and other ~~permitted purposes.~~purposes not in contravention of the Credit Agreement.

We are obligated to pay interest on loans under the Credit Agreement and other customary fees for a credit facility of this size and type, including an upfront fee and an unused commitment fee based on our debt rating. Loans under the ~~Paidy~~ Credit Agreement will bear interest at either (i) the ~~Tokyo Interbank Offered~~applicable term benchmark rate plus a margin (based on the Company's public debt ratings) ranging from 0.750% to 1.250%, (ii) the applicable Risk-Free Rate (Sterling Overnight Index Average for loans denominated in pounds sterling and Euro Short-Term Rate for loans denominated in euros) rate plus a margin (based on the Company's public debt ratings) ranging from 0.750% to 1.250%, (iii) the applicable overnight rate plus a margin (based on the Company's public debt ratings) ranging from 0.750% to 1.250% or (iv) a formula based on the prime rate, the federal funds effective rate or the adjusted term Secured Overnight Financing Rate plus a margin (based on ~~our~~the Company's public debt ~~rating)~~ratings) ranging from ~~0.40%~~zero to ~~0.60%~~0.250%. Subject to certain conditions stated in the Credit Agreement, the Company and any subsidiaries designated as additional borrowers may borrow, prepay and reborrow amounts under the revolving credit facility at any time during the term of the Credit Agreement. The ~~Paidy~~ Credit Agreement will terminate and all amounts ~~owed~~owing thereunder will be due and payable on ~~February 8, 2027,~~June 7, 2028, unless (a) the commitments are terminated ~~earlier.~~earlier, either at the request of the Company or, if an event of default occurs, by the lenders (or automatically in the case of certain bankruptcy-related events), or (b) the maturity date is extended upon the request of the Company, subject to the agreement of the lenders. The ~~Paidy~~ Credit Agreement contains customary representations, warranties, affirmative and negative covenants, including a financial covenant, events of default, and indemnification provisions in favor of the lenders. The negative covenants include restrictions regarding the incurrence of liens and the incurrence of subsidiary indebtedness, in each case subject to certain exceptions. The financial covenant requires usthe Company to meet a quarterly financial test with respect to a maximum consolidated leverage ratio.

As of June 30, 2023, no borrowings or letters of credit were outstanding under the Credit Agreement. Accordingly, at June 30, 2023, $5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

Paidy credit agreement

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which provided for an unsecured revolving credit facility of ¥60.0 billion, which was modified in September 2022 to increase the borrowing capacity by ¥30.0 billion for a total borrowing capacity of ¥90.0 billion (approximately $622 million as of June 30, 2023). In June 2023, we repaid borrowings on the Paidy Credit Agreement using proceeds from the June 2023 debt issuance. As of June 30, 2023, no borrowings were outstanding, and as of December 31, 2022, ¥64.3 billion (approximately $491 million) was outstanding under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheets. At June 30, 2023, ¥90.0 billion (approximately $622 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing. During the three and six months ended June 30, 2023 and 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In the nine months ended September 30, 2022, ¥45.8 billion (approximately $317 million) was drawn down under the Paidy Credit Agreement, which was recorded in long-term debt on our condensed consolidated balance sheet. Accordingly, at September 30, 2022, ¥44.2 billion (approximately $306 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing. During the three and nine months ended September 30, 2022, the total interest expense and fees we recorded related to the Paidy Credit Agreement were de minimis.

~~Prior credit agreement~~

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Prior Credit Agreement”) which provided for a secured revolving credit facility of ¥22.8 billion (approximately $198 million at acquisition). As of December 31, 2021, ¥11.3 billion (approximately $98 million) was outstanding under the Prior Credit Agreement, which was recorded in long-term debt on our consolidated balance sheet. Accordingly, at December 31, 2021, ¥11.5 billion (approximately $100 million) of borrowing capacity was available for the purposes permitted by the Prior Credit Agreement, subject to customary conditions to borrowing. In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid all outstanding borrowings. The total interest expense and fees we recorded related to the Prior Credit Agreement were de minimis for the nine months ended September 30, 2022.

FUTURE PRINCIPAL PAYMENTS

As of ~~September~~June 30, ~~2022,~~2023, the future principal payments associated with our term debt were as follows (in millions):


Remaining 2022		$	—
2023		418
Remaining 2023				Remaining 2023	$	—
2024	2024	1,250		2024	1,250
2025	2025	1,000		2025	1,207
2026	2026	1,250		2026	1,409
2027				2027	500
Thereafter	Thereafter	6,500		Thereafter	6,256
Total	Total	$	10,418	Total	$	10,622

Other than as provided above, there were no significant changes to the information disclosed in our ~~2021~~2022 Form 10-K.


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

NOTE 13—COMMITMENTS AND CONTINGENCIES

COMMITMENTS

As of ~~both September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, approximately ~~$4.1~~$5.6 billion and $4.9 billion, respectively, of unused credit was available to PayPal Credit account holders in the U.K. While this amount represents the total unused credit available, we have not experienced, and do not anticipate, that all of our PayPal Credit account holders will access their entire available credit at any given point in time. In addition, the individual lines of credit that make up this unused credit are subject to periodic review and termination based on, among other things, account usage and customer creditworthiness.

LITIGATION AND REGULATORY MATTERS

Overview

We are involved in legal and regulatory proceedings on an ongoing basis. ~~Many~~Certain of these proceedings are in early stages and may seek an indeterminate amount of damages or penalties or may require us to change or adopt certain business practices. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements at that time. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflects the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range. For those proceedings in which an unfavorable outcome is reasonably possible but not probable, we have disclosed an estimate of the reasonably possible loss or range of losses or we have concluded that an estimate of the reasonably possible loss or range of losses arising directly from the proceeding (i.e., monetary damages or amounts paid in judgment or settlement) are not material. If we cannot estimate the probable or reasonably possible loss or range of losses arising from a legal proceeding, we have disclosed that fact. In assessing the materiality of a legal proceeding, we evaluate, among other factors, the amount of monetary damages claimed, as well as the potential impact of non-monetary remedies sought by plaintiffs (e.g., injunctive relief) that may require us to change our business practices in a manner that could have a material adverse impact on our business. With respect to the matters disclosed in this Note 13, we are unable to estimate the possible loss or range of losses that could potentially result from the application of such non-monetary remedies.

Amounts accrued for legal and regulatory proceedings for which we believe a loss is probable and reasonably estimable were not material as of ~~September~~June 30, ~~2022.~~2023. Except as otherwise noted for the proceedings described in this Note 13, we have concluded, based on currently available information, that reasonably possible losses arising directly from the proceedings (i.e., monetary damages or amounts paid in judgment or settlement) in excess of our recorded accruals are also not material. Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. We may be exposed to losses in excess of the amount recorded, and such amounts could be material. If any of our estimates and assumptions change or prove to have been incorrect, it could have a material adverse effect on our business, financial position, results of operations, or cash flows.

~~Regulatory proceedings~~

We are required to comply with U.S. economic and trade sanctions administered by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). In March 2015, we reached a settlement with OFAC regarding possible violations arising from our sanctions compliance practices between 2009 and 2013, prior to the implementation of our real-time transaction scanning program. Subsequently, we have self-reported additional transactions that were inadvertently processed but subsequently identified as possible violations, and we have received new subpoenas from OFAC seeking additional information about certain of these transactions. Such self-reported transactions could result in claims or actions against us, including litigation, injunctions, damage awards, fines or penalties, or require us to change our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise harm our business.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Regulatory proceedings

PayPal Australia Pty Limited (“PPAU”) self-reported a potential violation to the Australian Transaction Reports and Analysis Centre (“AUSTRAC”) on May 22, 2019. This self-reported matter relates to PPAU incorrectly filing required international funds transfer instructions ~~(“IFTIs”)~~ over a period of time under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (“AML/CTF Act”). On September 23, 2019, PPAU received a notice from AUSTRAC requiring that PPAU appoint an external auditor (a partner of a firm which is not our independent auditor) to review certain aspects of PPAU’s compliance with its obligations under the AML/CTF Act. The external auditor was appointed on November 1, 2019. As required under the terms of AUSTRAC’s notice, as amended, PPAU issued to AUSTRAC the external auditor’s interim reports on December 31, 2019, March 13, 2020, May 6, 2020, and July 7, 2020 and a final report on August 31, 2020.

AUSTRAC ~~has~~had notified PPAU that its enforcement team iswas investigating the matters reported upon by the external auditor in its August 31, 2020 final report. ~~AUSTRAC continues~~As a resolution of this investigation, on March 17, 2023, AUSTRAC’s Chief Executive Officer accepted an enforceable undertaking from PPAU in relation to ~~engage with PPAU regarding~~ the transaction categories it considers reportable under the AML/CTF Act as IFTIs. PPAU is continuing to cooperate with AUSTRAC in all respects, including remediation activities, ongoing regular engagement with AUSTRAC, and responding to notices and requests for information and documents.self-reported issues.

~~We cannot estimate~~The enforceable undertaking does not include a monetary penalty. The entry into and compliance with the potential impact, if any, on our business or financial statements at this time. In the event an adverse outcome arises from any associated enforcement proceeding, or other further matter initiated by AUSTRAC, including in relationenforceable undertaking will not require a change to ~~AUSTRAC’s determination of reportable IFTIs, then this could result in enforceable undertakings, injunctions, damage awards, fines or penalties, or require us to change~~ our business practices in a manner that could result in a material loss, require significant management time, result in the diversion of significant operational resources, or otherwise ~~harm~~adversely affect our business.

PPAU is required to deliver an Assurance Action Plan (“AAP”) under the enforceable undertaking to demonstrate that the governance and oversight arrangements following the remedial work completed by PPAU are sustainable and appropriate. The enforceable undertaking requires PPAU to appoint an external auditor. The external auditor was appointed on June 22, 2023 and will assess and report on the appropriateness, sustainability and efficacy of the actions to be taken under the AAP. The external auditor’s final report to PPAU and AUSTRAC is due on or before April 16, 2024. The successful completion of the enforceable undertaking is subject to AUSTRAC’s ultimate review and decision based on the external auditor’s final report. We cannot predict the outcome of the external auditor’s final report or AUSTRAC’s decision.

Any failure to comply with the enforceable undertaking could result in penalties or require us to change our business practices.

We have received Civil Investigative Demands (“CIDs”) from the Consumer Financial Protection Bureau (“CFPB”) related to Venmo’s unauthorized funds transfers and collections processes, and related ~~matters.~~matters, including treatment of consumers who request payments but accidentally designate an unintended recipient. The CIDs request the production of documents and answers to written questions. We are cooperating with the CFPB in connection with these CIDs.

We have received a CID from the CFPB related to the marketing and use of PayPal Credit in connection with certain merchants that provide educational services (the “CFPB PayPal Credit Matter”). The CID requests the production of documents, written reports, and answers to written questions. We are cooperating with the CFPB in connection with this CID.

~~We are responding~~responded to subpoenas and requests for information ~~received~~ from the U.S. Securities and Exchange Commission (“SEC”) Enforcement Division relating to whether the interchange rates paid to the bank that issues debit cards bearing our licensed brands were consistent with Regulation II of the Board of Governors of the Federal Reserve System, and to the reporting of marketing fees earned from the PayPal-branded card programs (the “SEC Debit Card Program Matter”). We ~~are cooperating with~~have been informed by the SEC ~~Enforcement Division in connection with~~that this ~~investigation.~~matter has been formally closed without action.

In February 2022, we received a CID from the Federal Trade Commission (“FTC”) related to PayPal’s practices relating to commercial customers that submit charges on behalf of other merchants or sellers, and related activities. The CID requests the production of documents and answers to written questions. We are cooperating with the FTC in connection with this CID.

In January 2023, we received notice of an administrative proceeding and a related request for information from the German Federal Cartel Office (“FCO”) related to terms in PayPal (Europe) S.à.r.l. et Cie, S.C.A.’s contractual terms with merchants in Germany prohibiting surcharging and requiring parity presentation of PayPal relative to other payment methods. We are cooperating with the FCO in connection with this proceeding.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

Legal proceedings

On August 20, 2021, a putative securities class action captioned Kang v. PayPal Holdings, Inc., et al., Case No. 21-cv-06468, was filed in the U.S. District Court for the Northern District of California (the “Kang Securities Action”). The Kang Securities Action asserts claims relating to our disclosure of a CID from the CFPB related to the marketing and use of PayPal Credit ~~Matter~~in connection with certain merchants that provide educational services and the SEC Debit Card Program Matter in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021. The Kang Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 9, 2017 and July 28, 2021 (the “Class Period”), and asserts claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against the Company, its Chief Executive Officer, and former Chief Financial Officer. The complaint alleges that certain public statements made by the Company during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the defendants’ failure to disclose that, among other things, PayPal’s business practices with respect to PayPal Credit and regarding interchange rates paid to its bank partner related to its bank-issued co-branded debit cards were non-compliant with applicable laws and/or regulations. The Kang Securities Action seeks unspecified compensatory damages on behalf of the putative class members. On November 2, 2021, the court appointed a Lead Plaintiff, and on January 25, 2022, the Lead Plaintiff filed an amended complaint. The amended complaint alleges a class period between April 27, 2016 and July 28, 2021 (the “Amended Class Period”), and in addition to the Company, its Chief Executive Officer, and former Chief Financial Officer, also names other Company executives as defendants. The amended complaint alleges that various statements made by the defendants during the Amended Class Period were rendered materially false and misleading, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, by PayPal’s alleged violations of the 2015 consent order with the CFPB, federal consumer financial laws, and Regulation II. On August 8, 2022, the court granted Defendants’ motion to dismiss the amended complaint in its entirety, and granted Lead Plaintiff’s request for leave to file a further amended complaint. On September 16, 2022, Lead Plaintiff filed a Second Amended Complaint (the “SAC”), which asserts the same claims against the same Defendants based on the same alleged conduct as the prior complaint. ~~Defendants’ motion~~Defendants moved to dismiss the SAC ~~is due~~ on November 3, ~~2022,~~2022. On April 27, 2023, the Court granted Defendants’ motion and ~~briefing~~dismissed the SAC in its entirety with prejudice. Plaintiffs’ deadline to file an appeal has passed and the matter is ~~ongoing.~~now closed.

On December 16, 2021 and January 19, 2022, two related putative shareholder derivative actions captioned Pang v. Daniel Schulman, et al., Case No. 21-cv-09720, and Lalor v. Daniel Schulman, et al., Case No. 22-cv-00370, respectively, were filed in the U.S. District Court for the Northern District of California (the “California Derivative Actions”), purportedly on behalf of the Company. On August 2, 2022, a related putative shareholder derivative action captioned Jefferson v. Daniel Schulman, et al., No. 2022-0684, was filed in the Court of Chancery for the State of Delaware (the “Delaware Derivative Action,” and collectively with the California Derivative Actions, the “Derivative Actions”), purportedly on behalf of the Company. The Derivative Actions are based on the same alleged facts and circumstances as the Kang Securities Action, and name certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants. The Derivative Actions allege claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, waste of corporate assets, and violations of the Securities Exchange Act of 1934 (“Exchange Act”), and seek to recover damages on behalf of the Company. On February 1, 2022, the court entered an order consolidating the two California Derivative Actions and staying them until all motions to dismiss in the Kang Securities Action are resolved. On June 29, 2023, following the final dismissal of the Kang Securities Action, the Court so-ordered a stipulation dismissing the California Derivative Actions, without prejudice.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

On October 4, 2022, a putative securities class action captioned Defined Benefit Plan of the Mid-Jersey Trucking Industry and Teamsters Local 701 Pension and Annuity Fund v. PayPal Holdings, Inc., et al., Case No. 22-cv-5864, was filed in the U.S. District Court for the District of New ~~Jersey (the “MJT~~Jersey. On January 11, 2023, the Court appointed Caisse de dépôt et placement du Québec as lead plaintiff and renamed the action In re PayPal Holdings, Inc. Securities Litigation (“PPH Securities Action”). On March 13, 2023, the lead plaintiff filed an amended and consolidated complaint. The ~~MJT~~PPH Securities Action asserts claims relating to our public statements with respect to net new active accounts (“NNA”) results and guidance, and the detection of illegitimately created accounts. The ~~MJT~~PPH Securities Action purports to be brought on behalf of purchasers of the Company’s stock between February 3, 2021 and February 1, 2022 (the “Class Period”), and asserts claims for alleged violations of Sections 10(b) ~~and 20(a)~~ of the ~~Securities~~ Exchange Act ~~of 1934~~ against the Company, as well as its Chief Executive Officer, Chief Strategy, Growth and Data Officer, and former Chief Financial ~~Officer.~~Officer (collectively, the “Individual Defendants,” and together with the Company, “Defendants”), and for alleged violations of Sections 20(a) and 20A of the Exchange Act against the Individual Defendants. The complaint alleges that certain public statements made by ~~the Company~~Defendants during the Class Period were rendered materially false and misleading (which, allegedly, caused the Company’s stock to trade at artificially inflated prices) by the ~~defendants’~~Defendants’ failure to disclose that, among other things, the Company’s incentive campaigns were susceptible to fraud and led to the creation of illegitimate accounts, which allegedly affected the Company’s NNA results and guidance. The ~~MJT~~PPH Securities Action seeks unspecified compensatory damages on behalf of the putative class members. ~~Motions for investors seeking appointment as lead plaintiff are due on December 5, 2022.~~


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

On November 2, 2022, a putative shareholder derivative action captioned Shah v. Daniel Schulman, et al., Case No. 22-cv-1445, was filed in the U.S. District Court for the District of Delaware (the “Shah Action”), purportedly on behalf of the Company. On April 4, 2023, a putative shareholder derivative action captioned Nelson v. Daniel Schulman, et. al., Case No. 23-cv-01913, was filed in the U.S. District Court for the District of New Jersey (the “Nelson Action”) purportedly on behalf of the Company. The Shah ~~Action is~~and Nelson Actions are based on the same alleged facts and circumstances as the ~~MJT~~PPH Securities Action, and ~~names~~name certain of our officers, including our Chief Executive Officer and former Chief Financial Officer, and members of our Board of Directors, as defendants. The Shah ~~Action alleges~~and Nelson Actions allege claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, unjust enrichment, waste of corporate assets, gross mismanagement and violations of the ~~Securities~~ Exchange Act, ~~of 1934,~~ and ~~seeks~~seek to recover damages on behalf of the Company. The Shah and Nelson Actions have been stayed pending further developments in the PPH Securities Action.

On December 20, 2022, a civil lawsuit captioned State of Hawai‘i, by its Office of Consumer Protection, v. PayPal, Inc., and PayPal Holdings, Inc., Case No. 1CCV-22-0001610, was filed in the Circuit Court of the First Circuit of the State of Hawai‘i (the “Hawai‘i Action”). The Hawai‘i Action asserts claims for unfair and deceptive acts and practices under Hawai‘i Revised Statutes Sections 480-2(a) and 481A-3(a). Plaintiff seeks injunctive relief as well as unspecified penalties and other monetary relief. On July 14, 2023, the court denied Defendants’ motion to dismiss the complaint.

General matters

Other third parties have from time to time claimed, and others may claim in the future, that we have infringed their intellectual property rights. We are subject to patent disputes and expect that we will increasingly be subject to additional patent infringement claims involving various aspects of our business as our products and services continue to expand in scope and complexity. Such claims may be brought directly or indirectly against our companies and/or against our customers (who may be entitled to contractual indemnification under their contracts with us), and we are subject to increased exposure to such claims as a result of our acquisitions, particularly in cases where we are introducing new products or services in connection with such acquisitions. We have in the past been forced to litigate such claims, and we believe that additional lawsuits alleging such claims will be filed against us. Intellectual property claims, whether meritorious or not, are time-consuming and costly to defend and resolve, could require expensive changes in our methods of doing business, or could require us to enter into costly royalty or licensing agreements on unfavorable terms or make substantial payments to settle claims or to satisfy damages awarded by courts.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

From time to time, we are involved in other disputes or regulatory inquiries that arise in the ordinary course of business, including suits by our customers (individually or as class actions) or regulators alleging, among other things, improper disclosure of our prices, rules, or policies, that our practices, prices, rules, policies, or customer/user agreements violate applicable ~~law;~~law, or that we have acted unfairly or not acted in conformity with such prices, rules, policies, or agreements. In addition to these types of disputes and regulatory inquiries, our operations are also subject to regulatory and legal review and challenges that may reflect the increasing global regulatory focus to which the payments industry is subject and, when taken as a whole with other regulatory and legislative action, such actions could result in the imposition of costly new compliance burdens on our business and customers and may lead to increased costs and decreased transaction volume and revenue. Further, the number and significance of these disputes and inquiries are increasing as our business has grown and expanded in scale and scope, including the number of active accounts and payments transactions on our platform, the range and increasing complexity of the products and services that we offer, and our geographical operations. Any claims or regulatory actions against us, whether meritorious or not, could be time consuming, result in costly litigation, settlement payments, damage awards (including statutory damages for certain causes of action in certain jurisdictions), fines, penalties, injunctive relief, or increased costs of doing business through adverse judgment or settlement, require us to change our business practices in expensive ways, require significant amounts of management time, result in the diversion of significant operational resources, or otherwise harm our business.

INDEMNIFICATION PROVISIONS

Our agreements with eBay governing our separation from eBay provide for specific indemnity and liability obligations for both eBay and us. Disputes between eBay and us have arisen and others may arise in the future, and an adverse outcome in such matters could materially and adversely impact our business, results of operations, and financial condition. In addition, the indemnity rights we have against eBay under the agreements may not be sufficient to protect us, and our indemnity obligations to eBay may be significant.


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

In the ordinary course of business, we include indemnification provisions in certain of our agreements with parties with whom we have commercial relationships. Under these contracts, we generally indemnify, hold harmless, and agree to reimburse the indemnified party for losses suffered or incurred by the indemnified party in connection with claims by any third party with respect to our domain names, trademarks, logos, and other branding elements to the extent that such marks are related to the subject agreement. We have provided an indemnity for other types of third-party claims, which may include indemnities related to intellectual property rights, confidentiality, willful misconduct, data privacy obligations, and certain breach of contract claims, among others. We have also provided an indemnity to our payments processors in the event of card association fines against the processor arising out of conduct by us or our customers. It is not possible to determine the maximum potential loss under these indemnification provisions due to our limited history of prior indemnification claims and the unique facts and circumstances involved in each particular situation.

PayPal has participated in the U.S. Government’s Paycheck Protection Program administered by the U.S. Small Business Administration. Loans made under this program are funded by an independent chartered financial institution that we partner with. We receive a fee for providing services in connection with these loans and retain operational and audit risk related to those activities. We have agreed, under certain circumstances, to indemnify the chartered financial institution and its assignee of a portion of these loans in connection with the services provided for loans made under this program.

To date, no significant costs have been incurred, either individually or collectively, in connection with our indemnification provisions.

OFF-BALANCE SHEET ARRANGEMENTS

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

PROTECTION PROGRAMS

We provide merchants and consumers with protection programs for certain transactions completed on our payments platform. These programs are intended to protect both merchants and consumers from loss primarily due to fraud and counterparty performance. Our ~~purchase protection program~~Purchase Protection Program provides protection to consumers for qualifying purchases by reimbursing the consumer for the full amount of the purchase if a purchased item does not arrive or does not match the seller’s description. Our ~~seller protection programs~~Seller Protection Programs provide protection to merchants against claims that a transaction was not authorized by the buyer or claims that an item was not received by covering the seller for the full amount of the payment on eligible sales. Additionally, in some instances we provide protection for cryptocurrencies held in PayPal accounts in case of loss directly resulting from an unauthorized transfer of a customer’s cryptocurrency, the service provider insolvency, or in the event the service provider’s private keys are compromised. These protection programs are considered assurance-type warranties under applicable accounting standards for which we estimate and record associated costs in transaction and credit losses during the period the payment transaction is completed.

At ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the allowance for transaction losses was ~~$71~~$58 million and ~~$121~~$66 million, respectively. The allowance for negative customer balances was ~~$217~~$288 million and ~~$234~~$212 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The following table shows changes in the allowance for transaction losses and negative customer balances related to our protection programs for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(in millions)									(in millions)
Beginning balance	Beginning balance	$	378	$	366	$	355	$	414	Beginning balance	$	318	$	319	$	278	$	355
Provision	Provision	254		293		956		847		Provision	286		380		586		702
Realized losses	Realized losses	(394)		(313)		(1,157)		(964)		Realized losses	(288)		(373)		(553)		(763)
Recoveries	Recoveries	50		41		134		90		Recoveries	30		52		35		84
Ending balance	Ending balance	$	288	$	387	$	288	$	387	Ending balance	$	346	$	378	$	346	$	378


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~~PayPal Holdings, Inc.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

NOTE 14—STOCK REPURCHASE PROGRAMS

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we repurchased approximately 2941 million shares of our common stock for approximately ~~$3.2~~$3.0 billion at an average ~~cost~~price of ~~$110.75.~~$72.42, excluding excise tax. These shares were purchased in the open market under our stock repurchase ~~program~~programs authorized in July ~~2018. In~~2018 and June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $15.0 billion of our common stock, with no expiration from the date of authorization.2022. As of ~~September~~June 30, ~~2022,~~2023, a total of approximately ~~$1.9 billion and $15.0~~$12.9 billion remained available for future repurchases of our common stock under our ~~July 2018 and~~ June 2022 stock repurchase ~~programs, respectively.~~program.

The Inflation Reduction Act of 2022 imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. Beginning in the first quarter of 2023, we reflected the applicable excise tax in treasury stock on our condensed consolidated balance sheet. During the six months ended June 30, 2023, we recorded $24 million in excise tax within treasury stock on our condensed consolidated balance sheet.

NOTE 15—STOCK-BASED PLANS

In May 2023, our stockholders approved an additional authorization of 34.6 million shares to the Amended and Restated PayPal Holdings, Inc. 2015 Equity Incentive Award Plan (the “Plan”). In June 2023, the Company filed a post-effective amendment to the 2022 Inducement Plan registration statement that enabled 2.6 million shares previously issuable under the 2022 Inducement Plan to be included in the 34.6 million additional shares issuable under the Plan.

STOCK-BASED COMPENSATION EXPENSE

Stock-based compensation expense for our equity incentive plans are measured based on their estimated fair value at the time of grant and recognized over the award’s vesting period.


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PayPal Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

The impact on our results of operations of recording stock-based compensation expense under our equity incentive plans for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
		(In millions)									(In millions)
Customer support and operations	Customer support and operations	$	56	$	56	$	196	$	205	Customer support and operations	$	76	$	67	$	148	$	140
Sales and marketing	Sales and marketing	27		38		114		134		Sales and marketing	45		42		88		87
Technology and development	Technology and development	115		117		380		403		Technology and development	149		129		297		265
General and administrative	General and administrative	41		100		317		348		General and administrative	106		88		200		276
Total stock-based compensation expense	Total stock-based compensation expense	$	239	$	311	$	1,007	$	1,090	Total stock-based compensation expense	$	376	$	326	$	733	$	768
Capitalized as part of internal use software and website development costs		$	12	$	17	$	40	$	51
Capitalized stock-based compensation expense										Capitalized stock-based compensation expense	$	13	$	12	$	24	$	28

NOTE 16—INCOME TAXES

Our effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was ~~16%~~21% and ~~34%~~23%, respectively. Our effective tax rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was 7%796% and 1%75%, respectively. The difference between our effective tax rate and the U.S. federal statutory rate of 21% in the current periods was primarily the result of foreign income taxed at different rates and ~~for the nine months ended September 30, 2022,~~discrete tax adjustments, including tax expense related to ~~the intra-group transfer of intellectual property.~~stock-based compensation. The difference between our effective tax rate and the U.S. federal statutory rate of 21% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was primarily ~~the result of foreign income taxed at different rates and discrete~~due to tax ~~adjustments, including tax benefits~~expense related to ~~stock-based compensation.~~the intra-group transfer of intellectual property.

NOTE 17—RESTRUCTURING AND OTHER CHARGES

During the first quarter of ~~2022,~~2023, management initiated a ~~strategic reduction of the existing~~ global workforce reduction intended to ~~streamline~~focus resources on core strategic priorities, and ~~optimize~~improve our ~~global operations to enhance~~cost structure and operating efficiency. ~~As part of this effort, we are focusing on reducing redundant operations and simplifying our organizational structure.~~ The associated restructuring charges during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 were ~~$23 million~~nil and ~~$114~~$117 million, respectively. We primarily incurred employee severance and benefits costs, substantially all of which have been accrued for as well as associated consulting costs under the 2022 strategic reduction. The strategic actions and cash payments associated with this plan are expected to be substantially completed by the fourth quarter of ~~2022.~~March 31, 2023.


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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~(Unaudited)~~

The following table summarizes the restructuring reserve activity during the ~~nine~~six months ended ~~September~~June 30, ~~2022:~~2023:


	Employee Severance and Benefits and Other Associated Costs
	(In millions)
Accrued liability as of January 1, ~~2022~~2023	$	524
Charges	~~114~~117
Payments	~~(78)~~(121)
Accrued liability as of ~~September~~June 30, ~~2022~~2023	$	4120

During the first quarter of ~~2020,~~2022, management ~~approved~~initiated a strategic reduction of the existing global workforce ~~as part of a multiphase process~~intended to ~~reorganize~~streamline and optimize our ~~workforce concurrently with the redesign of~~global operations to enhance operating efficiency. This effort focused on reducing redundant operations and simplifying our ~~operating structure, which spanned multiple quarters.~~organizational structure. The associated restructuring charges during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were ~~nil~~$71 million and ~~$27~~$91 million, respectively. We primarily incurred employee severance and benefits costs, as well as associated consulting costs under ~~the 2020~~this strategic ~~reduction, which was~~reduction. The strategic actions associated with this plan were substantially completed ~~in 2021.~~by the fourth quarter of 2022.

Additionally, we are continuing to review our real estate and facility ~~needs~~capacity requirements due to our new and evolving work models. We incurred asset impairment charges of ~~$29~~$4 million and ~~$64~~$43 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, and ~~nil~~$19 million and ~~$26~~$35 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, due to exiting of certain leased properties, which resulted in a reduction of ROU lease assets and related leasehold improvements. See “Note 6—Leases” for additional information. We recognized a gain of $14 million due to the sale of an owned property in the three and six months ended June 30, 2023. We also incurred a loss of $8 million upon designation of another owned property as held for sale in the six months ended June 30, 2023.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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


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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). ~~Additionally, our forward-looking statements include expectations related to anticipated impacts of the coronavirus pandemic.~~ 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, ~~2021~~2022 (the ~~“2021~~“2022 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

We are a leading technology platform that enables digital payments and simplifies commerce experiences on behalf of merchants and consumers worldwide. PayPal is committed to democratizing financial services to help improve the financial health of individuals and to increase economic opportunity for entrepreneurs and businesses of all sizes around the world. Our goal is to enable our merchants and consumers to manage and move their money anywhere in the world in the markets we serve, anytime, on any platform, and using any device when sending payments or getting paid, including person-to-person payments.

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 countering terrorist financing, anti-money laundering, privacy, cybersecurity, and consumer protection. The laws and regulations applicable to us, including those enacted prior to the advent of digital payments, ~~are continuing~~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.

Information security

Information security risks for global payments and technology companies like us have increased significantly in recent years. Although we have developed systems and processes designed to protect the data we manage, prevent data loss and other security incidents, and enable us to effectively respond to known and potential risks, and expect to continue to expend significant resources to bolster these protections, we remain subject to these risks and there can be no assurance that our security measures will provide sufficient security or prevent breaches or attacks. For additional information regarding our information security risks, see Part I, Item 1A, Risk Factors in our ~~2021~~2022 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form 10-Q.


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~~RUSSIA AND UKRAINE CONFLICT~~

With respect to the military hostilities commenced by Russia in Ukraine in February 2022, our priority is the safety and well-being of our PayPal employee community impacted by these events. We continue to take actions to comply with all applicable restrictions and sanctions that may impact our operations. In March 2022, we suspended our transactional services in Russia. We are unable to reasonably estimate the total potential financial impact that may ultimately result from this situation. In the three and nine months ended September 30, 2022 and the year ended December 31, 2021, our total net revenues related to Russia and Ukraine were not material. For additional information regarding the risks related to the Russia and Ukraine conflict and its potential negative impacts on our business, see Part II, Item 1A, Risk Factors of this Form 10-Q.

~~COVID-19~~

The coronavirus (“COVID-19”) pandemic has resulted in government authorities and businesses throughout the world implementing numerous measures intended to contain and limit the spread of COVID-19, including travel restrictions, border closures, quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and shutdowns. The spread of COVID-19 and increased variants caused, and may continue to cause us to make significant modifications to our business practices, including enabling most of our workforce to work from home, establishing strict health and safety protocols for our offices, restricting physical participation in meetings, events, and conferences, and imposing restrictions on employee travel. Beginning in first half of 2022, we reopened many of our physical offices in locations where permitted by the government authorities. We will continue to actively monitor the situation and may take further actions that alter our business practices as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, or business partners.

The spread of COVID-19 accelerated the shift from in-store shopping and traditional in-store payment methods (e.g., cash) towards e-commerce and digital payments and resulted in increased customer demand for safer payment and delivery solutions (e.g., contactless payment methods, buy online and pick up in store) and a significant increase in online spending in certain verticals that have historically had a strong in-store presence. While our business had experienced some benefits from these behavioral shifts, as pandemic-related restrictions have decreased and consumers have largely reverted to pre-COVID-19 behaviors, the growth in our results of operations has been, and may continue to be, adversely impacted.

The broader implications of the COVID-19 pandemic and related global economic unpredictability on our business, financial condition, and results of operations remain uncertain. For additional information on how the COVID-19 pandemic has impacted and could continue to negatively impact our business, refer to Part II, Item 1A, Risk Factors of this Form 10-Q.

BREXIT

The United Kingdom (“U.K.”) formally exited the European Union (“EU”) and the European Economic Area (“EEA”) on January 31, 2020 (commonly referred to as “Brexit”) with the expiration of the transition period on December 31, 2020. PayPal ~~(Europe) S.à.r.l. et Cie, SCA (“PayPal (Europe)”)~~ operates in the U.K. within the scope of its passport permissions (as they stood at the end of the transition period) under the Temporary Permissions Regime pending the grant of new ~~U.K.~~ authorizations by the U.K. financial regulators. We are currently unable to determine the longer-term impact that Brexit will have on our business, which will depend, in part, on the implications of new tariff, trade, and regulatory frameworks that now govern the provision of cross-border goods and services between the U.K. and the EEA, as well as the financial and operational consequences of the requirement for PayPal ~~(Europe)~~ to obtain new U.K. authorizations to operate its business longer-term within the U.K. market. For additional information on how Brexit could affect our business, see Part I, Item 1A, Risk Factors in our ~~2021~~2022 Form 10-K, as supplemented and, to the extent inconsistent, superseded below (if applicable) in Part II, Item 1A, Risk Factors of this Form ~~10-Q.~~10‑Q.

Brexit may contribute to instability in financial, stock, and foreign currency exchange markets, including volatility in the value of the British ~~Pound~~pound and Euro. We have foreign currency exchange exposure management programs designed to help reduce the impact from foreign currency exchange rate movements. The tables below provide the percentage of our total net revenues and gross loans and interest receivable from the U.K. and EU for the periods presented:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net revenues generated from the U.K.	Net revenues generated from the U.K.	7	%	9	%	8	%	9	%	Net revenues generated from the U.K.	7	%	8	%	7	%	8	%
Net revenues generated from the EU	Net revenues generated from the EU	17	%	18	%	17	%	20	%	Net revenues generated from the EU	20	%	17	%	19	%	18	%


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	June 30, 2023(1)		December 31, 2022
Gross loans and interest receivable due from customers in the U.K.	30	%	29	%
Gross loans and interest receivable due from customers in the EU	30	%	28	%

(1)

September 30,
2022 December 31,
2021
Gross loans and interest receivable due from customers in the U.K. 30 % 40 %
Gross loans and interest receivable due from customers in the EU 27 % 21 %

~~The change in the percentage of gross~~ Includes loans and interest receivable, due from customers in the U.K. and EU as of September 30, 2022 compared to December 31, 2021 was primarily attributable to expansion of our installment credit products in the EU, particularly in Germany where we have increased our product offerings.held for sale.

MACROECONOMIC ENVIRONMENT

The ~~impacts~~broader implications of the macroeconomic environment, including uncertainty around the ~~duration and severity of the COVID-19 pandemic, the~~ Russia and Ukraine conflict, supply chain shortages, a recession globally or in markets in which we operate, higher inflation rates, higher interest rates, and other related global economic conditions, remain unknown. A deterioration in macroeconomic conditions could continue to increase the risk of lower consumer spending, ~~consumer~~merchant and ~~merchant~~consumer bankruptcy, insolvency, business failure, higher credit losses, foreign currency exchange fluctuations, or other business interruption, which may adversely impact our business. If these conditions continue or worsen, they could adversely impact our future financial and operating results.


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OVERVIEW OF RESULTS OF OPERATIONS

The following table provides a summary of our condensed consolidated financial results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended September 30,						Percent Increase/(Decrease)				Nine Months Ended September 30,											Percent Increase/(Decrease)			Three Months Ended June 30,										Percent Increase/(Decrease)			Six Months Ended June 30,						Percent Increase/(Decrease)
		2022			2021					2022					2021							2023					2022							2023					2022
		(In millions, except percentages and per share data)																								(In millions, except percentages and per share data)
Net revenues	Net revenues	$	6,846		$	6,182				11	%				$	20,135				$	18,453					9		%	Net revenues	$	7,287				$		6,806		7		%	$	14,327		$	13,289		8	%
Operating expenses	Operating expenses	5,728			5,139			11	%			17,542					15,241						15	%	Operating expenses	6,154					6,042					2		%	12,195			11,814			3		%
Operating income	Operating income	$	1,118		$	1,043		7	%			$	2,593				$	3,212					(19)	%	Operating income	$	1,133				$	764				48		%	$	2,132		$	1,475		45		%
Operating margin	Operating margin	16		%	17		%	**				13		%			17		%				**		Operating margin	16		%			11		%			**			15		%	11		%	**
Other income (expense), net	Other income (expense), net	$	460		$	122		277	%			$	(337)				$	181					(286)	%	Other income (expense), net	$	170				$	(715)				124		%	$	245		$	(797)		131		%
Income tax expense	Income tax expense	248			78			218	%			758					25						**		Income tax expense	274					390					(30)		%	553			510			8		%
Effective tax rate	Effective tax rate	16		%	7		%	**				34		%			1		%				**		Effective tax rate	21		%			796		%			**			23		%	75		%	**
Net income (loss)	Net income (loss)	$	1,330		$	1,087		22	%			$	1,498				$	3,368					(56)	%	Net income (loss)	$	1,029				$	(341)				**			$	1,824		$	168		**
Net income (loss) per diluted share	Net income (loss) per diluted share	$	1.15		$	0.92		26	%			$	1.29				$	2.84					(55)	%	Net income (loss) per diluted share	$	0.92				$	(0.29)				**			$	1.62		$	0.14		**
Net cash provided by operating activities(1)	Net cash provided by operating activities(1)	$	1,948		$	1,513		29	%			$	4,656				$	4,577					2	%	Net cash provided by operating activities(1)	$	(200)				$	1,250				(116)		%	$	970		$	2,467		(61)		%

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.

(1) Prior period amounts have been revised to conform to the current period presentation. Refer to “Note 1—Overview and Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in this Form 10-Q for additional information.

** Not meaningful.

THREE MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

Net revenues increased ~~$664~~$481 million, or ~~11%~~7%, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year driven primarily by growth in total payment volume (“TPV”, as defined below under “Key Metrics”) of 9%11%.

Total operating expenses increased ~~$589~~$112 million, or ~~11%~~2%, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year due primarily to an increase in transaction expense, partially offset by reductions in sales and ~~to a lesser extent, an increase in transaction~~marketing expense, technology and ~~credit losses.~~development expense, and restructuring and other charges.

Operating income increased by ~~$75~~$369 million, or 7%48%, in the three months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year due to ~~the increase in~~ net revenues ~~exceeding the increase in~~growing faster than operating expenses. Our operating margin was 16% and ~~17%~~11% in the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021, respectively. Operating margin for~~respectively, reflecting the ~~three months ended September 30, 2022 was negatively impacted primarily~~positive impact of operating efficiencies in our business, partially offset by ~~increases~~the negative impact of an increase in transaction ~~expense and transaction and credit losses, as described below under “Operating Expenses”.~~expense.


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Net income increased ~~$243 million, or 22%,~~$1.4 billion in the three months ended ~~September~~June 30, ~~2022 as~~2023 compared to the same period of the prior year due to the previously discussed increase in operating income of ~~$75~~$369 million, ~~and~~ an increase in other income (expense), net of ~~$338~~$885 million driven primarily by ~~higher~~net gains on strategic investments ~~partially offset by an increase~~in the current period as compared to net losses in the prior period, and a decrease in income tax expense of ~~$170~~$116 million driven primarily by higher tax expense in the prior period related to the intra-group transfer of intellectual property, partially offset by higher tax expense in the current period on higher operating income and net gains on strategic ~~investments and lower tax benefits associated with discrete adjustments.~~investments.

~~NINE~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2022~~2023 AND ~~2021~~2022

Net revenues increased ~~$1.7~~$1.0 billion, or 9%8%, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year driven primarily by growth in TPV of 10%.

Total operating expenses increased ~~$2.3 billion,~~$381 million, or ~~15%~~3%, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year due primarily to an increase in transaction expense, partially offset by reductions in sales and ~~to a lesser extent, increases in transaction and credit losses,~~marketing expense, technology and development ~~expenses,~~expense, general and ~~restructuring~~administrative expense, and ~~other charges.~~customer support and operations expense.


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Operating income ~~decreased by $619~~increased $657 million, or ~~19%~~45%, in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year due to ~~growth of~~net revenues growing faster than operating ~~expenses exceeding growth in net revenues.~~expenses. Our operating margin was ~~13%~~15% and ~~17%~~11% in the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021, respectively. Operating margin for~~respectively, reflecting the ~~nine months ended September 30, 2022 was negatively impacted primarily~~positive impact of operating efficiencies in our business, partially offset by ~~increases~~the negative impact of an increase in transaction ~~expense and transaction and credit losses.~~expense.

Net income ~~decreased by $1.9~~increased $1.7 billion ~~or 56%,~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same period of the prior year due to the previously discussed ~~decrease~~increase in operating income of ~~$619~~$657 million ~~a decrease~~and an increase of ~~$518 million~~$1.0 billion in other income (expense), net driven primarily by ~~losses~~net gains on strategic investments ~~and an increase~~ in ~~income tax expense of $733 million, driven primarily by higher tax expense related~~the current period as compared to the intra-group transfer of intellectual property and a decrease in discrete tax benefits associated with stock-based compensation deductions, partially offset by an increase in discrete tax benefits associated with net losses ~~on strategic investments.~~in the prior period.

IMPACT OF FOREIGN CURRENCY 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 currency exchange risk which may adversely impact our financial results. The strengthening or weakening of the United States (“U.S.”) dollar versus the British pound, Euro, Australian dollar, and Canadian dollar, as well as other 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 42% ~~and 43%~~ of our net revenues from customers domiciled outside of the U.S. in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~44% and 47%~~43% in both the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, respectively.~~2022. 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 ~~2021~~2022 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.

We calculate the year-over-year impact of foreign currency exchange movements on our business using prior period foreign currency exchange rates applied to current period transactional currency amounts. While changes in foreign currency exchange rates affect our reported results, we have a foreign currency exchange exposure management program in which we ~~designate certain~~use foreign currency exchange contracts, designated as cash flow hedges, intended to reduce the impact on earnings from foreign currency exchange rate movements. Gains and losses from these foreign currency exchange contracts are recognized as a component of transaction revenues or operating expenses (as applicable) in the same period the forecasted transactions impact earnings.

In the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, year-over-year foreign currency exchange rate movements relative to the U.S. dollar had the following impact on our reported results:

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022
(In millions)
Unfavorable impact to net revenues (exclusive of hedging impact) $ (307) $ (672)
Hedging impact 156 310
Unfavorable impact to net revenues (151) (362)
Favorable impact to operating expense 162 350
Net favorable (unfavorable) impact to operating income $ 11 $ (12)


	Three Months Ended June 30, 2023		Six Months Ended June 30, 2023
	(In millions)
Favorable (unfavorable) impact to net revenues (exclusive of hedging impact)	$	6	$	(133)
Hedging impact	34		110
Favorable (unfavorable) impact to net revenues	40		(23)
Favorable impact to operating expense	7		85
Net favorable impact to operating income	$	47	$	62


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While we enter into foreign currency exchange contracts to help reduce the impact on earnings from foreign currency exchange rate movements, it is impossible to predict or eliminate the total effects of this exposure.

We also use foreign currency exchange contracts, designated as net investment hedges, to reduce the foreign currency 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 currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries, we have an additional foreign currency exchange exposure management program in which we use foreign currency exchange contracts to help offset the impact of foreign currency exchange rate movements on our assets and liabilities. The foreign currency 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 currency exchange contracts. These foreign currency exchange contracts reduce, but do not entirely eliminate, the impact of foreign currency exchange rate movements on our assets and liabilities.


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Additionally, in connection with transactions occurring in multiple currencies on our payments platform, we generally set our foreign currency exchange rates daily and may face financial exposure if we incorrectly set our foreign currency exchange rates or as a result of fluctuations in foreign currency exchange rates between the times that we set our foreign currency exchange rates and when transactions occur.

KEY METRICS AND FINANCIAL RESULTS

KEY METRICS

~~Active accounts,~~TPV, number of payment transactions, active accounts, and number of payment transactions per active account ~~and TPV~~ are key non-financial performance metrics (“key metrics”) that management uses to measure the ~~performance~~scale of our ~~business,~~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 transactionsare the total number of payments, net of payment reversals, successfully completed on our payments platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.

•An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our platform, not including gateway-exclusive transactions, within the past 12 months. 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.

•~~TPV~~ is The number of times a consumer account or a merchant account transacts on our platform may vary significantly from the ~~value of payments, net~~average number of payment ~~reversals, successfully completed on our payments platform, or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions.~~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 ~~may be~~ compiled from multiple systems, including systems that are ~~organically~~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 our scale. The methodologies used to calculate our key metrics require judgment.


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We regularly review our processes for calculating these key metrics, and from time to time we may make adjustments to improve ~~their~~the accuracy or ~~relevance.~~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.


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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 earn additional fees 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, ~~or bank account,~~ 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 merchants and consumers. We also earn revenues from interest and fees earned on our portfolio of loans receivable and interest earned on certain assets underlying customer balances.

Net revenue analysis

The components of our net revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):


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Transaction revenues

Transaction revenues grew by ~~$627~~$284 million, or ~~11%~~5%, and ~~$1.5 billion,~~$650 million, or 9%5%, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, compared to the same periods of the prior year driven primarily by growth in ~~our unbranded card processing volume, which consists primarily of our Braintree products and services, and to a lesser extent, Venmo products and services, in each case driven by growth in~~ TPV and the number of payment transactions on our payments platform. Additionally, during the three and nine months ended September 30, 2022 transaction revenues included $76 million and $181 million, respectively, in contractual compensation from sellers that violated our contractual terms, compared to $25 million and $65 million for the three and nine months ended September 30, 2021, respectively. This contractual compensation and the year-over-year increase are predominantly attributable to activity in international markets. For the nine months ended September 30, 2022, this growth in transaction revenues was partially offset by declines in TPV and revenue generated from our ~~core PayPal products and services, including foreign currency exchange fees revenue, due primarily to a decrease in revenue earned on eBay’s marketplace platform.~~

~~The graphs below present the respective key metrics (in millions) for the three and nine months ended September 30, 2022 and 2021:~~

*Reflects active accounts at the end of the applicable period. Active accounts as of September 30, 2022 include 3.2 million active accounts contributed by Paidy, Inc. (“Paidy”) on the date of acquisition in October 2021.

~~Number of payment transactions~~

~~TPV~~


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~~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)
2022 2021 2022 2021
Number of payment transactions per active account 50.1 44.2 13 % 50.1 44.2 13 %
Percent of cross-border TPV 13 % 15 % ** 13 % 16 % **

** Not meaningful

We had active accounts of 432 million and 416 million as of September 30, 2022 and 2021, respectively, an increase of 4%. Our total number of payment transactions was 5.6 billion and 4.9 billion for the three months ended September 30, 2022 and 2021, respectively, an increase of 15%. Our total number of payment transactions was 16.3 billion for the nine months ended September 30, 2022, compared to 14.0 billion in the nine months ended September 30, 2021, an increase of 17%. TPV was $337 billion and $310 billion for the three months ended September 30, 2022 and 2021, respectively, an increase of 9%. TPV was $1.0 trillion for the nine months ended September 30, 2022 compared to $906 billion in the nine months ended September 30, 2021, an increase of 10%.

Transaction revenues growth exceeded TPV growth in the three months ended September 30, 2022 compared to the same period in the prior year due primarily to a favorable impact from hedging and an increase in revenue from our VenmoBraintree products and services partially offset by a decline in revenues from our core PayPal products and services, and a decline in foreign currency exchange fees. Transaction revenues grew more slowly than TPV in the nine months ended September 30, 2022 compared to the same period in the prior year due primarily toincluding declines in foreign currency exchange fees, TPV attributable to eBay’s marketplace platform, where we had historically earned higher rates, and a decline in revenues from PayPal products and services, partially offset by a favorable impact from hedging and an increase in revenue from our Venmo products and services.

~~Revenues from other value added services~~

~~Revenues from other value added services increased $37 million, or 6%, and $203 million, or 14%, in~~contractual compensation for the three and ~~nine~~six months ended ~~September~~June 30, 2022, respectively, compared to the same periods in the prior year primarily attributable to increases in our revenue share earned from Synchrony Bank, interest earned on certain assets underlying customer account balances resulting from higher interest rates, and interest and fee revenue on our merchant loans receivable portfolio. Growth in revenues from other value added services in the current period was partially offset by the impact2023, of ~~revenue earned from the servicing of loans facilitated under the U.S. Government’s Paycheck Protection Program in the three and nine months ended September 30, 2021 of $93~~$75 million and ~~$145~~$105 million, respectively, ~~for which revenue was de minimis~~from sellers that violated our contractual terms predominantly in ~~the current period.~~international markets.


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

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

Number of payment transactions

TPV

The following table provides a summary of related metrics:


	Three Months Ended June 30,				Percent Increase/(Decrease)		Six Months Ended June 30,				Percent Increase/(Decrease)
	2023		2022				2023		2022


Number of payment transactions per active account	54.7		48.7		12	%	54.7		48.7		12	%

Percent of cross-border TPV	12	%	13	%	**		12	%	14	%	**

** Not meaningful

We had active accounts of 431 million and 429 million as of June 30, 2023 and 2022, respectively. Our total number of payment transactions was 6.1 billion and 5.5 billion for the three months ended June 30, 2023 and 2022, respectively, an increase of 10%. Our total number of payment transactions was 11.9 billion for the six months ended June 30, 2023, compared to 10.7 billion in the six months ended June 30, 2022, an increase of 12%. TPV was $377 billion and $340 billion for the three months ended June 30, 2023 and 2022, respectively, an increase of 11%. TPV was $731 billion for the six months ended June 30, 2023 compared to $663 billion in the six months ended June 30, 2022, an increase of 10%.


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Transaction revenues grew more slowly than growth in TPV and the number of payment transactions in the three and six months ended June 30, 2023 compared to the same periods in the prior year due primarily to a decline in revenues from core PayPal products and services and foreign currency exchange fees. Additionally, for the three months ended June 30, 2023, the slower growth of transaction revenues compared to TPV and the number of payment transactions was due to an unfavorable impact from hedging.

Revenues from other value added services

Revenues from other value added services increased $197 million, or 37%, and $388 million, or 38%, in the three and six months ended June 30, 2023, respectively, compared to the same periods in the prior year primarily attributable to increases in interest earned on certain assets underlying customer account balances resulting from higher interest rates, and to a lesser extent, interest and fee revenue on our loans receivable portfolio driven by consumer interest-bearing installment loans and consumer revolving loans.

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)			Three Months Ended June 30,										Percent Increase/(Decrease)			Six Months Ended June 30,						Percent Increase/(Decrease)
		2022			2021					2022					2021							2023					2022							2023					2022
		(In millions, except percentages)																								(In millions, except percentages)
Transaction expense	Transaction expense	$	2,988		$	2,564				17	%				$	8,849				$	7,363					20		%	Transaction expense	$	3,541				$		3,044		16		%	$	6,824		$	5,861		16	%
Transaction and credit losses	Transaction and credit losses	367			268			37	%			1,184					710						67	%	Transaction and credit losses	398					448					(11)		%	840			817			3		%
Customer support and operations	Customer support and operations	509			504			1	%			1,579					1,543						2	%	Customer support and operations	492					536					(8)		%	980			1,070			(8)		%
Sales and marketing	Sales and marketing	544			549			(1)	%			1,733					1,779						(3)	%	Sales and marketing	465					595					(22)		%	901			1,189			(24)		%
Technology and development	Technology and development	801			755			6	%			2,431					2,242						8	%	Technology and development	743					815					(9)		%	1,464			1,630			(10)		%
General and administrative	General and administrative	463			498			(7)	%			1,584					1,544						3	%	General and administrative	491					514					(4)		%	998			1,121			(11)		%
Restructuring and other charges	Restructuring and other charges	56			1			**				182					60						203	%	Restructuring and other charges	24					90					(73)		%	188			126			49		%
Total operating expenses	Total operating expenses	$	5,728		$	5,139		11	%			$	17,542				$	15,241					15	%	Total operating expenses	$	6,154				$	6,042				2		%	$	12,195		$	11,814		3		%
Transaction expense rate(1)	Transaction expense rate(1)	0.89		%	0.83		%	**				0.89		%			0.81		%				**		Transaction expense rate(1)	0.94		%			0.90		%			**			0.93		%	0.88		%	**
Transaction and credit loss rate(2)	Transaction and credit loss rate(2)	0.11		%	0.09		%	**				0.12		%			0.08		%				**		Transaction and credit loss rate(2)	0.11		%			0.13		%			**			0.11		%	0.12		%	**

(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 and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 was as follows (in millions):


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Transaction expense increased by ~~$424~~$497 million, or ~~17%~~16%, and ~~$1.5 billion,~~$963 million, or ~~20%~~16%, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, ~~compared to the same periods of the prior year~~ due primarily to the increase in TPV of 9%11% and 10% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, ~~and~~as well as unfavorable changes in product mix. The increase in the transaction expense rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to the same periods of the prior year was also attributable to unfavorable changes in product mix with a higher proportion of TPV from unbranded card processing volume, which generally has higher expense rates than other products and ~~services. For the three months ended September 30, 2022, this increase in transaction expense rate was~~services, partially offset by favorable changes in regional mix with respect to our core PayPal products ~~which were also favorably impacted by~~and certain third-party pricing ~~reductions.~~reductions with respect to our Venmo products. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, approximately ~~34%~~37% and ~~35%~~36% of TPV, respectively, was generated outside of the U.S. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, approximately ~~38%~~35% and ~~39%~~36% of TPV, respectively, was generated outside of the U.S.

Our transaction expense rate is impacted by changes in product mix, merchant mix, regional mix, funding mix, and fees paid to payment processors and other financial institutions. 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. As we expand the availability and presentation of alternative funding sources to our customers, our funding mix may change, which could increase or decrease our transaction expense rate. Macroeconomic environment changes may also result in behavioral shifts in consumer spending patterns affecting the type of funding source they use, which could also impact the funding mix.


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Transaction and credit losses

The components of our transaction and credit losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):

Transaction and credit losses decreased by $50 million, or 11%, and increased by ~~$99~~$23 million, or ~~37%, and $474 million, or 67%~~3%, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, compared to the same periods of the prior year.

Transaction losses were ~~$254~~$286 million in the three months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$293~~$380 million in the three months ended ~~September~~June 30, ~~2021,~~2022, a decrease of ~~$39~~$94 million, or ~~13%~~25%. Transaction losses were ~~$956~~$586 million in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$847~~$702 million in the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$109~~$116 million, or ~~13%~~17%. Transaction loss rate (transaction losses divided by TPV) was 0.08% ~~and 0.10%~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively, and 0.09%~~2023, compared to 0.11% for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The decrease in transaction losses in the three and six months ended ~~September~~June 30, ~~2022~~2023 was primarily due to recoveries attributable to enhancements in our fraud recoupment capabilities and benefits from continued risk mitigation strategies. The increase in transaction losses in the nine months ended September 30, 2022 was primarily attributable to a $114 million loss related to an ongoing merchant insolvency proceeding ~~an increase~~ in ~~losses related to our Venmo products~~the three and ~~services resulting from fraud schemes, and an increase~~six months ended June 30, 2022 with no activity of comparable individual magnitude in ~~goods and services transactions, which are now eligible for coverage by our protection programs, partially offset by recoveries attributable to enhancements in our fraud recoupment capabilities.~~the current period.


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Credit losses increased by ~~$138~~$44 million and ~~$365~~$139 million in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, compared to the same periods of the prior year. The components of credit losses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net charge-offs(1)	Net charge-offs(1)	$	69	$	38	$	181	$	166	Net charge-offs(1)	$	134	$	60	$	244	$	112
Reserve build (release)(2)		44		(63)		47		(303)
Reserve build (release)(2),(3)										Reserve build (release)(2),(3)	(22)		8		10		3
Credit losses	Credit losses	$	113	$	(25)	$	228	$	(137)	Credit losses	$	112	$	68	$	254	$	115

(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.

(3)


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~~Table~~Includes the reversal of ~~Contents~~allowance associated with the reclassification of certain loans to held for sale.

The provision in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was attributable to loan originations during the ~~period. The benefit~~period and a deterioration in the three and nine months ended September 30, 2021 was attributable to the reduction of our allowance for loans and interest receivable due to improvements in both current and projected macroeconomic conditions at that point in time and the credit quality of loans outstanding, partially offset by ~~an increase~~reversal of reserve associated with the reclassification of certain receivables to held for sale. The provision in the ~~provision due~~three and six months ended June 30, 2022 was attributable to loan ~~originations.~~originations in that period, partially offset by improvements in the credit quality of loans outstanding. During the periods presented, allowances for our merchant and consumer portfolios included qualitative adjustments that took into account uncertainty with respect to macroeconomic conditions ~~historical loss rates when applicable,~~ and ~~uncertainty~~ around the financial health of our borrowers, ~~and~~including the effectiveness of loan modification programs made available to merchants.

As of June 30, 2023, loans and interest receivable, held for sale was $1.9 billion. Loans and interest receivable, held for sale, represents the portion of our installment consumer receivables that we intend to sell. This portfolio includes the substantial majority of the U.K. and other European buy now, pay later loan receivables. In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of U.K. and other European buy now, pay later loan receivables, consisting of eligible loans and interest receivable, held for sale at the closing of the transaction and a forward-flow arrangement for the sale of future originations of eligible loans over a 24-month commitment period (together, “eligible consumer installment receivables”). At the time of reclassification, previously recorded allowance for credit losses for loans and interest receivable outstanding was reversed, resulting in a decrease of approximately $33 million in transaction and credit losses in our condensed consolidated statement of income (loss). See “Note 1—Overview and Summary of Significant Accounting Policies” in the notes to the condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q for additional information.

The consumer loans and interest receivable balance, net of participation interest sold, remained consistent as of ~~September~~June 30, 2023 and 2022 ~~and 2021 was $4.4 billion and $2.8 billion, respectively, representing a year-over-year increase of 59%~~at $4.5 billion. The increases driven by the expansion of our installment credit products ~~including additional offerings in Germany as well as the entry into new international markets~~ in the ~~fourth quarter~~U.S. and Japan and our revolving credit product in the U.K. were offset by the reclassification of ~~2021.~~ eligible consumer installment receivables as held for sale in the U.K and other European countries, as discussed above.

Approximately ~~41%~~36% and ~~63%~~43% of our consumer loans receivable outstanding (including loans held for sale and loans held for investments) as of ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, were due from consumers in the U.K. The ~~decline~~decrease in the percentage of consumer loans receivable outstanding in the U.K. at ~~September~~June 30, 2023 compared to June 30, 2022 ~~compared to September 30, 2021~~ was primarily due to overall growth in ~~the consumer loan receivables portfolio, particularly from~~other markets related to installment credit ~~products in other markets including Germany, Japan, and the U.S.~~products.

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

September 30,
2022 2021
Percent of consumer loans and interest receivable current 96.3 % 96.8 %
Percent of consumer loans and interest receivable > 90 days outstanding(1)
1.8 % 1.5 %
Net charge-off rate(2)
4.8 % 2.6 %


	June 30,
	2023		2022
Percent of consumer loans and interest receivable current(1)	95.5	%	96.5	%
Percent of consumer loans and interest receivable > 90 days outstanding(1), (2)	2.0	%	1.6	%
Net charge-off rate(1), (3)	5.0	%	4.2	%

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

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

~~(2)~~(3) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on consumer loans as a percentage of the average daily amount of consumer loans and interest receivable balance during the period.

The increase in ~~the~~ net charge-off rate for consumer ~~receivables~~loans and interest receivable at ~~September~~June 30, ~~2022~~2023 as compared to ~~September~~June 30, ~~2021~~2022 was primarily due to the ~~expansion~~reclassification of ~~our short-term~~certain receivables to held for sale. The net charge-off rate is expected to increase in the second half of 2023 due to a slowing of new originations of consumer loans held for investment because all eligible new U.K. and other European installment ~~products.~~loans will be classified as held for sale and consequently excluded from net charge-offs.


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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, remained consistent as of ~~September~~June 30, 2023 and 2022 ~~were $2.0 billion, compared to $1.4 billion as of September 30, 2021, representing a year-over-year increase of 47%.~~at $1.7 billion. The increase in merchant loans, advances, and interest and fees receivable outstanding related to our PayPal Working Capital (“PPWC”) product in Europe was ~~due primarily~~offset by a decrease in receivable outstanding related to ~~growth in~~ our PayPal Business Loan ~~products~~(“PPBL”) product in the U.S. Approximately ~~86%~~79% and 5%7% of our merchant receivables outstanding as of ~~September~~June 30, ~~2022~~2023 were due from merchants in the U.S. and U.K., respectively, as compared to ~~81%~~84% and 9%6%, respectively, as of ~~September~~June 30, ~~2021.~~2022.

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


		September 30,					June 30,
		2022		2021			2023		2022
Percent of merchant loans, advances, and interest and fees receivable current	Percent of merchant loans, advances, and interest and fees receivable current	93.4	%	90.5	%	Percent of merchant loans, advances, and interest and fees receivable current	86.5	%	93.2	%
Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding(1)	Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding(1)	2.5	%	3.7	%	Percent of merchant loans, advances, and interest and fees receivable > 90 days outstanding(1)	7.1	%	2.6	%
Net charge-off rate(2)	Net charge-off rate(2)	3.6	%	6.8	%	Net charge-off rate(2)	13.3	%	3.4	%

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

(2) Net charge-off rate is the annual ratio of net credit losses, excluding fraud losses, on merchant loans and advances as a percentage of the average daily amount of merchant loans, advances, and interest and fees receivable balance during the period.

The ~~increase~~decrease in the percent of current merchant receivables, ~~decrease~~increase in percent of merchant receivables greater than 90 days outstanding, and ~~decrease~~increase in the net charge-off rate for merchant receivables at ~~September~~June 30, ~~2022~~2023 as compared to ~~September~~June 30, ~~2021~~2022 were primarily due to the ~~charge-off~~expansion of accounts, in the prior period, that experienced financial difficulties as a result of the COVID-19 pandemic as well as improved credit quality of our merchant loan portfolio due to modifications to the acceptable risk parameters ~~including stricter eligibility requirements, as discussed below.~~


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~~Modifications to the acceptable risk parameters of our credit products~~ in 2020 in response to the impacts of the COVID-19 pandemic resulted in the implementation of a number of risk mitigation strategies, including a reduction in maximum loan size, stricter eligibility terms, and a shift from automated to manual underwriting of loans and advances, all of2022, which resulted in a ~~decrease~~decline in ~~originations as compared~~the overall credit quality of loans outstanding related to ~~pre-pandemic levels.~~ our PPBL product.

We continue to evaluate and modify our acceptable risk parameters in response to the changing macroeconomic environment. ~~Changes~~During the first quarter of 2023, in response to ~~our~~declining performance, a number of risk mitigation strategies were implemented which resulted in reduced PPBL originations in the first half of 2023. Modifications to the acceptable risk parameters for our consumer credit products did not have a material impact on our consumer loans in ~~2021 resulted in a gradual increase in originations, and thus a higher merchant receivable balance as of September 30, 2022 as compared to September 30, 2021.~~ the periods presented.

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~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):

Customer support and operations expenses ~~increased~~decreased by $5$44 million, or 1%8%, and ~~$36~~$90 million, or 2%8%, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, compared to the same periods of the prior year due primarily to increases in expenses related to software that supports our consumer loan products, costs associated with the production of PayPal debit and credit cards, and customer onboarding and compliance costs, partially offset by a decline in employee-related costs, and contractors and consulting costs. The ~~increase~~decline in customer support and operations expense for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was also ~~attributable to other operating charges.~~driven by a decline in customer onboarding and compliance costs.

~~Sales and marketing~~

~~Sales and marketing expenses for the three and nine months ended September 30, 2022 and 2021 were as follows (in millions):~~

Sales and marketing expenses decreased by $5 million, or 1%, and $46 million, or 3%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year due primarily to declines in consulting services and employee-related costs, partially offset by an increase in amortization of acquired intangible assets. The decline in sales and marketing expenses in the nine months ended September 30, 2022 was also impacted by lower spending on marketing campaigns compared to the prior year.


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Sales and marketing

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

Sales and marketing expenses decreased by $130 million, or 22%, and $288 million, or 24%, in the three and six months ended June 30, 2023, respectively, compared to the same periods of the prior year due primarily to lower spending on marketing campaigns and targeted user incentives and, to a lesser extent, declines in employee-related costs, amortization of acquired intangibles, and consulting services.

Technology and development

Technology and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):

Technology and development expenses ~~increased~~decreased by ~~$46~~$72 million, or 6%9%, and ~~$189~~$166 million, or 8%10%, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively, compared to the same periods of the prior year due primarily to ~~increases~~lower intangible amortization in the current period and a decline in costs related to contractors and consultants. The decline in technology and development expenses for the six months ended June 30, 2023 was also attributable to a decline in cloud computing services utilized in delivering our products and ~~services and employee-related expenses. In the three months ended September 30, 2022, the increase described above was partially offset by a decline in costs related to contractors and consultants.~~

~~General and administrative~~

~~General and administrative expenses for the three and nine months ended September 30, 2022 and 2021 were as follows (in millions):~~

General and administrative expenses decreased by $35 million, or 7%, and increased by $40 million, or 3%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods of the prior year. The decrease in general and administrative expenses in the three months ended September 30, 2022 was due primarily to a decrease in employee-related expenses driven mainly by a decline in stock-based compensation, in part due to a change in projected performance associated with certain equity incentive awards and a decrease in professional services expenses, partially offset by an increase in costs associated with enterprise software services. The increase in general and administrative expenses in the nine months ended September 30, 2022 was attributable to an increase in costs associated with enterprise software services and employee-related expenses, partially offset by a decline in professional services.


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General and administrative

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

General and administrative expenses decreased by $23 million, or 4%, and $123 million, or 11%, in the three and six months ended June 30, 2023, respectively, compared to the same periods of the prior year. The decline in general and administrative expenses in the three months ended June 30, 2023 was due primarily to a decrease in professional services expenses. The decline in general and administrative expenses in the six months ended June 30, 2023 was primarily attributable to a decline in employee-related expenses driven by lower stock-based compensation expense, and to a lesser extent, a decrease in professional services expenses.

Restructuring and other charges

Restructuring and other charges for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 were as follows (in millions):

Restructuring and other charges decreased by $66 million and increased by ~~$55 million and $122~~$62 million, in the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, respectively, compared to the same periods of the prior year.

During the first quarter of 2023, management initiated a global workforce reduction intended to focus resources on core strategic priorities, and improve our cost structure and operating efficiency. The associated restructuring charges during the three and six months ended June 30, 2023 were nil and $117 million, respectively. We primarily incurred employee severance and benefits costs, substantially all of which have been accrued for as of March 31, 2023. The estimated reduction in annualized employee-related costs associated with the impacted workforce was approximately $280 million, including approximately $85 million in stock-based compensation. We expect to reinvest a portion of the reduction in annual costs associated with the impacted workforce to drive business priorities.

During the first quarter of 2022, management initiated a strategic reduction of the existing global workforce intended to streamline and optimize our global operations to enhance operating efficiency. ~~As part of this~~This effort ~~we are focusing~~focused on reducing redundant operations and simplifying our organizational structure. The associated restructuring charges during the three and ~~nine~~six months ended ~~September~~June 30, 2022 ~~were $23~~was $71 million and ~~$114~~$91 million, respectively. We primarily incurred employee severance and benefits costs, as well as associated consulting costs. ~~This~~The strategic ~~action and cash payments~~actions associated with this plan ~~are expected to be~~were substantially completed by the fourth quarter of 2022. Management estimates that an additional $10 million in restructuring charges will be incurred over the remainder of 2022. The estimated reduction in annualized employee-related costs associated with the impacted workforce is approximately $290 million, including approximately $110 million in stock-based compensation. A portion of the reduction in annual costs associated with the impacted workforce is expected to be reinvested in the business to drive additional growth.

During the first quarter of 2020, management approved a strategic reduction of the existing global workforce as part of a multiphase process to reorganize our workforce concurrently with the redesign of our operating structure, which spanned multiple quarters. The associated restructuring charges for the three and nine months ended September 30, 2021 were nil and $27 million, respectively. We primarily incurred employee severance and benefits costs, as well as associated consulting costs under the 2020 strategic reduction, which was substantially completed in 2021.

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

Additionally, we are continuing to review our facility needs due to our new and evolving work models. We incurred asset impairment charges of $29 million and $64 million in the three and nine months ended September 30, 2022, respectively, and nil and $26 million in the three and nine months ended September 30, 2021, respectively, due to exiting certain leased properties, which resulted in a reduction of right of use lease assets and related leasehold improvements.

~~Other income (expense), net~~

Other income (expense), net increased $338 million in the three months ended September 30, 2022 compared to the same period of the prior year due primarily to higher net gains on strategic investments. Other income (expense), net decreased $518 million in the nine months ended September 30, 2022 compared to the same period of the prior year due primarily to net losses on strategic investments in the current period compared to net gains in the prior period. Additionally, the nine months ended September 30, 2022 was impacted, to a lesser extent, by an increase in foreign currency exchange losses, resulting primarily from actions taken in connection with our decision to suspend transactional services in Russia.


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Additionally, we are continuing to review our real estate and facility capacity requirements due to our new and evolving work models. We incurred asset impairment charges of $4 million and $43 million in the three and six months ended June 30, 2023, respectively, and $19 million and $35 million in the three and six months ended June 30, 2022, respectively, due to exiting certain leased properties, which resulted in a reduction of right-of-use lease assets and related leasehold improvements. We recognized a gain of $14 million due to the sale of an owned property in the three and six months ended June 30, 2023. We also incurred a loss of $8 million upon designation of another owned property as held for sale in the six months ended June 30, 2023.

Other income (expense), net

Other income (expense), net increased $885 million and $1.0 billion in the three and six months ended June 30, 2023, respectively, compared to the same periods of the prior year due primarily to net gains on strategic investments in the current periods as compared to net losses in the prior periods, and to a lesser extent, higher interest income resulting from an increase in interest rates, partially offset by an increase in interest expense due to incremental expense from our May 2022 fixed rate debt. Other income (expense), net in the six months ended June 30, 2023 was also positively impacted by foreign exchange gains in the current period compared to losses in the prior period primarily from actions taken in connection with our decision to suspend transactional services in Russia.

Income tax expense

Our effective income tax rate was ~~16%~~21% and 7%796% for the three months ended ~~September~~June 30, 2023 and 2022, respectively, and ~~2021,~~23% and 75% for the six months ended June 30, 2023 and 2022, respectively. The ~~increase~~decrease in ~~the~~our effective income tax rate for the three and six months ended ~~September~~June 30, ~~2022~~2023 compared to the same ~~period~~periods of the prior year was due primarily to ~~an increase in~~higher tax expense ~~associated with higher net gains on strategic investments and a decrease~~ in tax benefits associated with discrete tax adjustments. Our effective income tax rate was 34% and 1% for the nine months ended September 30, 2022 and 2021, respectively. The increase in our effective income tax rate for the nine months ended September 30, 2022 compared to the same period of the prior year ~~was primarily attributable to an increase in tax expense~~ related to the intra-group transfer of intellectual ~~property and a decrease in discrete tax benefits associated with stock-based compensation deductions.~~property.

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.

SOURCES OF LIQUIDITY

Cash, cash equivalents, and investments

The following table summarizes our cash, cash equivalents, and investments as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:

September 30, 2022 December 31, 2021
(In millions)
Cash, cash equivalents, and investments(1),(2)
$ 13,795 $ 12,981


	June 30, 2023		December 31, 2022
	(In millions)
Cash, cash equivalents, and investments(1),(2)	$	12,076	$	13,723

(1) Excludes assets related to funds receivable and customer accounts of ~~$34.8~~$33.6 billion and ~~$36.1~~$36.3 billion at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

(2) Excludes total restricted cash of ~~$21~~$11 million and ~~$109~~$17 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, and strategic investments of ~~$2.2~~$2.4 billion and ~~$3.2~~$2.1 billion as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

Cash, cash equivalents, and investments held by our foreign subsidiaries were ~~$9.9~~$7.1 billion at ~~September~~June 30, ~~2022~~2023 and ~~$7.4~~$8.6 billion at December 31, ~~2021,~~2022, or ~~72%~~59% and ~~57%~~62% of our total cash, cash equivalents, and investments as of those respective dates. At December 31, ~~2021,~~2022, 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, but may be subject to state income or foreign withholding tax.


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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:


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
		(In millions)					(In millions)
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities(1)	Operating activities(1)	$	4,656	$	4,577	Operating activities(1)	$	970	$	2,467
Investing activities(1)	Investing activities(1)	(3,286)		(2,356)		Investing activities(1)	1,593		(4,662)
Financing activities(1)	Financing activities(1)	(2,422)		(186)		Financing activities(1)	(6,054)		986
Effect of exchange rates on cash, cash equivalents, and restricted cash	Effect of exchange rates on cash, cash equivalents, and restricted cash	(253)		(106)		Effect of exchange rates on cash, cash equivalents, and restricted cash	(50)		(136)
Net (decrease) increase in cash, cash equivalents, and restricted cash		$	(1,305)	$	1,929
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	$	(3,541)	$	(1,345)

Operating activities

The net cash generated from operating activities of $1.0 billion in the six months ended June 30, 2023 was due primarily to operating income of $2.1 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $840 million, stock-based compensation of $708 million, and depreciation and amortization of $539 million. Cash flows from operating activities was also impacted by originations of loans receivable, held for sale of $1.5 billion, changes in other assets and liabilities of $851 million, primarily related to actual cash transaction losses incurred during the period and a decline in other liabilities, changes in income taxes payable of $326 million, and net gains from our strategic investments of $181 million, partially offset by proceeds from repayments of loans receivable, originally classified as held for sale of $302 million.

The net cash generated from operating activities of $2.5 billion in the six months ended June 30, 2022 was due primarily to operating income of $1.5 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $817 million, stock-based compensation of $741 million, and depreciation and amortization of $661 million. Cash flows from operating activities was also impacted by net losses incurred on our strategic investments of $658 million, changes in deferred income taxes of $457 million, and changes in other assets and liabilities of $408 million, primarily related to actual cash transaction losses during the period partially offset by an increase in other liabilities.

In the six months ended June 30, 2023 and 2022, cash paid for income taxes, net was $906 million and $444 million, respectively.

Investing activities

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

The net cash used in investing activities of $4.7 billion in the six months ended June 30, 2022 was due primarily to purchases of investments of $13.2 billion, purchases and originations of loans receivable of $12.3 billion, changes in funds receivable from customers of $882 million, and purchases of property and equipment of $366 million. These cash outflows were partially offset by maturities and sales of investments of $11.1 billion and principal repayment of loans receivable of $10.9 billion.


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~~Operating activities~~

We generated cash from operating activities of $4.7 billion in the nine months ended September 30, 2022 due primarily to operating income of $2.6 billion, as well as adjustments for non-cash expenses including provision for transaction and credit losses of $1.2 billion, depreciation and amortization of $991 million, and stock-based compensation of $967 million. Net income was also adjusted for changes in deferred income taxes of $538 million, net losses on our strategic investments of $163 million, and changes in other assets and liabilities of $141 million, primarily related to actual cash transaction losses incurred during the period partially offset by an increase in other liabilities.

We generated cash from operating activities of $4.6 billion in the nine months ended September 30, 2021 due primarily to operating income of $3.2 billion, as well as adjustments for non-cash expenses including stock-based compensation of $1.1 billion, depreciation and amortization of $939 million, and provision for transaction and credit losses of $710 million. Net income was also adjusted for net gains on our strategic investments of $336 million, changes in deferred income taxes of $175 million, changes in accounts receivable of $155 million, and changes in other assets and liabilities of $892 million, primarily related to actual cash transaction losses during the period.

~~In the nine months ended September 30, 2022 and 2021, cash paid for income taxes, net was $666 million and $436 million, respectively.~~

~~Investing activities~~

The net cash used in investing activities of $3.3 billion in the nine months ended September 30, 2022 was due primarily to purchases and originations of loans receivable of $19.2 billion, purchases of investments of $16.5 billion, changes in funds receivable from customers of $1.1 billion, and purchases of property and equipment of $548 million. These cash outflows were partially offset by principal repayment of loans receivable of $17.2 billion and maturities and sales of investments of $16.8 billion.

The net cash used in investing activities of $2.4 billion in the nine months ended September 30, 2021 was due primarily to purchases of investments of $30.9 billion, purchases and originations of loans receivable of $8.2 billion, purchases of property and equipment of $695 million, and acquisitions (net of cash acquired) of $469 million. These cash outflows were partially offset by maturities and sales of investments of $30.4 billion and principal repayment of loans receivable of $7.6 billion.

Financing activities

The net cash used in financing activities of ~~$2.4~~$6.1 billion in the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 was due primarily to the repurchase of ~~$3.2~~$3.0 billion of our common stock under our stock repurchase programs, changes in funds payable and amounts due to customers of $2.6 billion, repayments of borrowings under financing arrangements of $942 million (including principal repayment of fixed rate debt under our May 2020 debt issuance and repayment of borrowings under our Paidy credit agreement), tax withholdings related to net share settlement of equity awards of $200 million, and changes in collateral received related to derivative instruments, net of $175 million. These cash outflows were partially offset by borrowings under financing arrangements of $720 million (including proceeds from the issuance of fixed rate debt in June 2023 and borrowings under our Paidy credit agreement).

The net cash provided by financing activities of $986 million in the six months ended June 30, 2022 was due primarily to borrowings under financing arrangements of $3.3 billion (including proceeds from the issuance of fixed rate debt in May 2022 and borrowing under our Paidy credit agreements), changes in funds payable and amounts due to customers of $1.6 billion, and changes in collateral received related to derivative instruments, net of $236 million. These cash inflows were partially offset by the repurchase of $2.3 billion of our common stock under our July 2018 stock repurchase program, repayment of borrowings under financing arrangements of $1.7 billion (including the repurchase and redemption of certain fixed rate notes and repayment of borrowings under a prior credit ~~agreement, both described further below under “Available credit and debt”)~~agreement), ~~changes in funds payable and amounts due to customers of $659 million,~~ and tax withholdings related to net share settlement of equity awards of ~~$321~~$275 million. These cash outflows were partially offset by borrowings under financing arrangements of $3.3 billion (including proceeds from the issuance of fixed rate debt in May 2022 and borrowing under our Paidy credit agreements).

The net cash used in financing activities of $186 million in the nine months ended September 30, 2021 was due primarily to the repurchase of $1.9 billion of our common stock under our July 2018 stock repurchase program and tax withholdings related to net share settlement of equity awards of $1.0 billion, partially offset by changes in funds payable and amounts due to customers of $2.6 billion.

Effect of exchange rates on cash, cash equivalents, and restricted cash

Foreign currency exchange rates for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 had a negative impact of ~~$253~~$50 million and ~~$106~~$136 million, respectively, on cash, cash equivalents, and restricted cash. The negative impact on cash, cash equivalents and restricted cash in the six months ended June 30, 2023 was due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S. dollar to the Australian dollar. The negative impact on cash, cash equivalents and restricted cash in the ~~nine~~six months ended ~~September~~June 30, 2022 was ~~also attributable~~due primarily to the unfavorable impact of fluctuations in the exchange rate of the U.S. dollar to the Australian dollar, and to a lesser extent, the Euro, Japanese yen, and Swedish ~~krona, and Japanese yen.~~


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krona.

Available credit and debt

In ~~May 2022,~~June 2023, we issued fixed rate notes with varying maturity dates for an aggregate principal amount of ~~$3.0 billion.~~¥90 billion (approximately $622 million as of June 30, 2023). Proceeds from the issuance of these notes may be used for general corporate purposes, which may include funding the repayment or redemption of outstanding debt, share repurchases, ongoing operations, capital expenditures, and possible acquisitions of businesses, assets, or strategic investments. ~~We used a portion of the proceeds to repurchase and redeem $1.6 billion in notes from our prior debt issuances in September 2019 and May 2020.~~ As of ~~September~~June 30, ~~2022,~~2023, we had ~~$10.4~~$10.6 billion in fixed rate debt outstanding with varying maturity dates.

In June 2023, we entered into a credit agreement (the “Credit Agreement”) that provides for an unsecured $5.0 billion, five-year revolving credit facility and terminated the facility entered into in September 2019. The Credit Agreement includes a $150 million letter of credit sub-facility and a $600 million swingline sub-facility, with available borrowings under the revolving credit facility reduced by the amount of any letters of credit and swingline borrowings outstanding from time to time. As of June 30, 2023, no borrowings were outstanding under the Credit Agreement and as such, $5.0 billion of borrowing capacity was available for the purposes permitted by the Credit Agreement, subject to customary conditions to borrowing.

In February 2022, we entered into a credit agreement (the “Paidy Credit Agreement”) with Paidy as co-borrower, which ~~provides~~provided for an unsecured revolving credit facility of ¥60.0 ~~billion. In~~billion, which was modified in September 2022 ~~the Paidy Credit Agreement was modified~~ to increase the borrowing capacity by ¥30.0 billion for a total borrowing capacity of ¥90.0 billion (approximately ~~$623~~$622 million as of ~~September~~June 30, ~~2022).~~2023.) In June 2023, we repaid borrowings on the ~~nine months ended September~~Paidy Credit Agreement using proceeds from the June 2023 debt issuance. As of June 30, 2023, no borrowings were outstanding, and as of December 31, 2022, ~~¥45.8~~¥64.3 billion (approximately ~~$317~~$491 million) was ~~drawn down~~outstanding under the Paidy Credit Agreement. ~~Accordingly, at September~~At June 30, ~~2022, ¥44.2~~2023, ¥90.0 billion (approximately ~~$306~~$622 million) of borrowing capacity was available for the purposes permitted by the Paidy Credit Agreement, subject to customary conditions to borrowing.

In October 2021, we assumed a credit agreement through our acquisition of Paidy (the “Prior Credit Agreement”). The Prior Credit Agreement provided for a secured revolving credit facility of approximately ¥22.8 billion (approximately $198 million at the time of acquisition). In the first quarter of 2022, we terminated the Prior Credit Agreement and repaid outstanding borrowings.

Other than as described above, there ~~are~~were no significant changes to the available credit and debt disclosed in our ~~2021~~2022 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.


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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 programs, or reduce our cost of capital.

We have a cash pooling arrangement with a financial institution for cash management purposes. The arrangement allows for cash withdrawals from the financial institution based upon our aggregate operating cash balances held within the financial institution (“Aggregate Cash Deposits”). The arrangement also allows us to withdraw amounts exceeding the Aggregate Cash Deposits up to an agreed-upon limit. The net balance of the withdrawals and the Aggregate Cash Deposits are used by the financial institution as a basis for calculating our net interest expense or income under the arrangement. As of ~~September~~June 30, ~~2022,~~2023, we had a total of ~~$4.9~~$3.0 billion in cash withdrawals offsetting our ~~$4.9~~$3.0 billion in Aggregate Cash Deposits held within the financial institution under the cash pooling arrangement.

Credit ratings

As of ~~September~~June 30, ~~2022,~~2023, we continue to be rated investment grade by Standard and Poor’s Financial Services, LLC, Fitch Ratings, Inc., and Moody’s Investors Services, Inc. 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, and capital expenditures and other future obligations.

Credit products

Growth in our portfolio of loan receivables increases our liquidity needs and any inability to meet those liquidity needs could adversely affect our business. We ~~are currently evaluating~~continue to evaluate partnerships and third-party sources of funding for our credit products.


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In June 2018, the Luxembourg Commission de Surveillance du Secteur Financier (the “CSSF”) agreed that PayPal’s management may designate up to 35% of European customer balances held in our Luxembourg banking subsidiary to fund European and U.S. credit activities. In August 2022, the CSSF approved PayPal’s management designating up to 50% of such balances to fund ~~European and U.S.~~our credit activities through the end of February 2023. ~~During~~In February 2023, the ~~second quarter~~CSSF agreed that PayPal’s management may continue to designate up to 50% of ~~2022, an additional $300 million was approved by management~~European customer balances held in our Luxembourg banking subsidiary to fund European, U.K., and U.S. credit activities. As of ~~September~~June 30, ~~2022,~~2023, the cumulative amount approved by management to be designated to fund credit activities aggregated to ~~$3.0~~$3.8 billion and represented approximately ~~29%~~40% of European customer balances made available for our corporate use at that date, as determined by applying financial regulations maintained by the CSSF. We may periodically seek to designate additional amounts of European customer balances for our credit activities, as we deem necessary, based on utilization of the approved funds and anticipated credit funding requirements. Under certain exceptional circumstances, corporate liquidity could be called upon to meet our obligations related to our European customer balances.

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.

In June 2023, we entered into a multi-year agreement with a global investment firm to sell up to €40 billion of our eligible consumer installment receivables portfolio including those held on our balance sheet at closing of the transaction and a forward-flow arrangement for the sale of future originations. Following the closing of this transaction, which is expected to occur in the second half of 2023, the global investment firm will become the owner of the eligible consumer installment receivables and future eligible installment receivables originated over a 24-month commitment period, and we will no longer hold an ownership interest in these receivables. See “Note 1—Overview and Summary of Significant Accounting Policies” 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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Customer protection programs

The risk of losses from our ~~buyer and seller~~customer protection programs are specific to individual ~~customers,~~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 0.08% and ~~0.10%~~0.11% of TPV. Historical loss rates may not be indicative of future results.

Stock repurchases

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, we repurchased approximately ~~$3.2~~$3.0 billion of our common stock in the open market under our stock repurchase ~~program~~programs authorized in July ~~2018. In~~2018 and June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $15.0 billion of our common stock, with no expiration from the date of authorization.2022. As of ~~September~~June 30, ~~2022,~~2023, a total of approximately ~~$1.9 billion and $15.0~~$12.9 billion remained available for future repurchases of our common stock under our ~~July 2018 and~~ June 2022 stock repurchase ~~programs, respectively.~~program.

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 including those related to the COVID-19 pandemic discussed in this Form 10-Q.~~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 ~~2021~~2022 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.


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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential for economic losses to be incurred on market risk sensitive instruments arising from adverse changes in market factors such as interest rates, foreign currency exchange rates, and equity investment risk. Management establishes and oversees the implementation of policies governing our investing, funding, and foreign currency derivative activities intended to mitigate market risks. We monitor risk exposures on an ongoing basis.

INTEREST RATE RISK

We are exposed to interest rate risk relating to our investment portfolio and from interest-rate sensitive assets underlying the customer balances we hold on our condensed consolidated balance sheets as customer accounts.


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As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, approximately ~~48%~~46% and ~~40%~~57%, respectively, of our total cash, cash equivalents, and investment portfolio (excluding restricted cash and strategic investments) was held in cash and cash equivalents. The remaining portfolio and assets underlying the customer balances that we hold on our condensed consolidated balance sheets as customer accounts are maintained in interest and non-interest bearing bank deposits, time deposits, and available-for-sale debt securities. We seek to preserve principal while holding eligible liquid assets, as defined by applicable regulatory requirements and commercial law in certain jurisdictions where we operate, equal to at least 100% of the aggregate amount of all customer balances. We do not pay interest on amounts due to customers.

IfInterest rate movements affect the interest ~~rates increased by 100 basis points,~~income we earn on cash and cash equivalents, time deposits, and available-for-sale debt securities and the fair value of those securities. A hypothetical 100 basis points increase in interest rates would have resulted in a decrease in fair value of our cash equivalents and available-for-sale debt securities investment ~~portfolio would have decreased~~ by approximately ~~$218~~$150 million and ~~$272~~$161 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Changes in the fair value of our available-for-sale debt securities resulting from such interest rate changes are reported as a component of accumulated other comprehensive income (“AOCI”) and are realized only if we sell the securities prior to their scheduled maturities or the declines in fair values are due to expected credit losses.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we had ~~$10.4~~$10.6 billion and ~~$9.0~~$10.4 billion, respectively, in fixed rate debt with varying maturity dates. Since these notes bear interest at fixed rates, they do not result in any financial statement risk associated with changes in interest rates. However, the fair value of these notes fluctuates when interest rates change, increasing in periods of declining interest rates and declining in periods of increasing interest rates.

As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, we also had revolving credit facilities of approximately $5.6 billion and ~~$5.2~~$5.7 billion, respectively, available to us. We are obligated to pay interest on borrowings under these facilities as well as other customary fees, including an upfront fee and an unused commitment fee based on our debt rating. Borrowings under these facilities, if any, bear interest at floating rates. As a result, we are exposed to the risk related to fluctuations in interest rates to the extent of our borrowings. As of ~~September~~June 30, ~~2022~~2023, we had no borrowings under these facilities, and as of December 31, ~~2021, we had ¥45.8~~2022, ¥64.3 billion (approximately ~~$317~~$491 million) ~~and ¥11.3 billion (approximately $98 million), respectively,~~was outstanding under these ~~credit~~ facilities.

A 100 basis points hypothetical adverse change in applicable market interest rates would not have resulted in a material impact to interest expense recorded in the period. 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.

The interest earned on our cash and cash equivalents and interest paid on our revolving credit facilities described above is based on variable interest rates; therefore, the exposure to our net income to a change in interest rates is partially mitigated as an increase in rates would increase both interest income and interest expense and a reduction in rates would decrease both interest income and interest expense. A 100 basis points hypothetical change in applicable market interest rates would not have resulted in a material impact to interest earned or interest expense recorded in the period.

Interest rates may also adversely impact our customers’ spending levels and ability and willingness to pay outstanding amounts owed to us. Higher interest rates often lead to larger payment obligations by customers of our credit products to us, or to lenders under mortgage, credit card, and other consumer and merchant loans, which may reduce our customers’ ability to remain current on their obligations to us and therefore lead to increased delinquencies, charge-offs, and allowances for loans and interest receivable, which could have an adverse effect on our net income (loss).


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FOREIGN CURRENCY EXCHANGE RATE RISK

We have significant operations internationally that are denominated in foreign currencies, primarily the British pound, Euro, Australian dollar, and Canadian dollar, which subject us to foreign currency exchange rate risk and may adversely impact our financial results. We transact ~~business~~ in various foreign currencies and have significant international revenues and costs. In addition, we charge our international subsidiaries for their use of intellectual property and technology and for certain corporate services. Our cash flows, results of operations, and certain of our intercompany balances that are exposed to foreign currency exchange rate fluctuations may differ materially from expectations, and we may record significant gains or losses due to foreign currency fluctuations and related hedging activities. We are generally a net receiver of foreign currencies and therefore benefit from a weakening of the United States (“U.S.”) dollar, and are adversely affected by a strengthening of the U.S. dollar, relative to foreign currencies. We considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that changes in exchange rates of 10% for all currencies could be experienced in the near term.


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We have a foreign currency exchange exposure management program designed to identify material foreign currency exposures, manage these exposures, and reduce the potential effects of currency fluctuations on our consolidated cash flows and results of operations through the execution of foreign currency exchange contracts. These foreign currency exchange contracts are accounted for as derivative instruments; for additional details related to our foreign currency exchange contracts, please see “Note 10—Derivative Instruments” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

We use foreign currency exchange forward contracts to protect our forecasted U.S. dollar-equivalent earnings and our investment in a foreign ~~subsidiary~~subsidiaries from adverse changes in foreign currency exchange rates. These hedging contracts reduce, but do not entirely eliminate, the impact of adverse foreign currency exchange rate movements. We designate these contracts as cash flow hedges of forecasted revenues and expenses denominated in certain foreign currencies and net investment hedges for accounting purposes. The derivative’s gain or loss is initially reported as a component of AOCI. Cash flow hedges are subsequently reclassified into revenue or expense (as applicable) in the same period the forecasted transaction affects earnings. The accumulated gains and losses associated with net investment hedges will remain in AOCI until the foreign subsidiaries are sold or substantially liquidated, at which point they will be reclassified into earnings.

If the U.S. dollar weakened by a hypothetical 10% at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the amount recorded in AOCI related to our foreign currency exchange forward contracts, before taxes, would have been approximately ~~$712~~$574 million and ~~$512~~$710 million lower, respectively, before considering the offsetting impact of the underlying hedged item.

We have an additional foreign currency exchange management program in which we use foreign currency exchange contracts to help offset the foreign currency exchange risk on our assets and liabilities denominated in currencies other than the functional currency of our subsidiaries. These contracts are not designated as hedging instruments and reduce, but do not entirely eliminate, the impact of currency exchange rate movements on our assets and liabilities. The foreign currency 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 currency exchange contracts.

Adverse changes in exchange rates of a hypothetical 10% for all foreign currencies would have resulted in ~~an adverse~~a negative impact on income before income taxes of approximately ~~$35~~$217 million and ~~$196~~$173 million at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, without considering the offsetting effect of foreign currency exchange contracts. Foreign currency exchange contracts in place as of ~~September~~June 30, 2022 would have positively impacted income before income taxes by approximately $47 million, resulting in a net positive impact of approximately $12 million. Foreign currency exchange contracts in place as of December 31, 20212023 would have positively impacted income before income taxes by approximately $203 million, resulting in a net ~~positive~~negative impact of approximately $7$14 million. Foreign currency exchange contracts in place as of December 31, 2022 would have positively impacted income before income taxes by approximately $144 million, resulting in a net negative impact of approximately $29 million. These reasonably possible adverse changes in exchange rates of 10% were applied to monetary assets, monetary liabilities, and available-for-sale debt securities denominated in currencies other than the functional currencies of our subsidiaries at the balance sheet dates to compute the adverse impact these changes would have had on our income before income taxes in the near term.


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EQUITY INVESTMENT RISK

Our strategic investments are subject to a variety of market-related risks that could substantially reduce or increase the carrying value of the portfolio. As of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, our strategic investments totaled ~~$2.2~~$2.4 billion and ~~$3.2~~$2.1 billion, which represented approximately ~~14%~~16% and ~~20%~~14% of our total cash, cash equivalents, and short-term and long-term investment portfolio at each of those respective dates. Our strategic investments include marketable equity securities, which are publicly traded, and non-marketable equity securities, which are primarily investments in privately held companies. We are required to record all adjustments to the value of these strategic investments through our condensed consolidated statements of income (loss). As such, we ~~anticipate~~expect volatility to our net income (loss) in future periods due to changes in fair value related to our investments in marketable equity securities and changes in observable prices and impairment related to our non-marketable equity securities accounted for under the Measurement Alternative. These changes could be material based on market conditions. Additionally, the financial success of our investments in privately held companies is typically dependent on a liquidity event, such as a public offering, acquisition, private sale, or other favorable market event providing the ability to realize appreciation in the value of the investment. A hypothetical adverse change of 10% in the carrying value of our strategic investments as of ~~September~~June 30, ~~2022,~~2023, which could be experienced in the near term, would have resulted in ~~an incremental~~a decrease of approximately ~~$225~~$236 million to the carrying value of the portfolio. We review our non-marketable equity ~~investments~~securities accounted for under the Measurement Alternative for impairment when events and circumstances indicate a decline in fair value of such assets below carrying value. Our analysis includes a review of recent operating results and trends, recent purchases and sales of securities, and other publicly available ~~data.~~data, for which we assess factors such as the investees’ financial condition and business outlook, industry performance, regulatory, economic, or technological environment, and other relevant events and factors affecting the investee.


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ITEM 4: CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), our principal executive officer and our principal financial officer have concluded that as of ~~September~~June 30, ~~2022,~~2023, the end of the period covered by this report, our disclosure controls and procedures were effective.

(b) Changes in internal controls over financial reporting. There were no changes in our internal controls over financial reporting as defined in the Exchange Act Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II: OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The information set forth under “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters” in the notes to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q is incorporated herein by reference.

ITEM 1A: RISK FACTORS

We are subject to various risks and uncertainties, which could materially affect our business, results of operations, financial condition, future results, and the trading price of our common stock. You should read carefully the following information together with the information appearing in Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 as filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 3, 10, 2023 (“2022 ~~(“2021~~ Form 10-K”), as updated by subsequent Quarterly Reports on Form 10-Q as filed with the SEC (“Forms 10-Q”). The following information supplements and, to the extent inconsistent, supersedes some of the information appearing in the Risk Factors section of our ~~2021~~2022 Form 10‑K.K and Forms 10-Q. These risk factors, as well as our condensed consolidated financial statements and notes thereto and the other information appearing in this report, should be reviewed carefully for important information regarding risks that affect us.

LEGAL, REGULATORY AND COMPLIANCE RISKS

Our business is subject to extensive government regulation and oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations could materially harm our business.

Our business is subject to complex and changing laws, rules, regulations, policies, and legal interpretations in the markets in which we offer services directly or through partners, including, but not limited to, those governing: banking, credit, deposit taking, cross-border and domestic money transmission, prepaid access, foreign currency exchange, privacy, data protection, data governance, cybersecurity, banking secrecy, digital payments, cryptocurrency, payment services (including payment processing and settlement services), lending, fraud detection, consumer protection, antitrust and competition, economic and trade sanctions, anti-money laundering, and counter-terrorist financing.

Regulators and legislators globally have been establishing, evolving, and increasing their regulatory authority, oversight, and enforcement in a manner that impacts our business. As we introduce new products and services and expand into new markets, including through acquisitions, we expect to become subject to additional regulations, restrictions, and licensing requirements. As we expand and localize our international activities, we expect that our obligations in the markets in which we operate will continue to increase. In addition, because we facilitate sales of goods and provide services to customers worldwide, one or more jurisdictions may claim that we or our customers are required to comply with their laws, which may impose different, more specific, or conflicting obligations on us, as well as broader liability.

Any failure or perceived failure to comply with existing or new laws, regulations, or orders of any government authority (including changes to or expansion of their interpretation) may subject us to significant fines, penalties, criminal and civil lawsuits, forfeiture of significant assets, and enforcement actions in one or more jurisdictions; result in additional compliance and licensure requirements; cause us to lose existing licenses or prevent or delay us from obtaining additional licenses that may be required for our business; increase regulatory scrutiny of our business; divert management’s time and attention from our business; restrict our operations; lead to increased friction for customers; force us to make changes to our business practices, products, or operations; require us to engage in remediation activities; or delay planned transactions, product launches, or improvements. Any of the foregoing could, individually or in the aggregate, harm our reputation, damage our brands and business, and adversely affect our results of operations and financial condition. The complexity of U.S. federal and state and international regulatory and enforcement regimes, coupled with the global scope of our operations and the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. While we have implemented policies and procedures designed to help ensure compliance with applicable laws and regulations, there can be no assurance that our employees, contractors, and agents will not violate such laws and regulations.


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Payments Regulation

In the U.S., PayPal, Inc. (a wholly-owned subsidiary) holds licenses to operate as a money transmitter (or its equivalent) in the states where such licenses are required, as well as in the District of Columbia and certain territories. If we ~~violate the~~fail to comply with applicable laws or regulations ~~covered under~~required to maintain our licenses, we could be subject to liability and/or additional restrictions, forced to cease doing business with residents of certain states or territories, forced to change our business practices, or required to obtain additional licenses or regulatory approvals, which could impose substantial costs and harm our business.

While we currently allow our customers to send payments from approximately 200 markets, we allow customers in only approximately half of those markets (including the U.S.) to also receive payments, in some cases with significant restrictions on the manner in which customers can hold balances or withdraw funds. These ~~limitations~~restrictions may ~~adversely affect~~limit our ability to grow our business.

WeOutside of the U.S., we principally provide our services to customers in the European Economic Area (“EEA”) and the United Kingdom (“U.K.”) through PayPal (Europe) S.à.r.l. et Cie, S.C.A. (“PayPal (Europe)”), our wholly-owned subsidiary that is licensed and subject to regulation as a credit institution in Luxembourg. PayPal (Europe) ~~is potentially~~may be subject to enforcement actions and significant fines ~~or other enforcement action~~ if it violates applicable requirements. Additionally, compliance with applicable laws and regulations could become more costly and operationally difficult to manage due to potentially inconsistent interpretations and domestic regulations by various countries in the region. Applicable regulation relating to payments, anti-money laundering and digital services, ~~all of~~ which are key focus areas of regulators and subject to extensive new regulation, could subject us to additional and complex obligations, risks and associated costs. If the business activities of PayPal (Europe) exceed certain thresholds, or if the European Central Bank (“ECB”) so determines, PayPal (Europe) may be deemed a significant supervised entity and certain ~~activity~~activities of PayPal (Europe) would become directly supervised by the ECB, rather than by the Luxembourg Commission de Surveillance du Secteur Financier, which could subject us to additional requirements and would likely increase compliance costs. ~~Beginning in 2023,~~ PayPal (Europe) ~~will be overseen jointly~~is also subject to regulation by the ECB ~~and Banque Centrale du Luxembourg~~ under the oversight framework for electronic payment instruments, schemes and arrangements (PISA), which may also lead to increased compliance obligations and costs.

In many of the other markets outside the U.S. in which we do business, we serve our customers through PayPal Pte. Ltd., our wholly-owned subsidiary based in Singapore. PayPal Pte. Ltd. is supervised by the Monetary Authority of Singapore (“MAS”). The Payment Services Act came into effect in Singapore in January 2020. As of July 1, 2023, PayPal Pte. Ltd. has been issued a Major Payment Institution license by the MAS to continue to provide payments services. In order to maintain this license, we are required to comply with applicable regulatory requirements, which will result in increased operational complexity and costs for our Singapore and international operations.

In many of the markets outside the U.S. (other than Singapore) served by PayPal Pte. Ltd. or by local branches or subsidiaries subject to local regulatory supervision or oversight, as the case may be, there may be uncertainty whether our Singapore-based service is subject only to Singapore law or also to other local laws, and whether such local laws might require a payment processor like us to be licensed as a payments service, bank, financial institution, or otherwise.

There are substantial costs and potential product and operational changes involved in maintaining and renewing licenses, certifications, and approvals, and we could be subject to enforcement actions, fines, and litigation if we are found to violate any of these requirements. There can be no assurance that we will be able to (or decide to) continue to apply for or obtain any licenses, renewals, certifications, and approvals in any jurisdiction. In certain markets, we may need to rely on local banks or other partners to process payments and conduct foreign currency exchange transactions in local currency, and local regulators may use their authority over such local partners to prohibit, restrict, or limit us from doing business. Any of the foregoing could, individually or in the aggregate, result in substantial additional costs, delay or preclude planned transactions, product launches or improvements, require significant and costly operational changes, impose restrictions, limitations, or additional requirements on our business, products and services, or prevent or limit us from providing our products or services in a given market.


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Cryptocurrency Regulation and Related Risks

Our ~~current and planned~~customer cryptocurrency ~~product~~ offerings could subject us to additional regulations, licensing requirements, ~~and~~or other ~~obligations. We~~obligations or liabilities. Within the U.S., we are regulated by the New York Department of Financial ~~Service~~Services as a virtual currency ~~business.~~business, which does not qualify us to engage in securities brokerage or dealing activities. The regulatory status of particular cryptocurrencies is unclear under existing law. For example, if the SEC were to assert that any of the cryptocurrencies we support are securities, the SEC could assert that our activities involving that cryptocurrency require securities broker-dealer registration or other obligations under the federal securities laws. The rapidly evolving regulatory landscape with respect to cryptocurrency ~~and digital assets~~ may subject us to additional licensing and regulatory obligations or to inquiries or investigations from the SEC, other regulators and governmental authorities, and require us to make product changes, restrict or discontinue product offerings, ~~and~~ implement additional and potentially costly ~~controls.~~controls, or take other actions. If we fail to comply with regulations, requirements, prohibitions or other obligations applicable to us, we could face regulatory or other enforcement actions, ~~litigation,~~ potential fines, ~~reputational harm~~ and other consequences.

We hold our customers’ cryptocurrency assets through one or more third-party custodians. Financial and third-party risks related to our customer cryptocurrency ~~product~~ offerings, such as inappropriate access to, theft, or destruction of cryptocurrency assets held by our ~~custodian,~~custodians, insufficient insurance coverage by ~~the~~a custodian to reimburse us for all such losses, ~~the~~a custodian’s failure to maintain effective controls over the custody and settlement services provided to us, ~~the~~a custodian’s inability to purchase or liquidate cryptocurrency holdings, and defaults on financial or performance obligations by ~~the~~a custodian, or ~~other~~ counterparty financial institutions, could expose our customers and us to loss, and therefore significantly harm our business, financial performance, and reputation. ~~While we~~

We have selected custodian partners, and may in the future select additional custodian partners, that are subject to regulatory oversight, capital requirements, maintenance of audit and compliance industry certifications, and cybersecurity procedures and ~~policies,~~policies. Nevertheless, operational disruptions at ~~the~~any such custodian, ~~system issues~~ or such custodian’s failure to safeguard cryptocurrency holdings ~~and any resulting financial~~could result in losses ~~could~~of customer assets, expose us to customer claims, reduce consumer confidence and materially impact our operating results and our cryptocurrency product offerings.

~~The obligations associated with these custodial and other~~Custodial arrangements to safeguard cryptocurrency assets involve unique risks and ~~uncertainties.~~uncertainties in the event of a custodian’s bankruptcy. While other types of assets ~~held in a similar manner~~and some custodied cryptocurrencies have been deemed not to be part of the ~~asset~~ custodian’s bankruptcy estate under various regulatory regimes, bankruptcy courts have not yet ~~considered~~definitively determined the appropriate treatment of custodial holdings of digital assets and any such determination may be highly fact-specific. PayPal holds its customers’ cryptocurrency assets through a third-party cryptocurrency asset custodian. Despite PayPal’s efforts to structure our customers’ cryptocurrency asset accounts in a ~~manner that reinforces customer ownership~~bankruptcy proceeding. In the event of ~~the cryptocurrency assets, it remains possible that~~ a ~~court would consider such assets as part of the~~ custodian’s bankruptcy, estate. In that event, cryptocurrency assets that our custodian holds on behalf of our customers may become subject to bankruptcy proceedings, our claim on behalf of such customers could be treated as a general unsecured claim against the custodian. Moreover, the lack of precedent and the highly fact-dependent nature of the determination could delay or preclude the return of ~~such~~custodied cryptocurrency assets to us or to our customers. ~~These~~Although we contractually require our custodians to segregate our customer assets and not commingle them with proprietary or other ~~risks,~~assets, we cannot be certain that these contractual obligations, even if duly observed by a custodian, will be effective in preventing such assets from being treated as part of the custodian’s estate under bankruptcy or other insolvency law. In that event, our claim on behalf of such customers against a custodian’s estate for our customers’ cryptocurrency assets could ~~adversely impact~~be treated as a general unsecured claim against the custodian, in which case our ~~cryptocurrency product offerings.~~


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customers could seek to hold us liable for any resulting losses.

In addition, our cryptocurrency product offerings could have the effect of heightening or exacerbating many of the risk factors described in ~~Item 1A, Risk Factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and may adversely affect our business, financial condition, and results of operations.~~this “Risk Factors” section.

~~Privacy and Protection of Customer Data~~Lending Regulation

~~The legal~~We hold a number of U.S. state lending licenses for our U.S. consumer short-term installment loan product, which is subject to federal and state laws governing consumer credit and debt collection. While the consumer short-term installment loan products that we offer outside the U.S. are generally exempt from primary consumer credit legislation, certain consumer lending laws, consumer protection or banking transparency regulations continue to apply to these products. Increased global regulatory ~~environment relating to privacy~~focus on short-term installment products and data protection laws continues to evolve in ways we cannot predict, including with respect to technologies such as cloud computing, artificial intelligence, cryptocurrency, and blockchain technology. Any failure, or perceived failure, by us to comply with our privacy policies as communicated to customers or with privacy and data protection lawsconsumer credit more broadly could result in ~~proceedings~~laws or ~~actions against us by data protection authorities, government entities, or others. Such proceedings or actions could subject us~~regulations requiring changes to ~~significant fines, penalties, judgments,~~our policies, procedures, operations, and ~~negative publicity, require us to change our business practices, increase the costs~~product offerings, and ~~complexity of compliance, result in reputational harm, and materially harm our business. In addition, compliance with inconsistent privacy and data protection laws may~~ restrict or limit our ability to ~~provide~~offer credit products, and ~~services to our customers.~~

PayPal relies on a variety of compliance methods to transfer personal data of EEA individuals to the U.S., including Binding Corporate Rules for internal transfers of certain types of personal data and Standard Contractual Clauses (“SCCs”) as approved by the European Commission for transfers to and from third parties. In June 2021, the European Commission imposed new SCC requirements which impose certain contract and operational requirements on PayPal, its merchants, and vendors in order to adhere to certain affirmative duties, including requirements related to government access transparency, enhanced data subject rights, and broader third-party assessments to ensure safeguards necessary to protect personal data exported from PayPal’s EEA customers and/or employees to countries outside the EEA. To the extent PayPal relies on SCCs, we ~~may~~could be required to incur additional costs and take additional steps to legitimize certain cross-border data transfers from the EEA, including new contractual arrangements under the updated requirements to avoid limitations on PayPal’s ability to process EEA data in countries outside of the EEA.

Many jurisdictions in which we operate have adopted, or are in the process of adopting or amending data privacy legislation or regulations aimed at creating and enhancing individual privacy rights. In the U.S., numerous states have enacted, or are in the process of enacting state level data privacy laws and regulations governing the collection, use, and retention of state residents’ personal information, and internationally, many of the markets in which we operate have similarly enacted, or are in the process of enacting or amending similar privacy laws and regulations. The continued proliferation of privacy laws in the jurisdictions in which we operate is likely to result in a disparate array of privacy rules with unaligned or conflicting provisions, accountability requirements, individual rights, and enforcement powers, and may subject us to increased regulatory scrutiny and business costs, and lead to unintended consumer confusion.

~~BUSINESS AND OPERATIONS RISKS~~

~~The continuing effects of the novel coronavirus (“COVID-19”) pandemic could materially and adversely affect our business, financial condition, and results of operations.~~

The ultimate extent to which the COVID-19 pandemic impacts our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to ~~change, including, but not limited~~additional compliance and licensure requirements, enforcement action, fines, and litigation if we are found to ~~the duration, scope, severity, proliferation~~violate any aspects of ~~variants and increase in the transmissibility of the virus, its impact on the global economy, actions taken to contain~~applicable law or limit the impact of COVID-19, such as the availability of an effective vaccine or treatment, geographic variation in how countries and states are handling the pandemic, and how quickly and to what extent normal economic and operating conditions may potentially resume.regulations.


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~~The COVID-19 pandemic has adversely impacted~~We are regularly subject to general litigation, regulatory scrutiny, and government inquiries.

We are regularly subject to claims, individual and class action lawsuits, arbitration proceedings, government and regulatory investigations, inquiries, actions or requests, and other proceedings alleging violations of laws, rules, and regulations with respect to competition, antitrust, intellectual property, privacy, data protection, information security, anti-money laundering, counter-terrorist financing, sanctions, anti-bribery, anti-corruption, consumer protection (including unfair, deceptive, or abusive acts or practices), the ~~operations~~terms of our ~~customers, suppliers, vendors~~customer agreements, fraud, accessibility, securities, tax, labor and employment, commercial disputes, services, charitable fundraising, contract disputes, escheatment of unclaimed or abandoned property, product liability, use of our services for illegal purposes, the matters described in “Note 13—Commitments and Contingencies—Litigation and Regulatory Matters—General Matters” to our consolidated financial statements, and other matters. The number and significance of these disputes and inquiries is expected to continue to increase as our products, services, and business ~~partners,~~expand in complexity, scale, scope, and geographic reach, including through acquisitions of businesses and technology. Investigations and legal proceedings are inherently uncertain, expensive and disruptive to our operations, and could result in substantial judgments, fines, penalties or settlements, negative publicity, substantial diversion of management’s time and effort, reputational harm, criminal sanctions, or orders that prevent or limit us from offering certain products or services; require us to change our business practices in costly ways, develop non-infringing or otherwise altered products or technologies, or pay substantial royalty or licensing fees; or delay or preclude planned transactions or product launches or improvements. Determining legal reserves or possible losses from such matters involves significant estimates and judgments and may ~~adversely impact~~not reflect the full range of uncertainties and unpredictable outcomes. We may be exposed to losses in excess of the amount recorded, and such amounts could be material. If any of our estimates and assumptions change or prove to have been incorrect, this could have a material adverse effect on our business, financial position, results of operations, ~~in the future. Cross-border and domestic commerce may be adversely impacted by measures taken by government authorities and businesses globally~~or cash flows.

BUSINESS AND OPERATIONS RISKS

Changes to contain and limit the spread of COVID-19, including travel restrictions, border closures, quarantines, shelter-in-place and lock-down orders, mask and social distancing requirements, and business limitations and shutdowns. To the extent that such mitigation measures remain in placepayment card networks or ~~are reinstated for significant periods of time, they may adversely affect our business, financial condition, and results of operations. Actions that we have taken~~bank fees, rules, or may take in the future intended to assist customers impacted by COVID-19 may negatively impact our results of operations. In particular, we have experienced and may continue to experience adverse financial impacts from a number of operational factors, including, but not limited to: increased liability under our Purchase Protection Program or chargebacks on payment cards resulting from merchants’ selling goods or services in advance of the delivery date or experiencing bankruptcy, insolvency or other business interruption; customer defaults on payment obligations under PayPal branded credit products; increased cybersecurity and payment fraud risk; challenges to the availability and reliability of our products and services; and supply chain disruptions impactingpractices could harm our business.

To process certain transactions, we must comply with applicable payment card, bank or other network (collectively, “network”) rules. The ~~significant~~rules govern all aspects of a transaction on the networks, including fees and other practices. From time to time, the networks have increased the fees and assessments that they charge for transactions that access their networks. Certain networks have also imposed special fees or assessments for transactions that are executed through a digital wallet such as the one that PayPal offers. Our payment processors may have the right to pass any increases in fees and assessments on to us and to increase their own fees for processing. Any increase in the number of our employees who are working remotely as a result of the pandemic, and an extended period of remote work arrangements and subsequent reintroduction into the workplace could introduce operational risk, increase cybersecurity risk, strain our business continuity plans, negatively impact productivity, and give rise to claims by employeesinterchange fees, special fees, or otherwise adversely affect our business. Additionally, COVID-19 could require new or modified processes, procedures, and controls to respond to changes in our business environment. We may take further actions as may be required by government authorities orassessments for transactions that we ~~determine are in~~pay to the ~~best interests of~~networks or our ~~employees, customers,~~payment processors could make our pricing less competitive, increase our operating costs, and ~~business partners. There is no certainty that such measures will be sufficient to mitigate the risks posed by COVID-19 or will otherwise be satisfactory to government authorities.~~

~~The impacts of COVID-19, individually or collectively, could have a material adverse impact on~~reduce our ~~business, financial condition, and results of operations and have the effect of heightening or exacerbating many of the other risks described in this “Risk Factors” section.~~

~~The conflict between Russia and Ukraine and its related implications~~operating income, which could materially ~~and adversely affect~~harm our business, financial condition, and results of operations.

In ~~February 2022, Russia commenced military hostilities~~some jurisdictions, government regulations have required payment card networks to reduce or cap interchange fees. Any changes in interchange fee rates or limitations, or their applicability to PayPal, could adversely affect our competitive position against ~~Ukraine. In March 2022,~~payment card service providers and the revenue we ~~suspended~~earn from our ~~transactional services~~branded card programs, require us to change our business practices, and harm our business.

We may also be subject to fines and other penalties assessed by networks resulting from any rule violations by us or our merchants. The networks set and interpret their rules and have alleged from time to time that various aspects of our business model violate these rules or our agreements with the networks. Such allegations may result in ~~Russia. We have also expanded our services for Ukrainian customers. The potential effects of~~significant fines, penalties, damages, or other liabilities, adversely impact benefits to us under the ~~conflict between Russia and Ukraine, individually~~agreements, or ~~in the aggregate, could have the effect of heightening or exacerbating many of the risk factors described in Item 1A, Risk Factors,~~require changes in our ~~Annual Report on Form 10-K for the fiscal year ended December 31, 2021,~~business practices that may be costly and adversely affect our business, ~~financial condition and~~ results of operations and ~~restrict~~financial condition. The network rules may also increase the cost of, impose restrictions on, or ~~limit~~otherwise impact the development of, our products which may negatively affect product deployment and adoption. The networks could adopt new operating rules or interpret or re-interpret existing rules that we or our payment processors might find difficult or impractical to follow, or costly to implement, which could require us to make significant changes to our products, increase our operational costs, and negatively impact our business. If we become unable or limited in our ability to operate in Russia. These effects could include, but are not limited to, geopolitical instability and uncertainty; adverse impacts on global and regional economic conditions and financial markets, including significant volatility inaccept certain payment types such as debit or credit ~~capital, and currency markets; reduced economic activity; changes in laws and regulations affecting~~cards, our business ~~including sanctions targeting Russia~~would be materially and other countries imposed by the U.S. and other countries, counter-sanctions imposed by Russia, and additional sanctions or counter-sanctions which may be enacted; and increased cybersecurity threats and concerns. The ultimate extent to which the conflict between Russia and Ukraine may negatively impact our business, financial condition, and results of operations will depend on future developments, which are highly uncertain, difficult to predict, and subject to change.adversely affected.


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~~Our ability to receive the benefit of U.S. merchant financing and certain U.S. installment loan offerings may be subject to challenge.~~

Merchant loans under our U.S. PayPal Working Capital (“PPWC”) and PayPal Business Loan (“PPBL”) products and certain U.S. installment loan products are provided by a state-chartered industrial bank under a program agreement with us, and we acquire the receivables generated by those loans after origination. In June 2020, largely in response to the Madden v. Midland Funding, LLC case decided in the U.S. Court of Appeals for the Second Circuit, the Federal Deposit Insurance Corporation (“FDIC”) approved a final rule clarifying that loans originated by state-chartered non-member banks remain valid throughout the lifetime of the loan, reflecting a similar rule finalized by the Office of the Comptroller of Currency (“OCC”) in May 2020. The final rule reaffirms and codifies in regulation the so-called “valid-when-made doctrine,” which provides that the interest rate for a loan is determined when the loan is made and will not be affected by subsequent events such as sale, assignment, or other transfer. A number of state attorneys general have challenged these FDIC and OCC rules, and there remains some uncertainty whether non-bank entities purchasing loan receivables originated by FDIC-insured, state-chartered industrial banks may rely on federal preemption of state usury laws and other state laws. An adverse outcome of these or similar challenges, or changes to applicable laws and regulations or regulatory policy, could materially impact our U.S. PPWC, PPBL, and certain installment products and our business.

Our credit products expose us to additional risks.

We offer credit products to a wide range of consumers and merchants in the U.S. and various international markets. The financial success of these products depends largely on the effective management of related risk. The credit decision-making process for our consumer credit products uses proprietary methodologies and credit algorithms and other analytical techniques designed to analyze the credit risk of specific consumers based on, among other factors, their past purchase and transaction history with PayPal or Venmo and their credit scores. Similarly, proprietary risk models and other indicators are applied to assess merchants who desire to use our merchant financing offerings to help predict their ability to repay. These risk models may not accurately predict the creditworthiness of a consumer or merchant due to inaccurate assumptions, including those related to the particular consumer or merchant, market conditions, economic environment, or limited transaction history or other data. The accuracy of these risk models and the ability to manage credit risk related to our credit products may also be affected by legal or regulatory requirements, changes in consumer behavior, changes in the economic environment, issuing bank policies, and other factors.

We generally rely on ~~third-party chartered~~the activities and charters of unaffiliated financial institutions to provide PayPal and Venmo branded consumer credit and merchant financing offerings to our U.S. customers. As a service provider to these ~~third-party chartered~~unaffiliated financial institutions, which are federally supervised U.S. financial institutions, we are subject from time to time to examination by their federal banking regulators. In the event of any termination or interruption in a partner bank’s ability or willingness to lend, our ability to offer consumer credit and merchant financing products could be interrupted or limited, which could materially and adversely affect our business. We may be unable to reach a similar arrangement with another ~~chartered~~unaffiliated financial institution on favorable terms or at all. Obtaining and maintaining the lending licenses required for us to originate such loans ourselves would be a costly, time-consuming and uncertain process, and would subject us to additional laws and regulatory requirements, which could significantly increase our costs and compliance obligations and require us to change our business practices.

We are subject to the risk that account holders who use our credit products will default on their payment ~~obligations, creating the risk of potential charge-offs or negative impact to the revenue share arrangement with Synchrony Bank with respect to our U.S. consumer credit product.~~obligations. The non-payment rate among account holders may increase due to, among other factors, changes to underwriting standards, risk models not accurately predicting the creditworthiness of a user, worsening economic conditions, such as a recession or government austerity programs, increases in prevailing interest rates, and high unemployment rates. Account holders who miss payments often fail to repay their loans, and account holders who file for protection under the bankruptcy laws generally do not repay their loans. Any deterioration in the performance of loans facilitated through our platform or unexpected losses on such loans may increase the risk of potential charge-offs, increase our allowance for loans and interest receivable, negatively impact our revenue share arrangement with an independent chartered financial institution with respect to our U.S. consumer credit product, and materially and adversely affect our financial condition and results of operations.

We currently purchase receivables related to our ~~PayPal branded~~U.S. PayPal-branded merchant financing offerings ~~in the U.S.~~ and certain U.S. consumer installment loan products ~~in the U.S.,~~ and extend credit for our consumer and merchant products outside the U.S. through our international subsidiaries. In June 2023, we entered into a multi-year agreement to sell up to €40 billion of U.K. and European buy now, pay later (“BNPL”) loan receivables originated by PayPal (Europe), consisting of the sale of a substantial majority of the U.K. and European BNPL loan portfolio held on PayPal (Europe)’s balance sheet at the closing of the transaction and a forward-flow arrangement for the sale of future originations of eligible loans. The closing of the transaction and the sale of future receivables are subject to certain conditions. If these conditions are not satisfied or waived or if the parties are unable to fulfill their obligations under these arrangements, the sale of these receivables could be delayed or not take place at all and we may not realize the expected benefits of this arrangement.

From time to time, we may consider other third-party sources of funding (including asset sales, warehouse facilities, forward-flow arrangements, securitizations, partnerships or other funding structures) for our credit portfolio or other receivables. The availability of such third-party funding is subject to a number of factors, including economic conditions and interest rates, and there can be no assurance that any such funding arrangements can be obtained on favorable terms or at all. If we are unable to fund our credit products or the purchase of the receivables related to our ~~merchant financing~~credit products and offerings ~~in the U.S. and certain consumer installment loan products in the U.S.~~ adequately or in a cost-effective manner, ~~or if we are unable to efficiently manage the cash resources utilized for these purposes,~~ the growth of our credit products and our results of operations and financial condition could be ~~negatively~~materially and adversely impacted.


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~~For information on lending regulations that impact our business, see “Our business is subject to extensive government regulation~~Global and ~~oversight. Our failure to comply with extensive, complex, overlapping, and frequently changing rules, regulations, and legal interpretations~~regional economic conditions could ~~materially~~ harm our ~~business~~—~~Lending Regulation” in the risk factor section of our 2021 Form 10‑K.~~business.

~~We rely on third parties in many aspects of our business, which creates additional risk.~~

~~We rely on third parties in many aspects of our business,~~Adverse global and regional economic conditions such as turmoil affecting the banking system or financial markets, including, but not limited ~~to: networks, banks, payment processors,~~to, tightening in the credit markets, extreme volatility or distress in the financial markets (including the fixed income, credit, currency, equity, and ~~payment gateways that link~~commodity markets), higher unemployment, high consumer debt levels, recessionary or inflationary pressures, supply chain issues, reduced consumer confidence or economic activity, government fiscal, monetary and tax policies, U.S. and international trade relationships, agreements, treaties, tariffs and restrictive actions, the inability of a government to enact a budget in a fiscal year, government shutdowns, government austerity programs, and other negative financial news or macroeconomic developments could have a material adverse impact on the demand for our products and services, including a reduction in the volume and size of transactions on our payments platform. Additionally, any inability to access the capital markets when needed due to volatility or illiquidity in the markets or increased regulatory liquidity and capital requirements may strain our liquidity position. Such conditions may also expose us to fluctuations in foreign currency exchange rates or interest rates that could materially and adversely affect our financial results.

Brexit: The U.K.’s departure from the ~~payment card~~EU could harm our business, financial condition, and ~~bank clearing networks~~results of operations.

Following the departure of the U.K. from the EU and the EEA on January 31, 2020 (commonly referred to ~~process transactions; unaffiliated third-party lenders~~as “Brexit”) and the expiration of the transition period on December 31, 2020, there continues to ~~originate our U.S.~~be uncertainty over the practical consequences of Brexit, including the potential for greater restrictions on the supply and availability of goods and services between the U.K. and EEA region, and a general deterioration in consumer sentiment and credit ~~products~~conditions leading to ~~consumers, U.S.~~overall negative economic growth and increased risk of merchant ~~financing,~~default.

The consequences of Brexit have brought legal uncertainty and ~~branded credit card products; PayPal-branded debit card products issued by an unaffiliated bank; cryptocurrency custodial service providers;~~increased complexity for financial services firms, which could continue as national laws and external business partners and contractors who provide key functions (e.g., outsourced customer support and product development functions; facilities; information technology, data center facilities and cloud computing). These risks include legal, regulatory, information security, reputational, operational, or any other risks inherent in engaging and relying upon a third party. We are undertaking efforts to diversify our reliance on a small number of third-party payment processors in various markets. We are in ongoing discussions with our primary payment processorregulations in the ~~U.S. concerning a transitional period~~U.K. differ from EU laws and regulations and additional authorization requirements come into effect. These developments have led and could lead in the future to ~~facilitate~~additional regulatory costs and challenges for us. Specifically, PayPal currently operates in the ~~migration~~U.K. within the scope of ~~our arrangements~~its passport permissions (as they existed at the end of the transition period) pursuant to ~~other payment processors in connection with~~ the ~~wind-down~~Temporary Permissions Regime pending the grant of ~~our agreement.~~new authorizations by the U.K. financial regulators. If we are unable to ~~effectively manage~~obtain the required authorizations before the expiry of the longstop dates set by the U.K. regulators under the Temporary Permissions Regime, our ~~third-party relationships, these third parties are unable~~European operations could lose their ability to ~~meet~~offer services within the U.K. market, or into the U.K. market on a cross-border basis. Our European operations may also be required to comply with legal and regulatory requirements in the U.K. that may be in addition to, or inconsistent with, those of the EEA, in each case, leading to increased complexity and costs.

If one or more of our counterparty financial institutions default on their financial or performance obligations to us or fail, we ~~experience substantial disruptions~~may incur significant losses.

We have significant amounts of cash, cash equivalents, receivables outstanding, and other investments on deposit or in accounts with banks or other financial institutions in the U.S. and international jurisdictions. As part of our foreign currency hedging activities, we regularly enter into transactions involving derivative financial instruments with various financial institutions. Certain banks and other financial institutions are also lenders under our credit facilities. We regularly monitor our concentration of, and exposure to, counterparty risk, and actively manage this exposure to mitigate the associated risk. Despite these ~~relationships,~~efforts, we may be exposed to the risk of default on obligations by, or deteriorating operating results or financial condition or failure of, these counterparty financial institutions. If one of our ~~operations,~~counterparty financial institutions were to become insolvent, placed into receivership, or file for bankruptcy, our ability to recover losses incurred as a result of default or to access or recover our assets that are deposited, held in accounts with, or otherwise due from, such counterparty may be limited due to the insufficiency of the failed institutions’ estate to satisfy all claims in full or the applicable laws or regulations governing the insolvency, bankruptcy, or resolution proceedings. In the event of default on obligations by, or the failure of, one or more of these counterparties, we could incur significant losses, which could negatively impact our results of operations and financial results could be adversely impacted. Additionally, while we have policies and procedures for managing these relationships, they inherently involve a lesser degree of control over business operations, governance, and compliance, thereby potentially increasing our financial, legal, reputational, and operational risk.condition.

If we are unable, or perceived as unable, to effectively manage customer funds, our business could be harmed.

We hold a substantial amount of funds belonging to our customers, including balances in customer accounts and funds being remitted to sellers of goods and services or recipients of peer-to-peer transactions. In certain jurisdictions where we operate, we are required to comply with applicable regulatory requirements with respect to customer balances. Our success is reliant on public confidence in our ability to effectively manage our customers’ balances and handle substantial transaction volumes and amounts of customer funds. Any failure to manage customer funds in compliance with applicable regulatory requirements, or any public loss of confidence in us or our ability to effectively manage customer balances, could lead customers to discontinue or reduce their use of our products or reduce customer balances held with us, which could significantly harm our business.


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ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

REPURCHASES OF EQUITY SECURITIES

~~In July 2018, our Board of Directors authorized a stock repurchase program that provides for the repurchase of up to $10 billion of our common stock, with no expiration from the date of authorization.~~ In June 2022, our Board of Directors authorized an additional stock repurchase program that provides for the repurchase of up to $15 billion of our common stock, with no expiration from the date of authorization. Our stock repurchase ~~programs are~~program is intended to offset the impact of dilution from our equity compensation programs and, subject to market conditions and other factors, may also be used to make opportunistic repurchases of our common stock to reduce outstanding share count. Any share repurchases under our stock repurchase ~~programs~~program may be made through open market transactions, block trades, privately negotiated transactions including accelerated share repurchase agreements or other means at times and in such amounts as management deems appropriate, and will be funded from our working capital or other financing alternatives. Moreover, any stock repurchases are subject to market conditions and other uncertainties and we cannot predict if or when any stock repurchases will be made. We may terminate our stock repurchase ~~programs~~program at any time without prior notice.

The stock repurchase activity under our stock repurchase ~~programs~~program during the three months ended ~~September~~June 30, ~~2022~~2023 is summarized below:

Total number of shares purchased
Average price
paid per share(1)
Total number of shares purchased as part of publicly announced plans or programs Approximate dollar value of shares that may yet be purchased under the plans or programs
(In millions, except per share amounts)
Balance as of June 30, 2022 $ 17,810
July 1, 2022 through July 31, 2022 — $ — — 17,810
August 1, 2022 through August 31, 2022 4.8 $ 96.41 4.8 17,346
September 1, 2022 through September 30, 2022 5.2 $ 91.62 5.2 16,871
Balance as of September 30, 2022 10.0 10.0 $ 16,871


	Total number of shares purchased	Average price paid per share(1)		Total number of shares purchased as part of publicly announced plans or programs	Approximate dollar value of shares that may yet be purchased under the plans or programs
	(In millions, except per share amounts)
Balance as of March 31, 2023					$	14,429
April 1, 2023 through April 30, 2023	8.2	$	74.52	8.2	13,817
May 1, 2023 through May 31, 2023	6.5	$	66.15	6.5	13,386
June 1, 2023 through June 30, 2023	7.5	$	65.10	7.5	12,900
Balance as of June 30, 2023	22.2			22.2	$	12,900

(1) Average price paid per share for open market purchases includes broker ~~commissions.~~commissions, but excludes excise tax.

ITEM 3: DEFAULTS UPON SENIOR SECURITIES

None.


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ITEM 4: MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5: OTHER INFORMATION

~~None.~~RULE 10B5-1 TRADING PLANS

An equity trading plan is a written document that preestablishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock, including sales of shares acquired under the Company’s employee and director equity plans.

On May 23, 2023, Gabrielle Rabinovitch, Acting Chief Financial Officer and Senior Vice President, Investor Relations and Treasurer, entered into an equity trading plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. The trading plan has a duration of August 22, 2023 to August 22, 2024 with approximately 33,115 shares (vested and net shares expected to vest over the duration of the trading plan) subject to sale under the plan.


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ITEM 6: EXHIBITS

INDEX TO EXHIBITS

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

Date Filed

Filed Herewith

~~10.0~~1 +4.01

~~Letter agreement by and between PayPal Holdings, Inc. and John Kim,~~Officer's Certificate pursuant to the Indenture, dated ~~September 1, 2022~~

~~10.0~~2 +

~~Letter agreement by and between PayPal Holdings, Inc. and Gabrielle Rabinovitch, dated September 27, 2022~~as of June 9, 2023

8-K

~~10/3/2022~~6/9/2023

~~10.03+~~4.02

~~Letter agreement, effective July 13, 2022, between Blake Jorgensen and~~ Form of Note for 0.813% Notes due 2025 (included in Exhibit 4.01)

8-K

6/9/2023

4.03

Form of Note for 0.972% Notes due 2026 (included in Exhibit 4.01)

8-K

6/9/2023

4.04

Form of Note for 1.240% Notes due 2028 (included in Exhibit 4.01)

8-K

6/9/2023

10.01+

PayPal Holdings, Inc. 2015 Incentive Award Plan, as Amended and Restated

~~10-Q~~8-K

~~8/2/2022~~5/31/2023

10.02

Credit Agreement, dated as of June 7, 2023, among PayPal Holdings, Inc. the Designated Borrowers party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A. and J.P. Morgan Securities Australia Limited, as the Administrative Agents

8-K

6/13/2023

10.03†

Receivables Purchase Agreement, dated as of June 16, 2023 by and between PayPal (Europe) S.à r.l. et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l. (as Purchaser), BNY Mellon Corporate Trustee Services limited (as Security Agent), Avega S.à r.l. (as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l. (as Class C Lender)

8-K

6/22/2023

10.04†

Receivables Management Agreement, dated as of June 16, 2023 by and between PayPal (Europe) S.à r.l. et Cie, SCA (as Seller and Receivables Manager), Alps Partners S.à r.l. (as Purchaser), Avega S.à r.l. (as Back-Up Receivables Manager Facilitator) and Alps Partners (Holding) S.à r.l. (as Class C Lender)

8-K

6/22/2023

31.01

Certification of Registrant’s Chief Executive Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002

31.02

Certification of Registrant’s Chief Financial Officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002

32.01*

Certification of Registrant’s Chief Executive Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002

32.02*

Certification of Registrant’s Chief Financial Officer, as required by Section 906 of the Sarbanes-Oxley Act of 2002

101

The following financial information related to the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Income (Loss), (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Stockholders’ Equity, (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the related Notes to Condensed Consolidated Financial Statements

104

Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101

+ Indicates a management contract or compensatory plan or arrangement.

* The certifications furnished in Exhibits 32.01 and 32.02 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference.

† Certain portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S‑K.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		PayPal Holdings, Inc.
		Principal Executive Officer:

Date:	~~November 3, 2022~~August 2, 2023	By:	/s/ Daniel H. Schulman
			Daniel H. Schulman
			President and Chief Executive Officer

		Principal Financial Officer and Principal Accounting Officer:

Date:	~~November 3, 2022~~August 2, 2023	By:	/s/ Gabrielle Rabinovitch
			Gabrielle Rabinovitch
			Acting Chief Financial Officer and Senior Vice President, Investor Relations and Treasurer

		~~Principal Accounting Officer:~~

~~Date:~~	~~November 3, 2022~~	~~By:~~	~~/s/ Jeffrey W. Karbowski~~
			~~Jeffrey W. Karbowski~~
			~~Vice President, Chief Accounting Officer~~


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			Page Number
Part I.	Financial Information		4
	Item 1.	Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income (Loss)	5
		Condensed Consolidated Statements of Comprehensive Income (Loss)	6
		Condensed Consolidated Statements of Stockholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	11
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6667
	Item 4.	Controls and Procedures	69
Part II.	Other Information		70
	Item 1.	Legal Proceedings	70
	Item 1A.	Risk Factors	70
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7576
	Item 3.	Defaults Upon Senior Securities	7576
	Item 4.	Mine Safety Disclosures	76
	Item 5.	Other Information	76
	Item 6.	Exhibits	77
Signatures			78


Details about AOCI Components	Amount of Gains (Losses) Reclassified from AOCI								Affected Line Item in the Statement of Income (Loss)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(In millions)
Gains (losses) on cash flow hedges—foreign currency exchange contracts	$	156	$	(44)	$	310	$	(192)	Net revenues
Unrealized gains (losses) on investments	—		—		—		—		Other income (expense), net
	156		(44)		310		(192)		Income before income taxes
	—		—		—		—		Income tax expense
Total reclassifications for the period	$	156	$	(44)	$	310	$	(192)	Net income (loss)


	Three Months Ended September 30, 2021
	Number of Accounts (in thousands)(1)	Outstanding Balances(2) (in millions)		Weighted Average Payment Term Extensions (in months)
Loans and interest receivable	—	$	4	34


	Nine Months Ended September 30, 2021
	Number of Accounts (in thousands)	Outstanding Balances(1) (in millions)		Weighted Average Payment Term Extensions (in months)
Loans and interest receivable	3	$	43	36


	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
	(In millions)
Unfavorable impact to net revenues (exclusive of hedging impact)	$	(307)	$	(672)
Hedging impact	156		310
Unfavorable impact to net revenues	(151)		(362)
Favorable impact to operating expense	162		350
Net favorable (unfavorable) impact to operating income	$	11	$	(12)


	Three Months Ended September 30,				Percent Increase/(Decrease)		Nine Months Ended September 30,				Percent Increase/(Decrease)
	2022		2021				2022		2021


Number of payment transactions per active account	50.1		44.2		13	%	50.1		44.2		13	%

Percent of cross-border TPV	13	%	15	%	**		13	%	16	%	**