Fair Value Measurement of Assets and Liabilities

3 Months Ended

Mar. 31, 2020

Fair Value Measurement of Assets and Liabilities

Financial Assets and Liabilities Measured and Recorded at Fair Value on a Recurring Basis

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019:



	March 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)
Assets:
Cash and cash equivalents⁽¹⁾	$	1,238	$	—	$	1,238
Short-term investments⁽²⁾:
U.S. government and agency securities	50		—		50
Foreign government and agency securities	604		—		604
Corporate debt securities	1,406		—		1,406
Total short-term investments	$	2,060	$	—	$	2,060
Funds receivable and customer accounts⁽³⁾:
Cash and cash equivalents	916		—		916
U.S. government and agency securities	4,821		—		4,821
Foreign government and agency securities	2,804		—		2,804
Corporate debt securities	1,989		—		1,989
Total funds receivable and customer accounts	$	10,530	$	—	$	10,530
Derivatives	366		—		366
Long-term investments^(2),(4):
U.S. government and agency securities	100		—		100
Foreign government and agency securities	126		—		126
Corporate debt securities	435		—		435
Marketable equity securities	1,151		1,151		—
Total long-term investments	$	1,812	$	1,151	$	661
Total financial assets	$	16,006	$	1,151	$	14,855
Liabilities:
Derivatives	$	209	$	—	$	209

⁽¹⁾Excludes cash of $6.6 billion not measured and recorded at fair value.

⁽²⁾Excludes restricted cash of $74 million and time deposits of $204 million not measured and recorded at fair value.

⁽³⁾Excludes cash, time deposits, and funds receivable of $12.3 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

⁽⁴⁾Excludes non-marketable equity securities of $548 million measured using the Measurement Alternative or equity method accounting.



	December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)
Assets:
Cash and cash equivalents⁽¹⁾	$	2,835	$	—	$	2,835
Short-term investments⁽²⁾:
Foreign government and agency securities	757		—		757
Corporate debt securities	1,977		—		1,977
Total short-term investments	2,734		—		2,734
Funds receivable and customer accounts⁽³⁾:
Cash and cash equivalents	683		—		683
U.S. government and agency securities	4,996		—		4,996
Foreign government and agency securities	2,653		—		2,653
Corporate debt securities	2,541		—		2,541
Total funds receivable and customer accounts	10,873		—		10,873
Derivatives	135		—		135
Long-term investments⁽⁴⁾:
U.S. government and agency securities	140		—		140
Foreign government and agency securities	207		—		207
Corporate debt securities	678		—		678
Marketable equity securities	1,314		1,314		—
Total long-term investments	2,339		1,314		1,025
Total financial assets	$	18,916	$	1,314	$	17,602
Liabilities:
Derivatives	$	122	$	—	$	122

⁽¹⁾Excludes cash of $4.5 billion not measured and recorded at fair value.

⁽²⁾Excludes restricted cash of $64 million and time deposits of $614 million not measured and recorded at fair value.

⁽³⁾Excludes cash, time deposits, and funds receivable of $11.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

⁽⁴⁾Excludes non-marketable equity securities of $524 million 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). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2).

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple 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.

We did not have any transfers of financial instruments between valuation levels during the three months ended March 31, 2020 and 2019. As of March 31, 2020 and December 31, 2019, we did not have any assets or liabilities requiring measurement at fair value without observable market values that would require a high level of judgment to determine fair value (Level 3).

We elect to account for foreign currency denominated available-for-sale debt securities 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 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 of our available-for-sale debt securities under the fair value option as of March 31, 2020 and December 31, 2019:



	March 31, 2020		December 31, 2019
	(In millions)
Funds receivable and customer accounts	$	1,283	$	1,690
Short-term investments	$	365	$	246

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three months ended March 31, 2020 and 2019:



	Three Months Ended March 31,
	2020			2019
	(In millions)
Funds receivable and customer accounts	$	(20	)	$	(29	)
Short-term investments	$	(18	)	$	—

Financial Assets and Liabilities Measured and Recorded at Fair Value on a Non-Recurring Basis

The following tables summarize our financial assets and liabilities held as of March 31, 2020 and December 31, 2019 for which a non-recurring fair value measurement was recorded during the three months ended March 31, 2020 and the year ended December 31, 2019, respectively:



	March 31, 2020		Significant Other Observable Inputs (Level 2)
	(In millions)
Non-marketable equity investments measured using the Measurement Alternative⁽¹⁾	$	128	$	128

⁽¹⁾Excludes non-marketable equity investments of $392 million accounted for under the Measurement Alternative for which no observable price changes occurred during the three months ended March 31, 2020.



	December 31, 2019		Significant Other Observable Inputs (Level 2)
	(In millions)
Non-marketable equity investments measured using the Measurement Alternative⁽¹⁾	$	303	$	303

⁽¹⁾Excludes non-marketable equity investments of $194 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2019.

We measured these non-marketable equity investments 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.

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, notes receivable, and long-term debt related to borrowings on our credit facilities are carried at amortized cost, which approximates their fair value. Our fixed rate debt (also classified as long-term debt) carried at amortized cost had a carrying value of approximately $5.0 billion and fair value of approximately $4.9 billion as of March 31, 2020. Our fixed rate debt carried at amortized cost had a carrying value and fair value of approximately $5.0 billion as of December 31, 2019. 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 debt would be classified as Level 2; and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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