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 June 30, 2020.

OR

☐ 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.

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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 July 24, 2020, there were 1,173,299,768 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.

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PayPal Holdings, Inc.

TABLE OF CONTENTS

			Page Number
Part I.	Financial Information		4
	Item 1.	Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Income	5
		Condensed Consolidated Statements of Comprehensive Income	6
		Condensed Consolidated Statements of Stockholders’ Equity	7
		Condensed Consolidated Statements of Cash Flows	9
		Notes to Condensed Consolidated Financial Statements	10
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62
	Item 4.	Controls and Procedures	64
Part II.	Other Information		65
	Item 1.	Legal Proceedings	65
	Item 1A.	Risk Factors	65
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
	Item 3.	Defaults Upon Senior Securities	74
	Item 4.	Mine Safety Disclosures	74
	Item 5.	Other Information	74
	Item 6.	Exhibits	75
Signatures			76

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PART I: FINANCIAL INFORMATION

Item 1: Financial Statements

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2020		December 31, 2019
	(In millions, except par value)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,353	$	7,349
Short-term investments	6,695		3,412
Accounts receivable, net	446		435
Loans and interest receivable, net of allowances of $878 and $258 as of June 30, 2020 and December 31, 2019, respectively	3,135		3,972
Funds receivable and customer accounts	29,031		22,527
Prepaid expenses and other current assets	840		800
Total current assets	46,500		38,495
Long-term investments	3,175		2,863
Property and equipment, net	1,717		1,693
Goodwill	9,118		6,212
Intangible assets, net	1,254		778
Other assets	1,402		1,292
Total assets	$	63,166	$	51,333
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	252	$	232
Funds payable and amounts due to customers	31,031		24,527
Accrued expenses and other current liabilities	2,119		2,087
Income taxes payable	327		73
Total current liabilities	33,729		26,919
Deferred tax liability and other long-term liabilities	2,819		2,520
Long-term debt	8,934		4,965
Total liabilities	45,482		34,404
Commitments and Contingencies (Note 13)
Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,173 shares outstanding as of both June 30, 2020 and December 31, 2019	—		—
Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—		—
Treasury stock at cost, 114 and 105 shares as of June 30, 2020 and December 31, 2019, respectively	(7,892)		(6,872)
Additional paid-in-capital	15,914		15,588
Retained earnings	9,788		8,342
Accumulated other comprehensive income (loss)	(170)		(173)
Total PayPal Stockholders’ equity	17,640		16,885
Noncontrolling interest	44		44
Total equity	17,684		16,929
Total liabilities and equity	$	63,166	$	51,333

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

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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(In millions, except per share data)
	(Unaudited)
Net revenues	$	5,261	$	4,305	$	9,879	$	8,433
Operating expenses:
Transaction expense	1,843		1,627		3,582		3,176
Transaction and credit losses	440		318		1,031		659
Customer support and operations	423		399		822		787
Sales and marketing	414		356		785		685
Technology and development	631		483		1,236		994
General and administrative	512		419		998		838
Restructuring and other charges	47		(2)		76		71
Total operating expenses	4,310		3,600		8,530		7,210
Operating income	951		705		1,349		1,223
Other income (expense), net	848		238		713		437
Income before income taxes	1,799		943		2,062		1,660
Income tax expense	269		120		448		170
Net income	$	1,530	$	823	$	1,614	$	1,490
Net income per share:
Basic	$	1.30	$	0.70	$	1.38	$	1.27
Diluted	$	1.29	$	0.69	$	1.36	$	1.25
Weighted average shares:
Basic	1,173		1,175		1,173		1,173
Diluted	1,184		1,187		1,185		1,188

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

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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
	(In millions)
	(Unaudited)
Net income	$	1,530	$	823	$	1,614	$	1,490
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)	52		9		(119)		(58)
Net investment hedge CTA (loss) gain	(16)		—		55		—
Unrealized (losses) gains on cash flow hedges, net	(92)		(18)		52		(64)
Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net	1		—		(1)		1
Unrealized gains on investments, net	7		10		22		21
Tax expense on unrealized gains on investments, net	(2)		(4)		(6)		(6)
Other comprehensive income (loss), net of tax	(50)		(3)		3		(106)
Comprehensive income	$	1,480	$	820	$	1,617	$	1,384

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

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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		Noncontrolling Interest		Total  Equity
	(In millions)
	(Unaudited)
Balances at December 31, 2019	1,173	$	(6,872)	$	15,588	$	(173)	$	8,342	$	44	$	16,929
Adoption of current expected credit loss standard	—	—		—		—		(168)		—		(168)
Net income	—	—		—		—		84		—		84
Foreign CTA	—	—		—		(171)		—		—		(171)
Net investment hedge CTA gain	—	—		—		71		—		—		71
Unrealized gains on cash flow hedges, net	—	—		—		144		—		—		144
Tax expense on unrealized gains on cash flow hedges, net	—	—		—		(2)		—		—		(2)
Unrealized gains on investments, net	—	—		—		15		—		—		15
Tax expense on unrealized gains on investments, net	—	—		—		(4)		—		—		(4)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	8	—		(382)		—		—		—		(382)
Common stock repurchased	(8)	(800)		—		—		—		—		(800)
Stock-based compensation	—	—		295		—		—		—		295
Balances at March 31, 2020	1,173	$	(7,672)	$	15,501	$	(120)	$	8,258	$	44	$	16,011
Net income	—	—		—		—		1,530		—		1,530
Foreign CTA	—	—		—		52		—		—		52
Net investment hedge CTA loss	—	—		—		(16)		—		—		(16)
Unrealized losses on cash flow hedges, net	—	—		—		(92)		—		—		(92)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		1		—		—		1
Unrealized gains on investments, net	—	—		—		7		—		—		7
Tax expense on unrealized gains on investments, net	—	—		—		(2)		—		—		(2)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	1	—		52		—		—		—		52
Common stock repurchased	(1)	(220)		—		—		—		—		(220)
Stock-based compensation	—	—		361		—		—		—		361
Balances at June 30, 2020	1,173	$	(7,892)	$	15,914	$	(170)	$	9,788	$	44	$	17,684

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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)

	Common Stock Shares	Treasury Stock		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Noncontrolling Interest		Total  Equity
	(In millions)
	(Unaudited)
Balances at December 31, 2018	1,174	$	(5,511)	$	14,939	$	78	$	5,880	$	—	$	15,386
Adoption of lease accounting standard	—	—		—		—		3		—		3
Net income	—	—		—		—		667		—		667
Foreign CTA	—	—		—		(67)		—		—		(67)
Unrealized losses on cash flow hedges, net	—	—		—		(46)		—		—		(46)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		1		—		—		1
Unrealized gains on investments, net	—	—		—		11		—		—		11
Tax expense on unrealized gains on investments, net	—	—		—		(2)		—		—		(2)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	6	—		(302)		—		—		—		(302)
Common stock repurchased	(8)	(705)		(45)		—		—		—		(750)
Stock-based compensation	—	—		256		—		—		—		256
Balances at March 31, 2019	1,172	$	(6,216)	$	14,848	$	(25)	$	6,550	$	—	$	15,157
Net income	—	—		—		—		823		—		823
Foreign CTA	—	—		—		9		—		—		9
Unrealized losses on cash flow hedges, net	—	—		—		(18)		—		—		(18)
Tax benefit on unrealized losses on cash flow hedges, net	—	—		—		—		—		—		—
Unrealized gains on investments, net	—	—		—		10		—		—		10
Tax expense on unrealized gains on investments, net	—	—		—		(4)		—		—		(4)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	5	—		(73)		—		—		—		(73)
Common stock repurchased	—	—		—		—		—		—		—
Stock-based compensation	—	—		235		—		—		—		235
Balances at June 30, 2019	1,177	$	(6,216)	$	15,010	$	(28)	$	7,373	$	—	$	16,139

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

	Six Months Ended June 30,
	2020		2019
	(In millions)
	(Unaudited)
Cash flows from operating activities:
Net income	$	1,614	$	1,490
Adjustments:
Transaction and credit losses	1,031		659
Depreciation and amortization	590		458
Stock-based compensation	635		470
Deferred income taxes	31		35
Unrealized gains on strategic investments	(739)		(398)
Other	(27)		(92)
Changes in assets and liabilities:
Accounts receivable