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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, 2021.
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
   
pypl-20210630_g1.jpg

PayPal Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware47-2989869
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
2211 North First StreetSan Jose,California95131
(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 classTrading Symbol(s)Name of each exchange on which registered
Common stock, $0.0001 par value per sharePYPLNASDAQ 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 filerAccelerated filer
Non-accelerated filerSmaller 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 23, 2021, there were 1,175,032,150 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
Page Number



PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

PayPal Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
2021
December 31,
2020
 (In millions, except par value)
(Unaudited)
ASSETS
Current assets:  
Cash and cash equivalents$5,745 $4,794 
Short-term investments6,650 8,289 
Accounts receivable, net693 577 
Loans and interest receivable, net of allowances of $574 and $838 as of June 30, 2021 and December 31, 2020, respectively
3,283 2,769 
Funds receivable and customer accounts35,670 33,418 
Prepaid expenses and other current assets1,190 1,148 
Total current assets53,231 50,995 
Long-term investments6,968 6,089 
Property and equipment, net1,848 1,807 
Goodwill9,564 9,135 
Intangible assets, net920 1,048 
Other assets1,285 1,305 
Total assets$73,816 $70,379 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$260 $252 
Funds payable and amounts due to customers38,370 35,418 
Accrued expenses and other current liabilities2,489 2,648 
Income taxes payable149 129 
Total current liabilities41,268 38,447 
Deferred tax liability and other long-term liabilities2,698 2,930 
Long-term debt8,945 8,939 
Total liabilities52,911 50,316 
Commitments and contingencies (Note 13)
Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,175 and 1,172 shares outstanding as of June 30, 2021 and December 31, 2020, respectively
  
Preferred stock, $0.0001 par value; 100 shares authorized, unissued
  
Treasury stock at cost, 123 and 117 shares as of June 30, 2021 and December 31, 2020, respectively
(10,030)(8,507)
Additional paid-in-capital16,580 16,644 
Retained earnings14,647 12,366 
Accumulated other comprehensive income (loss)(292)(484)
Total PayPal stockholders’ equity20,905 20,019 
Noncontrolling interest 44 
Total equity20,905 20,063 
Total liabilities and equity$73,816 $70,379 
The accompanying notes are an integral part of these condensed consolidated financial statements.

pypl-20210630_g2.jpg
4

PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended June 30,Six Months Ended June 30,
2021202020212020
 (In millions, except per share data)
(Unaudited)
Net revenues$6,238 $5,261 $12,271 $9,879 
Operating expenses:
Transaction expense 2,524 1,843 4,799 3,582 
Transaction and credit losses169 440 442 1,031 
Customer support and operations521 423 1,039 822 
Sales and marketing628 414 1,230 785 
Technology and development746 631 1,487 1,236 
General and administrative522 512 1,046 998 
Restructuring and other charges1 47 59 76 
Total operating expenses5,111 4,310 10,102 8,530 
Operating income1,127 951 2,169 1,349 
Other income (expense), net229 848 59 713 
Income before income taxes1,356 1,799 2,228 2,062 
Income tax expense (benefit)172 269 (53)448 
Net income$1,184 $1,530 $2,281 $1,614 
Net income per share:
Basic$1.01 $1.30 $1.94 $1.38 
Diluted$1.00 $1.29 $1.92 $1.36 
Weighted average shares:
Basic1,174 1,173 1,174 1,173 
Diluted1,186 1,184 1,188 1,185 
The accompanying notes are an integral part of these condensed consolidated financial statements.


pypl-20210630_g2.jpg
5

PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
 (In millions)
(Unaudited)
Net income $1,184 $1,530 $2,281 $1,614 
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)31 52 (22)(119)
Net investment hedge CTA (loss) gain (16) 55 
Unrealized gains (losses) on cash flow hedges, net32 (92)230 52 
Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net 1 (3)(1)
Unrealized (losses) gains on investments, net(2)7 (17)22 
Tax benefit (expense) on unrealized (losses) gains on investments, net (2)4 (6)
Other comprehensive income (loss), net of tax61 (50)192 3 
Comprehensive income$1,245 $1,480 $2,473 $1,617 
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 SharesTreasury StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income (Loss)
Retained EarningsNoncontrolling InterestTotal 
Equity
 (In millions)
(Unaudited)
Balances at December 31, 20201,172 $(8,507)$16,644 $(484)$12,366 $44 $20,063 
Net income— — — — 1,097 — 1,097 
Foreign CTA— — — (53)— — (53)
Unrealized gains on cash flow hedges, net— — — 198 — — 198 
Tax expense on unrealized gains on cash flow hedges, net— — — (3)— — (3)
Unrealized losses on investments, net— — — (15)— — (15)
Tax benefit on unrealized losses on investments, net— — — 4 — — 4 
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes7 — (870)— — — (870)
Common stock repurchased(5)(1,323)— — — — (1,323)
Stock-based compensation— — 387 — — — 387 
Change in noncontrolling interest— — — — — (44)(44)
Balances at March 31, 20211,174 $(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 taxes2 — 12 — — — 12 
Common stock repurchased(1)(200)— — — — (200)
Stock-based compensation— — 407 — — — 407 
Balances at June 30, 20211,175 $(10,030)$16,580 $(292)$14,647 $ $20,905 

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PayPal Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (continued)
Common Stock SharesTreasury StockAdditional Paid-In CapitalAccumulated Other
Comprehensive Income (Loss)
Retained EarningsNoncontrolling InterestTotal 
Equity
 (In millions)
(Unaudited)
Balances at December 31, 20191,173 $(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 taxes8 — (382)— — — (382)
Common stock repurchased(8)(800)— — — — (800)
Stock-based compensation— — 295 — — — 295 
Balances at March 31, 20201,173 $(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 taxes1 — 52 — — — 52 
Common stock repurchased(1)(220)— — — — (220)
Stock-based compensation— — 361 — — — 361 
Balances at June 30, 20201,173 $(7,892)$15,914 $(170)$9,788 $44 $17,684 
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,
 20212020
 (In millions)
(Unaudited)
Cash flows from operating activities:
Net income$2,281 $1,614 
Adjustments to reconcile net income to net cash provided by operating activities:
Transaction and credit losses442 1,031 
Depreciation and amortization616 590 
Stock-based compensation758 635 
Deferred income taxes(103)31 
Net gains on strategic investments(163)(764)
Other 77 (2)
Changes in assets and liabilities:
Accounts receivable(112)47 
Accounts payable41 (48)
Income taxes payable20 114 
Other assets and liabilities (793)(55)
Net cash provided by operating activities3,064 3,193 
Cash flows from investing activities:
Purchases of property and equipment(468)(399)
Proceeds from sales of property and equipment1 120 
Changes in principal loans receivable, net(316)3 
Purchases of investments(20,240)(14,844)
Maturities and sales of investments18,683 9,793 
Acquisitions, net of cash and restricted cash acquired(469)(3,612)
Funds receivable127 (1,145)
Net cash used in investing activities(2,682)(10,084)
Cash flows from financing activities:
Proceeds from issuance of common stock89 71 
Purchases of treasury stock(1,523)(1,000)
Tax withholdings related to net share settlements of equity awards(940)(421)
Borrowings under financing arrangements 6,966 
Repayments under financing arrangements (3,000)
Funds payable and amounts due to customers3,004 6,623 
Other financing activities (15)
Net cash provided by financing activities630 9,224 
Effect of exchange rate changes on cash, cash equivalents, and restricted cash (34)(72)
Net change in cash, cash equivalents, and restricted cash 978 2,261 
Cash, cash equivalents, and restricted cash at beginning of period 18,040 15,743 
Cash, cash equivalents, and restricted cash at end of period$19,018 $18,004 
Supplemental cash flow disclosures:
Cash paid for interest$109 $78 
Cash paid for income taxes, net$380 $70 
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$5,745 $6,353 
Short-term investments18 18 
Funds receivable and customer accounts13,255 11,633 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$19,018 $18,004 
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 and digital payments company that enables digital and mobile payments on behalf of merchants and consumers worldwide. PayPal is committed to democratizing financial services to 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, anytime, on any platform, and using any device when sending payments or getting paid. We also facilitate person-to-person payments through our PayPal, Venmo, and Xoom products and services and simplify and personalize shopping experiences for our consumers through our Honey Platform. Our combined payment solutions, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, Zettle, and Hyperwallet products and services, comprise our proprietary Payments Platform.

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 and mobile payments, are continuing 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 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. The noncontrolling interest reported was a component of equity on our condensed consolidated balance sheets and represented the equity interests not owned by PayPal and was recorded for consolidated entities we controlled and of which we owned less than 100%. Noncontrolling interest was not presented separately on our condensed consolidated statements of income as the amount was de minimis.
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 and our investment balance is included in long-term investments on our condensed consolidated balance sheets. 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. 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 a VIE, we then assess if we are the primary beneficiary, which would require consolidation. As of June 30, 2021, 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. The carrying value of our investments that are VIEs is included as non-marketable equity securities applying the equity method of accounting in long-term investments on our condensed consolidated balance sheets. Our maximum exposure to loss, which represents funded commitments and any future funding commitments, was $144 million and $105 million as of June 30, 2021 and December 31, 2020, respectively.

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, 2020 (the “2020 Form 10-K”) filed with the Securities and Exchange Commission on February 5, 2021.

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PayPal Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 years have been reclassified to conform to the financial statement presentation as of and for the three and six months ended June 30, 2021.
Reclassifications

Beginning with the fourth quarter of 2020, we reclassified certain cash flows related to customer balances 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. These changes had no impact on our previously reported consolidated net income, financial position, net change in cash, cash equivalents, and restricted cash, or total cash, cash equivalents, and restricted cash as reported on our condensed consolidated statements of cash flows.

The current period presentation classifies all changes in funds receivable and customer accounts and funds payable and amounts due to customers consistently on our condensed consolidated statement of cash flows as cash flows from investing activities and cash flows from financing activities, respectively, regardless of which product the cash flows relate to on our Payments Platform. The current period presentation provides a more meaningful representation of the cash flows related to the movement of customer funds due to the restrictions on and use of those funds.

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, 2020
(In millions)
As Previously Reported (1)
AdjustmentsReclassified
Net cash provided by (used in):
Operating activities(2)
$3,887 $(694)$3,193 
Investing activities(3)
(10,073)(11)(10,084)
Financing activities(4)
8,519 705 9,224 
Effect of exchange rates on cash, cash equivalents, and restricted cash(72) (72)
Net increase in cash, cash equivalents, and restricted cash$2,261 $ $2,261 
(1) As reported in our Form 10-Q for the quarterly period ended June 30, 2020 filed with the SEC on July 30, 2020.
(2) Financial statement line impacted in operating activities was “Other assets and liabilities.”
(3) Financial statement line impacted in investing activities was “Funds receivable.”
(4) Financial statement line impacted in financing activities was “Funds payable and amounts due to customers.”

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, loss contingencies, income taxes, revenue recognition, and the valuation of goodwill and intangible assets. We base our estimates on historical experience and various other assumptions which we believe to be reasonable under the circumstances. These estimates may change as new events occur, and as additional information surrounding the continued impact of the novel coronavirus (“COVID-19”) pandemic becomes available. Actual results could differ from these estimates and any such differences may be material to our financial statements.


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PayPal Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
Recent accounting guidance
In 2020, the Financial Accounting Standards Board (“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. Our exposure to London Interbank Offered Rate (“LIBOR”) is primarily limited to an insignificant portion of our available-for-sale debt securities and, accordingly, we do not expect reference rate reform to have a material impact on our condensed consolidated financial statements.

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
PayPal enables its 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 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 type of revenue categories (transaction revenues and revenues from other value added services). Revenues recorded within these categories are earned from similar services for which the nature of associated fees and the related revenue recognition models are substantially the same.

The following table presents our revenue disaggregated by primary geographical market and category:
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
(In millions)
Primary geographical markets
United States (“U.S.”)$3,272 $2,651 $6,335 $5,120 
United Kingdom (“U.K.”)587 586 1,212 1,064 
Other countries(1)
2,379 2,024 4,724 3,695 
Total net revenues(2)
$6,238 $5,261 $12,271 $9,879 
Revenue category
Transaction revenues$5,797 $4,945 $11,418 $9,160 
Revenues from other value added services441 316 853 719 
Total net revenues(2)
$6,238 $5,261 $12,271 $9,879 
(1) No single country included in the other countries category generated more than 10% of total revenue.
(2) Total net revenues include $62 million and $154 million for the three months ended June 30, 2021 and 2020, respectively, and $121 million and $401 million for the six months ended June 30, 2021 and 2020, 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, fees, and gains earned on loans and interest receivable, as well as hedging gains or losses, and interest earned on certain assets underlying customer balances.

Net revenues are attributed to the country in which the merchant 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.

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PayPal Holdings, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)

NOTE 3—NET INCOME PER SHARE

Basic net income per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted net income per share is computed by dividing net income 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 per share by application of the treasury stock method. The calculation of diluted net income per share excludes all anti-dilutive common shares.

The following table sets forth the computation of basic and diluted net income per share for the periods indicated:
 Three Months Ended June 30,Six Months Ended June 30,
 2021202020212020
(In millions, except per share amounts)
Numerator:
Net income$1,184 $1,530 $2,281 $1,614 
Denominator:
Weighted average shares of common stock - basic1,174 1,173 1,174 1,173 
Dilutive effect of equity incentive awards12 11 14 12 
Weighted average shares of common stock - diluted1,186 1,184 1,188 1,185 
Net income per share:
Basic$1.01