pypl-20230630

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, 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 July 27, 2023, there were 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


			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	67
	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	76
	Item 3.	Defaults Upon Senior Securities	76
	Item 4.	Mine Safety Disclosures	76
	Item 5.	Other Information	76
	Item 6.	Exhibits	77
Signatures			78

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2023		December 31, 2022
	(In millions, except par value)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	5,504	$	7,776
Short-term investments	4,398		3,092
Accounts receivable, net	928		963
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	5,547		7,431
Funds receivable and customer accounts	33,643		36,264
Prepaid expenses and other current assets	2,202		1,898
Total current assets	54,125		57,424
Long-term investments	4,543		5,018
Property and equipment, net	1,589		1,730
Goodwill	11,067		11,209
Intangible assets, net	640		788
Other assets	2,615		2,455
Total assets	$	74,579	$	78,624
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	137	$	126

Funds payable and amounts due to customers	37,393		40,014
Accrued expenses and other current liabilities	3,433		4,055
Income taxes payable	791		813
Total current liabilities	41,754		45,008
Deferred tax liability and other long-term liabilities	2,615		2,925
Long-term debt	10,549		10,417
Total liabilities	54,918		58,350
Commitments and contingencies (Note 13)
Equity:
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	—		—
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	18,943		18,327
Retained earnings	20,778		18,954
Accumulated other comprehensive income (loss)	(996)		(928)


Total equity	19,661		20,274
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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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions, except per share data)
	(Unaudited)
Net revenues	$	7,287	$	6,806	$	14,327	$	13,289
Operating expenses:
Transaction expense	3,541		3,044		6,824		5,861
Transaction and credit losses	398		448		840		817
Customer support and operations	492		536		980		1,070
Sales and marketing	465		595		901		1,189
Technology and development	743		815		1,464		1,630
General and administrative	491		514		998		1,121
Restructuring and other charges	24		90		188		126
Total operating expenses	6,154		6,042		12,195		11,814
Operating income	1,133		764		2,132		1,475
Other income (expense), net	170		(715)		245		(797)
Income before income taxes	1,303		49		2,377		678
Income tax expense	274		390		553		510
Net income (loss)	$	1,029	$	(341)	$	1,824	$	168

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

Weighted average shares:
Basic	1,111		1,158		1,120		1,161
Diluted	1,114		1,158		1,124		1,166

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 (LOSS)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
	(Unaudited)
Net income (loss)	$	1,029	$	(341)	$	1,824	$	168
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)	(216)		(300)		(236)		(395)
Net investment hedges CTA gains, net	169		135		196		156
Tax expense on net investment hedges CTA gains, net	(39)		(31)		(45)		(36)
Unrealized (losses) gains on cash flow hedges, net	(23)		213		(134)		210
Tax benefit (expense) on unrealized (losses) gains on cash flow hedges, net	1		(11)		7		(11)
Unrealized gains (losses) on investments, net	13		(164)		188		(457)
Tax (expense) benefit on unrealized gains (losses) on investments, net	(3)		38		(44)		105
Other comprehensive income (loss), net of tax	(98)		(120)		(68)		(428)
Comprehensive income (loss)	$	931	$	(461)	$	1,756	$	(260)

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		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


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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		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 hedges 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

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,
	2023		2022
	(In millions)
	(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	1,824	$	168
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Transaction and credit losses	840		817
Depreciation and amortization	539		661
Stock-based compensation	708		741
Deferred income taxes	(146)		(457)
Net (gains) losses on strategic investments	(181)		658
Adjustments to loans and interest receivable, held for sale	34		—
Other	(276)		295
Originations of loans receivable, held for sale	(1,521)		—
Proceeds from repayments of loans receivable, originally classified as held for sale	302		—
Changes in assets and liabilities:
Accounts receivable	36		(67)
Accounts payable	(12)		(27)
Income taxes payable	(326)		86
Other assets and liabilities	(851)		(408)
Net cash provided by operating activities	970		2,467
Cash flows from investing activities:
Purchases of property and equipment	(320)		(366)
Proceeds from sales of property and equipment	40		5
Purchases and originations of loans receivable	(15,167)		(12,300)
Proceeds from repayments of loans receivable, originally classified as held for investment	15,990		10,910
Purchases of investments	(10,523)		(13,151)
Maturities and sales of investments	10,742		11,087

Funds receivable	759		(882)
Collateral posted related to derivative instruments, net	(11)		5
Other investing activities	83		30
Net cash provided by (used in) investing activities	1,593		(4,662)
Cash flows from financing activities:
Proceeds from issuance of common stock	82		86
Purchases of treasury stock	(2,961)		(2,250)
Tax withholdings related to net share settlements of equity awards	(200)		(275)
Borrowings under financing arrangements	720		3,288
Repayments under financing arrangements	(942)		(1,686)
Funds payable and amounts due to customers	(2,578)		1,586
Collateral received related to derivative instruments, net	(175)		236
Other financing activities	—		1
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)


	Six Months Ended June 30,
	2023		2022
	(In millions)
	(Unaudited)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(50)		(136)
Net change in cash, cash equivalents, and restricted cash	(3,541)		(1,345)
Cash, cash equivalents, and restricted cash at beginning of period	19,156		18,029
Cash, cash equivalents, and restricted cash at end of period	$	15,615	$	16,684

Supplemental cash flow disclosures:
Cash paid for interest	$	167	$	112
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:
Cash and cash equivalents	$	5,504	$	4,583
Short-term investments	11		22
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	$	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, 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.

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 June 30, 2023 and December 31, 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 $146 million and $128 million, respectively, and 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 related to our nonconsolidated VIEs, which represents funded commitments and any future funding commitments, was $233 million and $232 million as of June 30, 2023 and December 31, 2022, 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, 2022 (the “2022 Form 10-K”) filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 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 six months ended 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, the valuation of goodwill and intangible 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 from these estimates.

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 eliminated the accounting designation of a loan modification as a TDR and the measurement guidance for TDRs. The amendments also enhanced existing disclosure requirements and introduced new requirements related to modifications of receivables due from borrowers experiencing financial difficulty. Additionally, this guidance required entities to disclose gross charge-offs by year of origination for financing receivables, such as loans and interest receivable. The amended guidance was effective for fiscal years beginning after December 15, 2022 and was required to be applied prospectively, except for the recognition and measurement of TDRs, which could be applied on a modified retrospective basis. We adopted this guidance effective January 1, 2023 on a prospective basis. Our financial statements were not materially impacted upon adoption. For additional information, see “Note 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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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Primary geographical markets
U.S.	$	4,210	$	3,863	$	8,357	$	7,534

Other countries(1)	3,077		2,943		5,970		5,755
Total net revenues(2)	$	7,287	$	6,806	$	14,327	$	13,289

Revenue category
Transaction revenues	$	6,556	$	6,272	$	12,920	$	12,270
Revenues from other value added services	731		534		1,407		1,019
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 $452 million and $296 million for the three months ended June 30, 2023 and 2022, respectively, and $903 million and $483 million for the six months ended June 30, 2023 and 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, 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 party paying our fee is 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 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 June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions, except per share amounts)
Numerator:
Net income (loss)	$	1,029	$	(341)	$	1,824	$	168
Denominator:
Weighted average shares of common stock - basic	1,111		1,158		1,120		1,161
Dilutive effect of equity incentive awards	3		—		4		5
Weighted average shares of common stock - diluted	1,114		1,158		1,124		1,166
Net income (loss) per share:
Basic	$	0.93	$	(0.29)	$	1.63	$	0.14
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	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 six months ended June 30, 2023 and 2022.

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

GOODWILL

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


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

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

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:


	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)
	(In millions, except years)
Intangible assets:
Customer lists and user base	$	1,561	$	(1,088)	$	473	7	$	1,664	$	(1,092)	$	572	7
Marketing related	388		(345)		43		5	395		(339)		56		5
Developed technology	1,068		(1,035)		33		3	1,099		(1,048)		51		3
All other	429		(338)		91		7	438		(329)		109		7
Intangible assets, net	$	3,446	$	(2,806)	$	640		$	3,596	$	(2,808)	$	788

In the three months ended June 30, 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 $27 million were included in customer lists and user base and developed technology, respectively. Amortization expense for intangible assets was $58 million and $120 million for the three months ended June 30, 2023 and 2022, respectively. Amortization expense for intangible assets was $115 million and $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)

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 June 30, 2023, we had no finance leases.

The components of lease expense were as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Lease expense
Operating lease expense	$	39	$	43	$	80	$	85


Sublease income	(2)		(2)		(4)		(4)
Lease expense, net	$	37	$	41	$	76	$	81

Supplemental cash flow information related to leases was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	43	$	42	$	86	$	83
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	$	(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)

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


	Operating Leases
Fiscal years:	(In millions)
Remaining 2023	$	88
2024	162
2025	118
2026	108
2027	95
Thereafter	164
Total	$	735
Less: present value discount	(74)
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 six months ended June 30, 2023, we incurred asset impairment charges of $4 million and $43 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss). The impairments in the three and six months ended June 30, 2023 included a reduction to our ROU lease assets in the amount of $4 million and $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 six months ended June 30, 2022, we incurred asset impairment charges of $19 million and $35 million, respectively, within restructuring and other charges on our condensed consolidated statements of income (loss). The impairments in the three and six months ended June 30, 2022 included a reduction to our ROU lease assets in the amount of $15 million and $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.

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 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. As of June 30, 2023, we utilize two third-party custodians; as such, there is concentration risk in the event 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 sheets. We also recognize a corresponding safeguarding asset which is recorded in prepaid expenses and other current assets on our condensed consolidated balance 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, as applicable. As of June 30, 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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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 June 30, 2023 and December 31, 2022:


	June 30, 2023		December 31, 2022
	(In millions)
Bitcoin	$	532	$	291
Ethereum	369		250