pypl-20230930

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 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 October 26, 2023, there were 1,078,140,224 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	68
	Item 4.	Controls and Procedures	70
Part II.	Other Information		71
	Item 1.	Legal Proceedings	71
	Item 1A.	Risk Factors	71
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	79
	Item 3.	Defaults Upon Senior Securities	79
	Item 4.	Mine Safety Disclosures	79
	Item 5.	Other Information	79
	Item 6.	Exhibits	80
Signatures			81

Table of Contents

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

PayPal Holdings, Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
	(In millions, except par value)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,816	$	7,776
Short-term investments	4,731		3,092
Accounts receivable, net	988		963
Loans and interest receivable, held for sale	2,165		—
Loans and interest receivable, net of allowances of $555 and $598 as of September 30, 2023 and December 31, 2022, respectively	5,066		7,431
Funds receivable and customer accounts	34,641		36,264
Prepaid expenses and other current assets	2,228		1,898
Total current assets	56,635		57,424
Long-term investments	3,855		5,018
Property and equipment, net	1,529		1,730
Goodwill	10,935		11,209
Intangible assets, net	564		788
Other assets	2,922		2,455
Total assets	$	76,440	$	78,624
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	131	$	126

Funds payable and amounts due to customers	38,641		40,014
Accrued expenses and other current liabilities	3,533		4,055
Income taxes payable	1,137		813
Total current liabilities	43,442		45,008
Deferred tax liability and other long-term liabilities	2,618		2,925
Long-term debt	10,640		10,417
Total liabilities	56,700		58,350
Commitments and contingencies (Note 13)
Equity:
Common stock, $0.0001 par value; 4,000 shares authorized; 1,080 and 1,136 shares outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Preferred stock, $0.0001 par value; 100 shares authorized, unissued	—		—
Treasury stock at cost, 237 and 173 shares as of September 30, 2023 and December 31, 2022, respectively	(20,513)		(16,079)
Additional paid-in-capital	19,307		18,327
Retained earnings	21,798		18,954
Accumulated other comprehensive income (loss)	(852)		(928)


Total equity	19,740		20,274
Total liabilities and equity	$	76,440	$	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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions, except per share data)
	(Unaudited)
Net revenues	$	7,418	$	6,846	$	21,745	$	20,135
Operating expenses:
Transaction expense	3,603		2,988		10,427		8,849
Transaction and credit losses	446		367		1,286		1,184
Customer support and operations	474		509		1,454		1,579
Sales and marketing	442		544		1,343		1,733
Technology and development	739		801		2,203		2,431
General and administrative	507		463		1,505		1,584
Restructuring and other charges	39		56		227		182
Total operating expenses	6,250		5,728		18,445		17,542
Operating income	1,168		1,118		3,300		2,593
Other income (expense), net	73		460		318		(337)
Income before income taxes	1,241		1,578		3,618		2,256
Income tax expense	221		248		774		758
Net income (loss)	$	1,020	$	1,330	$	2,844	$	1,498

Net income (loss) per share:
Basic	$	0.93	$	1.15	$	2.56	$	1.29
Diluted	$	0.93	$	1.15	$	2.55	$	1.29

Weighted average shares:
Basic	1,094		1,154		1,111		1,159
Diluted	1,098		1,157		1,115		1,163

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
	(Unaudited)
Net income (loss)	$	1,020	$	1,330	$	2,844	$	1,498
Other comprehensive income (loss), net of reclassification adjustments:
Foreign currency translation adjustments (“CTA”)	(70)		(206)		(306)		(601)
Net investment hedges CTA gains, net	35		97		231		253
Tax expense on net investment hedges CTA gains, net	(8)		(23)		(53)		(59)
Unrealized gains (losses) on cash flow hedges, net	109		138		(25)		348
Tax (expense) benefit on unrealized gains (losses) on cash flow hedges, net	(6)		(7)		1		(18)
Unrealized gains (losses) on investments, net	110		(157)		298		(614)
Tax (expense) benefit on unrealized gains (losses) on investments, net	(26)		41		(70)		146
Other comprehensive income (loss), net of tax	144		(117)		76		(545)
Comprehensive income (loss)	$	1,164	$	1,213	$	2,920	$	953

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
Net income	—	—		—		—		1,020		1,020
Foreign CTA	—	—		—		(70)		—		(70)
Net investment hedge CTA gains, net	—	—		—		35		—		35
Tax expense on net investment hedges CTA gains, net	—	—		—		(8)		—		(8)
Unrealized gains on cash flow hedges, net	—	—		—		109		—		109
Tax expense on unrealized gains on cash flow hedges, net	—	—		—		(6)		—		(6)
Unrealized gains on investments, net	—	—		—		110		—		110
Tax expense on unrealized gains on investments, net	—	—		—		(26)		—		(26)
Common stock and stock-based awards issued and assumed, net of shares withheld for employee taxes	1	—		(28)		—		—		(28)
Common stock repurchased	(23)	(1,449)		—		—		—		(1,449)
Stock-based compensation	—	—		392		—		—		392
Balances at September 30, 2023	1,080	$	(20,513)	$	19,307	$	(852)	$	21,798	$	19,740


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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
Net income	—	—		—		—		1,330		1,330
Foreign CTA	—	—		—		(206)		—		(206)
Net investment hedges 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

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,
	2023		2022
	(In millions)
	(Unaudited)
Cash flows from operating activities:
Net income (loss)	$	2,844	$	1,498
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Transaction and credit losses	1,286		1,184
Depreciation and amortization	809		991
Stock-based compensation	1,087		967
Deferred income taxes	(439)		(538)
Net (gains) losses on strategic investments	(205)		163
Adjustments to loans and interest receivable, held for sale	49		—
Other	(267)		514
Originations of loans receivable, held for sale	(5,705)		—
Proceeds from repayments of loans receivable, originally classified as held for sale	3,676		—
Changes in assets and liabilities:
Accounts receivable	(35)		(89)
Accounts payable	(6)		(55)
Income taxes payable	(31)		109
Other assets and liabilities	(834)		(522)
Net cash provided by operating activities	2,229		4,222
Cash flows from investing activities:
Purchases of property and equipment	(478)		(548)
Proceeds from sales of property and equipment	44		5
Purchases and originations of loans receivable	(19,802)		(19,167)
Proceeds from repayments of loans receivable, originally classified as held for investment	21,319		17,164
Purchases of investments	(14,975)		(16,455)
Maturities and sales of investments	16,110		16,770

Funds receivable	(1,016)		(1,085)
Collateral posted related to derivative instruments, net	8		(3)
Other investing activities	76		30
Net cash provided by (used in) investing activities	1,286		(3,289)
Cash flows from financing activities:
Proceeds from issuance of common stock	82		86
Purchases of treasury stock	(4,395)		(3,189)
Tax withholdings related to net share settlements of equity awards	(225)		(321)
Borrowings under financing arrangements	829		3,346
Repayments under financing arrangements	(942)		(1,686)
Funds payable and amounts due to customers	(1,277)		(659)
Collateral received related to derivative instruments, net	(65)		437
Other financing activities	—		1
Net cash (used in) provided by financing activities	(5,993)		(1,985)


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PayPal Holdings, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS—(continued)


	Nine Months Ended September 30,
	2023		2022
	(In millions)
	(Unaudited)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(95)		(253)
Net change in cash, cash equivalents, and restricted cash	(2,573)		(1,305)
Cash, cash equivalents, and restricted cash at beginning of period	19,156		18,029
Cash, cash equivalents, and restricted cash at end of period	$	16,583	$	16,724

Supplemental cash flow disclosures:
Cash paid for interest	$	167	$	114
Cash paid for income taxes, net	$	1,058	$	666

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	$	6,816	$	6,659
Short-term investments	6		21
Funds receivable and customer accounts	9,761		10,044
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	16,583	$	16,724

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 September 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 September 30, 2023 and December 31, 2022, the carrying value of our investments in nonconsolidated VIEs was $160 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 $246 million and $232 million as of September 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 nine months ended September 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:


	Nine Months Ended September 30, 2022
	(In millions)

	As Previously Reported (1)		Adjustments		Reclassified

Net cash provided by (used in):
Operating activities(2)	$	4,656	$	(434)	$	4,222
Investing activities(3)	(3,286)		(3)		(3,289)
Financing activities(4)	(2,422)		437		(1,985)
Effect of exchange rates on cash, cash equivalents, and restricted cash	(253)		—		(253)
Net decrease in cash, cash equivalents, and restricted cash	$	(1,305)	$	—	$	(1,305)

(1) As reported in our Form 10-Q for the quarter ended September 30, 2022 filed with the SEC on November 4, 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 fourth quarter 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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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 nine months ended September 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions)
Primary geographical markets
U.S.	$	4,257	$	3,978	$	12,614	$	11,512

Other countries(1)	3,161		2,868		9,131		8,623
Total net revenues(2)	$	7,418	$	6,846	$	21,745	$	20,135

Revenue category
Transaction revenues	$	6,654	$	6,234	$	19,574	$	18,504
Revenues from other value added services	764		612		2,171		1,631
Total net revenues(2)	$	7,418	$	6,846	$	21,745	$	20,135

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

(2) Total net revenues include $433 million and $391 million for the three months ended September 30, 2023 and 2022, respectively, and $1.3 billion and $874 million for the nine months ended September 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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(In millions, except per share amounts)
Numerator:
Net income (loss)	$	1,020	$	1,330	$	2,844	$	1,498
Denominator:
Weighted average shares of common stock - basic	1,094		1,154		1,111		1,159
Dilutive effect of equity incentive awards	4		3		4		4
Weighted average shares of common stock - diluted	1,098		1,157		1,115		1,163
Net income (loss) per share:
Basic	$	0.93	$	1.15	$	2.56	$	1.29
Diluted	$	0.93	$	1.15	$	2.55	$	1.29
Common stock equivalents excluded from income (loss) per diluted share because their effect would have been anti-dilutive or potentially dilutive	22		14		20		13

NOTE 4—BUSINESS COMBINATIONS AND DIVESTITURES

There were no acquisitions accounted for as business combinations or divestitures completed in the three and nine months ended September 30, 2023 and 2022.


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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(Unaudited)

In September 2023, we entered into a definitive agreement to sell Happy Returns to United Parcel Services, Inc. for approximately $465 million in cash. The sale of Happy Returns will enable us to focus on our core business and priorities. The transaction closed in the fourth quarter of 2023, and we expect to record a pre-tax gain of approximately $329 million, net of expected transaction costs, in restructuring and other charges on the condensed consolidated statements of income (loss) in that period.

We concluded that Happy Returns meets the criteria to be classified as held for sale and measured at the lower of its carrying amount or fair value less cost to sell as of September 30, 2023. The assets held for sale consist primarily of $81 million of goodwill and $13 million of net intangible assets, which are presented within prepaid expenses and other current assets on our condensed consolidated balance sheets as of September 30, 2023. No impairment charges were required in the three months ended September 30, 2023. The sale does not represent a strategic shift that would have a major effect on our operations and financial results, and therefore is not reported as a discontinued operation.

NOTE 5—GOODWILL AND INTANGIBLE ASSETS

GOODWILL

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


	December 31, 2022		Goodwill Acquired		Adjustments		September 30, 2023
	(In millions)
Total goodwill	$	11,209	$	—	$	(274)	$	10,935

The adjustments to goodwill during the nine months ended September 30, 2023 pertained to foreign currency translation adjustments and reclassification of $81 million of goodwill to assets held for sale described in “Note 4—Business Combinations and Divestitures.”

INTANGIBLE ASSETS

The components of identifiable intangible assets were as follows:


	September 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	$	1,521	$	(1,099)	$	422	7	$	1,664	$	(1,092)	$	572	7
Marketing related	383		(345)		38		5	395		(339)		56		5
Developed technology	1,011		(991)		20		3	1,099		(1,048)		51		3
All other	428		(