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PYPL PayPal

Filed: 2 Nov 20, 4:36pm
PAYPAL HOLDINGS, INC. (NASDAQ: PYPL) Third Quarter 2020 Results San Jose, California, November 2, 2020 Q3’20: Strongest growth in total payment volume and revenue in PayPal’s history • Total Payment Volume (TPV) of $247 billion, growing 38%, and 36% on an FX-neutral basis (FXN); revenue of $5.46 billion, growing 25% on a spot and FXN basis • GAAP EPS of $0.86, up 121% and non-GAAP EPS of $1.07, up 41% • 15.2 million Net New Active Accounts (NNAs) added; ended the quarter with 361 million active accounts FY’20: Raising TPV and earnings guidance; delivering record NNAs • FY’20 TPV growth now expected to be approximately 30%; revenue growth now expected in the range of 20%–21%, and 21%–22% FXN • FY’20 GAAP EPS growth now expected in the range of 37%–38% and non-GAAP EPS growth in the range of 27%–28% • Approximately 70 million NNAs expected to be added to PayPal’s platform in FY’20 Q3’20 Highlights PayPal’s third quarter was one of the GAAP Non-GAAP strongest in our history. Our growth YoY YoY reinforces the essential role we play in USD $ Change USD $ Change our customers’ daily lives during this pandemic. Going forward, we are investing Net Revenues $5.46B 25% $5.46B 25%* to create the most compelling and expansive digital wallet that embraces all forms of digital currencies and payments, Operating Income $0.98B 40% $1.49B 45% and operates seamlessly in both the physical and online worlds.” EPS $0.86 121% $1.07 41% Dan Schulman President and CEO * On an FXN basis


 

Q3 2020 Results 2 Key Operating and Financial Metrics Net New Active Accounts (NNAs) Total Payment Volume (TPV) Net Revenues 15.2M +55% YoY $247B +36% YoY 3 $5.46B +25% YoY 3 21.3M $247B $5.46B 2 $5.26B 20.2M 137% $222B 36% 25% 118% $4.96B 25% $199B 30% $191B 18% $4.62B $179B 22% 15.2M 19% $4.38B 13% 27% 55% 19% 9.8M 9.3M 7% (33%)1 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 GAAP / Non-GAAP EPS4 Operating Cash Flow / Free Cash Flow4 $0.86 +121% YoY / $1.07 +41% YoY YTD $4.61B 40% YoY / $3.97B 43% YoY $1.29 $2.38B 86% 103% $2.19B 112% $1.07 $1.07 49% 41% $0.86 $0.83 $1.50B $0.76 121% 27% 46% $1.30B 31% $0.66 $1.26B $1.09B 60% 0% $1.10B 11% ** $923M 20% $0.43 5 $720M $0.39 20% (13%) $0.07 (34%) 7% $479M (87%) (48%) Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 Q3’19 Q4’19 Q1’20 Q2’20 Q3’20 ■ GAAP ■ Non-GAAP ■ Operating Cash Flow ■ Free Cash Flow 1. NNAs in Q4’18 (13.8M) included 2.9M NNAs from the acquisitions of Hyperwallet and iZettle 2. Includes one-time addition of 10.2M accounts in January 2020 from the acquisition of Honey 3. On an FXN basis 4. For a reconcilia- tion of Non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section titled “Non-GAAP Measures of Financial Performance” and the subsequent tables at the end of this press release 5. Adjusted for sale of U.S. consumer credit portfolio to Synchrony Financial ** Not meaningful Q3’20 Financial Highlights Sustained outperformance across key financial metrics Our business again outperformed with • Revenue of $5.46 billion; growing 25% on a spot and FXN basis. sustained momentum through the • GAAP operating margin of 17.9%, expanding 198 basis points; non- third quarter. The strong results we GAAP operating margin of 27.2%, expanding 377 basis points. are reporting today demonstrate the • GAAP EPS of $0.86, up 121%; non-GAAP EPS of $1.07, up 41%. strength of our diversified platform, GAAP EPS includes a net gain of $0.13 on strategic investments, the scalability of our business, and our driven primarily by MercadoLibre (NASDAQ: MELI). earnings power.” John Rainey CFO and EVP Global Customer Operations


 

Q3 2020 Results 3 Q3’20 Operating Highlights Double-digit customer growth and strong engagement driving continued momentum • 15.2 million NNAs added, bringing total active accounts to 361 million accounts, up 22%. • 4.0 billion payment transactions, up 30%. • $247 billion in TPV, up 38% on a spot basis and 36% FXN. • Merchant Services volume grew 40% on a spot basis and 38% FXN, and represented 93% of TPV. • Venmo processed approximately $44 billion in TPV, growing 61%. • 40.1 payment transactions per active account on a trailing twelve months basis, growing 1%. Adjusting for the acquisition of Honey in January 2020, 41.7 payment transactions per active account on a trailing twelve months basis, up 5%. Balance Sheet and Liquidity Strong balance sheet growth and cash-flow generation • PayPal’s cash, cash equivalents, and investments totaled $17.6 billion as of September 30, 2020. • PayPal’s debt totaled $8.9 billion as of September 30, 2020. • PayPal generated cash flow from operations of $720 million, declining 34%, and free cash flow of $479 million, declining 48%. Year-to-date, PayPal has generated cash flow from operations of $4.6 billion, growing 40%, and free cash flow of $4.0 billion, growing 43%. • In Q3’20, PayPal repurchased approximately 1.8 million shares of common stock, returning $350 million to stockholders. Strategic Initiatives and Business Updates Advancing our priorities • PayPal expanded its ‘Buy Now Pay Later’ product suite with the introduction of short-term installment products in the U.S. and U.K. These products help merchants drive conversion, revenue and customer loyalty without taking on additional risk or paying any additional fees, and enable consumers to make a purchase and pay over interest-free installments. • In October, Venmo introduced the Venmo Credit Card, issued by Synchrony (NYSE: SYF) and powered by the Visa network, which gives customers automatic cash back on every eligible purchase, a personalized rewards experience, and the ability to manage the card directly in the Venmo app. • PayPal also announced the launch of a new service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal accounts, and signaled its plans to significantly increase cryptocurrency’s utility by making it available as a funding source for purchases at its 28 million merchants worldwide.


 

Q3 2020 Results 4 PayPal helped Latched & Hooked Founder Tiffini Gatlin turn her childhood hustle of styling people’s hair into a lifestyle and beauty brand, developing a website and selling online from her home in Atlanta, GA. As Latched & Hooked PayPal’s Working Capital loan helped jumpstart my began taking off, PayPal provided access to business and get the inventory I needed to grow. I was a PayPal Working Capital loan to help Tiffini able to set my own terms and it felt so empowering and comforting to know that PayPal was there. expand her business and share her truly unique product with customers across the globe. Tiffini Gatlin Founder, Latched & Hooked Beauty Atlanta, GA Q3’20 Financial and Operating Highlights FXN Presented in millions, except per share data and percentages Q3 2020 Q3 2019 YoY Growth YoY Growth Total Payment Volume (TPV) $246,691 $178,670 $68,021 38% 36% GAAP Net revenues $5,459 $4,378 $1,081 25% 25% Operating margin 17.9% 15.9% ** 198bps N/A Effective tax rate 10.8% 4.5% ** 621bps N/A Net income $1,021 $462 $559 121% N/A Earnings per diluted share $0.86 $0.39 $0.47 121% N/A Net cash provided by operating activities $720 $1,096 ($376) (34%) N/A Non-GAAP Net revenues $5,459 $4,378 $1,081 25% 25% Operating margin 27.2% 23.4% ** 377bps N/A Effective tax rate 11.6% 13.5% ** (190bps) N/A Net income $1,275 $900 $375 42% N/A Earnings per diluted share $1.07 $0.76 $0.31 41% N/A Free cash flow $479 $923 ($444) (48%) N/A ** Not meaningful


 

Q3 2020 Results 5 Financial Guidance Fourth Quarter 2020 Revenue and Earnings Guidance • PayPal expects TPV growth on a percentage basis to be in the range of low to mid 30%. • PayPal expects revenue to grow in the range of 20%–25% at current spot rates and 20%–25% on an FXN basis. • PayPal expects GAAP earnings per diluted share to grow in the range of 45%–47% and non-GAAP earnings per diluted share to grow in the range of 17%–18%. • GAAP and non-GAAP earnings per diluted share exclude the impact of incremental credit loss reserves due to macroeconomic projections. • In the fourth quarter of 2020, GAAP earnings per diluted share excludes the impact of net realized and unrealized gains and losses on PayPal’s strategic investment portfolio. • In the fourth quarter of 2019, GAAP earnings per diluted share included approximately $0.03 of net unrealized gains from PayPal’s strategic investment portfolio. • Estimated non-GAAP amounts for the three months ending December 31, 2020 reflect adjustments of approximately $525 million, including estimated stock-based compensation expense and related payroll taxes of approximately $385 million. • The dilutive impact of acquisitions is estimated to be approximately $0.10 on GAAP earnings per diluted share, and approximately $0.03 on non-GAAP earnings per diluted share. Full Year 2020 Revenue and Earnings Guidance • PayPal expects TPV growth to be approximately 30%. • PayPal expects revenue to grow in the range of 20%–21% at current spot rates and 21%–22% on an FXN basis. • PayPal expects GAAP earnings per diluted share to grow in the range of 37%–38%, and non-GAAP earnings per diluted share to grow in the range of 27%–28%. • GAAP and non-GAAP earnings per diluted share exclude the impact of incremental credit loss reserves due to macroeconomic projections. • GAAP earnings per diluted share guidance includes $0.64 of net realized and unrealized gains recognized in the first three quarters of 2020 related to PayPal’s strategic investment portfolio. • In 2019, GAAP earnings per diluted share included approximately $0.14 of net unrealized gains related to PayPal’s strategic investment portfolio. • Estimated non-GAAP amounts for the twelve months ending December 31, 2020 reflect adjustments of approximately $2.08 billion, including estimated stock-based compensation expense and related payroll taxes of approximately $1.47 billion. • The dilutive impact of acquisitions is estimated to be approximately $0.64 on GAAP earnings per diluted share, and approximately $0.13 on non-GAAP earnings per diluted share. Please see “Non-GAAP Financial Measures” and “Non-GAAP Measures of Financial Performance” for important additional information. Conference Call and Webcast PayPal Holdings, Inc. will host a conference call to discuss third quarter 2020 results at 2:00 p.m. Pacific Time today. A live webcast of the conference call, together with a slide presentation that includes supplemental financial information and reconciliations of certain non-GAAP measures to their most directly comparable GAAP measures, can be accessed through the company’s Investor Relations website at https://investor.pypl.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.


 

Q3 2020 Results 6 Presentation All growth rates represent year-over-year comparisons, except as otherwise noted. FXN results are calculated by translating the current period local currency results by the prior period exchange rate. FXN growth rates are calculated by comparing the current period FXN results with the prior period results, excluding the impact from hedging activities. All amounts in tables are presented in U.S. dollars, rounded to the nearest millions, except as otherwise noted. As a result, certain amounts and rates may not sum or recalculate using the rounded dollar amounts provided. Non-GAAP Financial Measures This press release includes financial measures defined as “non-GAAP financial measures” by the SEC including: non-GAAP net income, non-GAAP earnings per diluted share, non-GAAP operating income, non-GAAP operating margin, non-GAAP effective tax rate, free cash flow, and adjusted free cash flow. For an explanation of the foregoing non-GAAP measures, please see “Non-GAAP Measures of Financial Performance” included in this press release. These measures may be different from non- GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles (GAAP). For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures, see “Non-GAAP Measures of Financial Performance,” “Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin,” “Reconciliation of GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP Diluted EPS and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate,” and “Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow.” Forward-Looking Statements This press release contains forward-looking statements relating to, among other things, the future results of operations, financial condition, expectations, and plans of PayPal Holdings, Inc. and its consolidated subsidiaries that reflect PayPal’s current projections and forecasts. Forward-looking statements can be identified by words such as “may,” “will,” “would,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “project,” “forecast,” and other similar expressions. Forward-looking statements may include, but are not limited to, statements regarding guidance and projected financial results for the fourth quarter and full year 2020, the timing of PayPal’s cryptocurrency initiatives, impact and timing of acquisitions, and projected future growth of PayPal’s businesses. Forward-looking statements are based upon various estimates and assumptions, as well as information known to PayPal as of the date of this press release, and are inherently subject to numerous risks and uncertainties. Accordingly, actual results could differ materially from those predicted or implied by forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to: the direct and indirect impact of the COVID-19 pandemic on PayPal’s business, financial condition and results of operations as well as the operations of PayPal’s customers, suppliers, vendors and other business partners; the effect of political, business, economic, market, and trade conditions, including any regional or general economic downturn or crisis and any conditions that affect payments or e-commerce growth; fluctuations in foreign currency exchange rates; the competitive, regulatory, payment card association-related and other risks specific to PayPal’s payment platform, including core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, Hyperwallet and other products, and the Honey platform, especially as PayPal continues to expand geographically, introduce new products and support across technologies and payment methods and as new laws and regulations related to payments and financial services come into effect; the impact of PayPal’s customer choice initiatives, including on its funding mix and transaction expense; PayPal’s ability to successfully compete in an increasingly competitive environment for its businesses, products, and services, including competition for consumers and merchants and the increasing importance of digital and mobile payments and mobile commerce; the outcome of legal and regulatory proceedings and PayPal’s need and ability to manage regulatory, tax and litigation risks as its products and services are offered in more jurisdictions and applicable laws become more restrictive; changes to PayPal’s capital allocation or management of operating cash; uncertainty surrounding the implementation and impact of the United Kingdom’s withdrawal from the European Union; cyberattacks and security vulnerabilities in PayPal products and services that could disrupt business, reduce revenue, increase costs, harm our competitive position or our reputation, or lead to liability; the effect of management changes and business initiatives; any changes PayPal may make to its product and service offerings; the effect of any natural disasters and other business interruptions on PayPal or PayPal’s customers; PayPal’s ability to timely upgrade and develop its technology systems, infrastructure, and customer service capabilities at reasonable cost; PayPal’s ability to maintain the stability, security, and performance of its Payments Platform


 

Q3 2020 Results 7 and Honey Platform while adding new products and features in a timely fashion; risks that planned acquisitions will not be completed on contemplated terms, or at all, and that any businesses PayPal may acquire may not perform in accordance with its expectations; and PayPal’s ability to profitably integrate, manage, and grow businesses that have been acquired or may be acquired in the future. The forward-looking statements in this release do not include the potential impact of any acquisitions or divestitures that may be announced and/or completed after the date hereof. More information about factors that could adversely affect PayPal’s results of operations, financial condition and prospects, or that could cause actual results to differ from those expressed or implied in forward-looking statements is included under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in PayPal’s most recent annual report on Form 10-K and its subsequent quarterly reports on Form 10-Q, copies of which may be obtained by visiting PayPal’s Investor Relations website at https://investor.pypl.com or the SEC’s website at www.sec.gov. All information in this release speaks as of November 2, 2020. For the reasons discussed above, you should not place undue reliance on the forward-looking statements in this press release. PayPal assumes no obligation to update such forward-looking statements. Disclosure Channels PayPal Holdings, Inc. uses its Investor Relations website (https://investor.pypl.com), the PayPal Newsroom (https://newsroom. paypal-corp.com/), PayPal Stories Blog (https://www.paypal.com/stories/us), Twitter handles (@PayPal and @PayPalNews), LinkedIn page (https://www.linkedin.com/company/paypal), Facebook page (https://www.facebook.com/PayPalUSA/), YouTube channel (https://www.youtube.com/paypal), Dan Schulman’s LinkedIn profile (https://www.linkedin.com/ in/dan-schulman/), John Rainey’s LinkedIn profile (www.linkedin.com/in/john-rainey-pypl), Dan Schulman’s Facebook page (https://www. facebook.com/DanSchulmanPayPal/) and Dan Schulman’s Instagram page (https://www.instagram.com/dan_schulman/) as a means of disclosing information about the company and for complying with its disclosure obligations under Regulation FD. The information that is posted through these channels may be deemed material. Accordingly, investors should monitor these channels in addition to PayPal’s press releases, filings with the Securities and Exchange Commission (“SEC”), public conference calls, and webcasts. Investor Relations Contacts Media Relations Contacts Gabrielle Rabinovitch Amanda Miller grabinovitch@paypal.com amandacmiller@paypal.com 408.219.0563 Akila Moorthy amoorthy@paypal.com Josh Criscoe jcriscoe@paypal.com 646.667.5065 © 1999-2020 PayPal Holdings, Inc. All rights reserved. Other company and product names may be trademarks of their respective owners.


 

Q3 2020 Results 8 PayPal Holdings, Inc. Unaudited Condensed Consolidated Balance Sheets September 30, December 31, 2020 2019 (In millions, except par value) ASSETS Current assets: Cash and cash equivalents $ 6,112 $ 7,349 Short-term investments 8,046 3,412 Accounts receivable, net 482 435 Loans and interest receivable, net 2,597 3,972 Funds receivable and customer accounts 30,530 22,527 Prepaid expenses and other current assets 937 800 Total current assets 48,704 38,495 Long-term investments 3,439 2,863 Property and equipment, net 1,757 1,693 Goodwill 9,119 6,212 Intangible assets, net 1,146 778 Other assets 1,417 1,292 Total assets $ 65,582 $ 51,333 LIABILITIES AND EQUITY Current liabilities: Accounts payable $ 159 $ 232 Funds payable and amounts due to customers 32,530 24,527 Accrued expenses and other current liabilities 2,457 2,087 Income taxes payable 100 73 Total current liabilities 35,246 26,919 Deferred tax liability and other long-term liabilities 2,872 2,520 Long-term debt 8,937 4,965 Total liabilities 47,055 34,404 Equity: Common stock, $0.0001 par value; 4,000 shares authorized; 1,172 and 1,173 shares outstanding as of September 30, 2020 and December 31, 2019, respectively — — Preferred stock, $0.0001 par value; 100 shares authorized, unissued — — Treasury stock at cost, 116 and 105 shares as of September 30, 2020 and December 31, 2019, respectively (8,242) (6,872) Additional paid-in-capital 16,248 15,588 Retained earnings 10,809 8,342 Accumulated other comprehensive income (loss) (332) (173) Total PayPal Stockholders’ equity 18,483 16,885 Noncontrolling interest 44 44 Total equity 18,527 16,929 Total liabilities and equity $ 65,582 $ 51,333


 

Q3 2020 Results 9 PayPal Holdings, Inc. Unaudited Condensed Consolidated Statements of Income Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions, except per share data) Net revenues $ 5,459 $ 4,378 $ 15,338 $ 12,811 Operating expenses: Transaction expense 2,022 1,701 5,604 4,877 Transaction and credit losses 344 340 1,375 999 Customer support and operations(1) 449 390 1,271 1,177 Sales and marketing (1) 471 316 1,256 1,001 Technology and development (1) 674 533 1,910 1,527 General and administrative (1) 503 401 1,501 1,239 Restructuring and other charges 19 — 95 71 Total operating expenses 4,482 3,681 13,012 10,891 Operating income 977 697 2,326 1,920 Other income (expense), net 167 (213) 880 224 Income before income taxes 1,144 484 3,206 2,144 Income tax expense 123 22 571 192 Net income $ 1,021 $ 462 $ 2,635 $ 1,952 Net income per share: Basic $ 0.87 $ 0.39 $ 2.25 $ 1.66 Diluted $ 0.86 $ 0.39 $ 2.22 $ 1.64 Weighted average shares: Basic 1,172 1,175 1,173 1,174 Diluted 1,190 1,188 1,186 1,188 (1) Includes stock-based compensation as follows: Customer support and operations 63 51 179 144 Sales and marketing 45 31 131 95 Technology and development 138 119 384 292 General and administrative 127 72 330 226 $ 373 $ 273 $ 1,024 $ 757


 

Q3 2020 Results 10 PayPal Holdings, Inc. Unaudited Condensed Consolidated Statements of Cash Flows Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 (In millions) Cash flows from operating activities: Net income $ 1,021 $ 462 $ 2,635 $ 1,952 Adjustments: Transaction and credit losses 344 340 1,375 999 Depreciation and amortization 298 227 888 685 Stock-based compensation 364 266 999 736 Deferred income taxes (37) (157) (6) (122) (Gains) losses on strategic investments (209) 228 (973) (170) Other 12 (38) 10 (130) Changes in assets and liabilities: Accounts receivable (40) (37) 7 (103) Changes in loans and interest receivable held for sale, net — — — 4 Accounts payable (45) (2) (93) (51) Income taxes payable (229) (26) (115) (33) Other assets and liabilities (759) (167) (120) (470) Net cash provided by operating activities 720 1,096 4,607 3,297 Cash flows from investing activities: Purchases of property and equipment (241) (173) (640) (530) Proceeds from sales of property and equipment — 17 120 17 Changes in principal loans receivable, net 520 (379) 523 (1,111) Purchases of investments (13,489) (6,617) (28,333) (19,808) Maturities and sales of investments 9,940 6,853 19,733 17,390 Acquisitions, net of cash and restricted cash acquired 3 — (3,609) — Funds receivable 74 922 (1,060) (1,292) Net cash (used in) provided by investing activities (3,193) 623 (13,266) (5,334) Cash flows from financing activities: Proceeds from issuance of common stock 1 4 72 78 Purchases of treasury stock (370) (350) (1,370) (1,106) Tax withholdings related to net share settlements of equity awards (42) (24) (463) (473) Borrowings under financing arrangements — 4,971 6,966 5,471 Repayments under financing arrangements — (2,509) (3,000) (2,509) Funds payable and amounts due to customers 1,904 (753) 7,822 2,376 Other financing activities — — (15) — Net cash provided by financing activities 1,493 1,339 10,012 3,837 Effect of exchange rate changes on cash, cash equivalents, and restricted cash 98 (48) 26 (49) Net change in cash, cash equivalents, and restricted cash (882) 3,010 1,379 1,751 Cash, cash equivalents, and restricted cash at beginning of period 18,004 11,974 15,743 13,233 Cash, cash equivalents, and restricted cash at end of period $ 17,122 $ 14,984 $ 17,122 $ 14,984 Supplemental cash flow disclosures: Cash paid for interest $ 13 $ 31 $ 91 $ 76 Cash paid for income taxes, net $ 374 $ 44 $ 444 $ 220


 

Q3 2020 Results 11 PayPal Holdings, Inc. Unaudited Summary of Consolidated Net Revenues Our revenues are classified into the following two categories: • Transaction revenues: Net transaction fees charged to merchants and consumers on a transaction basis primarily based on the volume of activity, or Total Payment Volume (“TPV”), completed on our Payments Platform, including our core PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and Hyperwallet products and services. We earn additional fees on transactions where we perform currency conversion, when we enable cross- border transactions (i.e., transactions where the merchant and consumer are in different countries), to facilitate the instant transfer of funds for our customers from their PayPal or Venmo account to their debit card or bank account, and other miscellaneous fees. • Revenues from other value added services: Net revenues derived primarily from revenue earned through partnerships, referral fees, subscription fees, gateway fees, and other services we provide to our merchants and consumers. We also earn revenues from interest and fees earned primarily on our portfolio of loans receivable, and interest earned on certain assets underlying customer balances. Net Revenues by Type Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 (In millions, except percentages) Transaction revenues $ 5,076 $ 4,945 $ 4,215 $ 4,535 $ 3,955 Current quarter vs prior quarter 3 % 17 % (7) % 15 % 2 % Current quarter vs prior year quarter 28 % 28 % 13 % 18 % 18 % Percentage of total 93 % 94 % 91 % 91 % 90 % Revenues from other value added services 383 316 403 426 423 Current quarter vs prior quarter 21 % (22) % (5) % 1 % (1) % Current quarter vs prior year quarter (9) % (26) % 2 % 14 % 24 % Percentage of total 7 % 6 % 9 % 9 % 10 % Total net revenues $ 5,459 $ 5,261 $ 4,618 $ 4,961 $ 4,378 Current quarter vs prior quarter 4 % 14 % (7) % 13 % 2 % Current quarter vs prior year quarter 25 % 22 % 12 % 17 % 19 % Net Revenues by Geography Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 (In millions, except percentages) U.S. net revenues $ 2,820 $ 2,651 $ 2,469 $ 2,606 $ 2,327 Current quarter vs prior quarter 6 % 7 % (5) % 12 % 1 % Current quarter vs prior year quarter 21 % 15 % 13 % 19 % 19 % Percentage of total 52 % 50 % 53 % 53 % 53 % International net revenues 2,639 2,610 2,149 2,355 2,051 Current quarter vs prior quarter 1 % 21 % (9) % 15 % 2 % Current quarter vs prior year quarter 29 % 30 % 11 % 16 % 19 % (FXN) Current quarter vs prior year quarter 30 % 36 % 14 % 17 % 20 % Percentage of total 48 % 50 % 47 % 47 % 47 % Total net revenues $ 5,459 $ 5,261 $ 4,618 $ 4,961 $ 4,378 Current quarter vs prior quarter 4 % 14 % (7) % 13 % 2 % Current quarter vs prior year quarter 25 % 22 % 12 % 17 % 19 % (FXN) Current quarter vs prior year quarter 25 % 25 % 13 % 18 % 19 %


 

Q3 2020 Results 12 PayPal Holdings, Inc. Unaudited Supplemental Operating Data Three Months Ended September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 (In millions, except percentages) Active accounts(1) 361 346 325 305 295 Current quarter vs prior quarter 4 % 7 % 7 % 3 % 3 % Current quarter vs prior year quarter 22 % 21 % 17 % 14 % 16 % Number of payment transactions(2) 4,013 3,742 3,261 3,461 3,090 Current quarter vs prior quarter 7 % 15 % (6) % 12 % 4 % Current quarter vs prior year quarter 30 % 26 % 15 % 21 % 25 % Payment transactions per active account(3) 40.1 39.2 39.4 40.6 39.8 Current quarter vs prior quarter 2 % (1) % (3) % 2 % 2 % Current quarter vs prior year quarter 1 % — % 4 % 10 % 9 % Total Payment Volume(4) $ 246,691 $ 221,731 $ 190,567 $ 199,404 $ 178,670 Current quarter vs prior quarter 11 % 16 % (4) % 12 % 4 % Current quarter vs prior year quarter 38 % 29 % 18 % 22 % 25 % (FXN) Current quarter vs prior year quarter 36 % 30 % 19 % 22 % 27 % Transaction Expense Rate(5) 0.82 % 0.83 % 0.91 % 0.96 % 0.95 % Transaction and Credit Loss Rate(6) 0.14 % 0.20 % 0.31 % 0.19 % 0.19 % Transaction Margin(7) 56.7 % 56.6 % 49.5 % 53.8 % 53.4 % Amounts in the table are rounded to the nearest million, except as otherwise noted. As a result, certain amounts may not recalculate using the rounded amounts provided. (1) An active account is an account registered directly with PayPal or a platform access partner that has completed a transaction on our Payments Platform or through our Honey Platform, not including gateway-exclusive transactions, within the past 12 months. (2) Number of payment transactions are the total number of payments, net of payment reversals, successfully completed on our Payments Platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions. (3) Number of payment transactions per active account reflects the total number of payment transactions within the previous 12-month period, divided by active accounts at the end of the period. (4) Total Payment Volume (TPV) is the value of payments, net of payment reversals, successfully completed on our Payments Platform or enabled by PayPal via a partner payment solution, not including gateway-exclusive transactions. (5) Transaction expense rate is calculated by dividing transaction expense by TPV. (6) Transaction and credit loss rate is calculated by dividing transaction and credit loss by TPV. (7) Transaction margin is total revenue less transaction expense and transaction and credit loss, divided by total revenue.


 

Q3 2020 Results 13 PayPal Holdings, Inc. Non-GAAP Measures of Financial Performance To supplement the company’s condensed consolidated financial statements presented in accordance with generally accepted accounting principles, or GAAP, the company uses non-GAAP measures of certain components of financial performance. These non-GAAP measures include non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating income, non-GAAP operating margin, non- GAAP effective tax rate, free cash flow, and adjusted free cash flow. These non-GAAP measures are not in accordance with, or an alternative to, measures prepared in accordance with GAAP and may be different from non-GAAP measures used by other companies. In addition, these non-GAAP measures are not based on any comprehensive set of accounting rules or principles. Non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the company’s results of operations as determined in accordance with GAAP. These measures should only be used to evaluate the company’s results of operations in conjunction with the corresponding GAAP measures. Reconciliation to the most directly comparable GAAP measure of all non-GAAP measures included in this press release can be found in the tables included in this press release. These non-GAAP measures are provided to enhance investors’ overall understanding of the company’s current financial performance and its prospects for the future. Specifically, the company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expenses, gains and losses, as the case may be, that may not be indicative of its core operating results and business outlook. In addition, because the company has historically reported certain non-GAAP results to investors, the company believes that the inclusion of non-GAAP measures provides consistency in the company’s financial reporting. For its internal budgeting process, and as discussed further below, the company’s management uses financial measures that do not include stock-based compensation expense, employer payroll taxes on stock-based compensation, amortization or impairment of acquired intangible assets, impairment of goodwill, restructuring-related charges, certain other gains, losses, benefits, or charges that are not indicative of the company’s core operating results, and the income taxes associated with the foregoing. In addition to the corresponding GAAP measures, the company’s management also uses the foregoing non-GAAP measures in reviewing the financial results of the company. The company excludes the following items from non-GAAP net income, non-GAAP diluted earnings per share, non-GAAP operating income, non-GAAP operating margin, and non-GAAP effective tax rate: Stock-based compensation expense and related employer payroll taxes. This consists of expenses for equity awards under our equity incentive plans. We exclude stock-based compensation expense from our non-GAAP measures primarily because they are non-cash expenses. The related employer payroll taxes are dependent on our stock price and the timing and size of exercises and vesting of equity awards, over which management has limited to no control, and as such management does not believe it correlates to the operation of our business. Amortization or impairment of acquired intangible assets, impairment of goodwill, and transaction expenses from the acquisition or disposal of a business. We incur amortization or impairment of acquired intangible assets and goodwill in connection with acquisitions and may incur significant gains or losses or transactional expenses from the acquisition or disposal of a business and therefore exclude these amounts from our non-GAAP measures. We exclude these items because management does not believe they are reflective of our ongoing operating results. Restructuring. These consist of expenses for employee severance and other exit and disposal costs. The company excludes significant restructuring charges primarily because management does not believe they are reflective of ongoing operating results. Gains and losses on strategic investments. We record gains and losses on our strategic investments related to our interest in companies over which we have limited control and visibility. We exclude such gains and losses in full because we lack control over the operations of the investee and the related gains and losses are not indicative of our ongoing operating results. Certain other significant gains, losses, benefits, or charges that are not indicative of the company’s core operating results. These are significant gains, losses, benefits, or charges during a period that are the result of isolated events or transactions which have not occurred frequently in the past and are not expected to occur regularly in the future. The company excludes these amounts from its non-GAAP results because management does not believe they are indicative of our current or ongoing operating results. Tax effect of non-GAAP adjustments. This adjustment is made to present stock-based compensation and the other amounts described above on an after-tax basis consistent with the presentation of non-GAAP net income. The company also uses free cash flow, a non-GAAP measure. Free cash flow represents operating cash flows less purchases of property and equipment. The company considers free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after the purchases of property, buildings, and equipment, which can then be used to, among other things, invest in the company’s business, make strategic acquisitions and investments, and repurchase stock. A limitation of the utility of free cash flow as a measure of financial performance is that it does not represent the total increase or decrease in the company’s cash balance for the period. In addition to the non-GAAP measures discussed above, the company also analyzes certain measures, including net revenues and operating expenses, on an FX-neutral basis to better measure the comparability of operating results between periods. The company believes that changes in foreign currency exchange rates are not indicative of the company’s operations and evaluating growth in net revenues and operating expenses on an FX-neutral basis provides an additional meaningful and comparable assessment of these measures to both management and investors. FX-neutral results are calculated by translating the current period’s local currency results with the prior period’s exchange rate. FX-neutral growth rates are calculated by comparing the current period’s FX-neutral results by the prior period’s results, excluding the impact from hedging activities.


 

Q3 2020 Results 14 PayPal Holdings, Inc. Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 2019 2019 2018 2018 (In millions, except percentages) (unaudited) GAAP operating income $ 977 $ 951 $ 398 $ 799 $ 697 $ 705 $ 518 $ 598 $ 490 Stock-based compensation expense and related employer payroll taxes 376 365 336 297 277 244 286 237 219 Amortization of acquired intangible assets 113 115 114 51 52 51 57 59 33 Restructuring 19 26 29 — — — 78 — — Other(1) — 28 11 23 — (2) (5) 12 28 Acquisition related transaction expense — — 20 3 — — — 7 17 Total non-GAAP operating income adjustments 508 534 510 374 329 293 416 315 297 Non-GAAP operating income $ 1,485 $ 1,485 $ 908 $ 1,173 $ 1,026 $ 998 $ 934 $ 913 $ 787 Non-GAAP operating margin 27 % 28 % 20 % 24 % 23 % 23 % 23 % 22 % 21 % (1) The three months ended for the periods presented, as applicable, include the following: • June 30, 2020 includes $7 million of additional expenses related to pre-acquisition contingencies of an acquired company identified outside of the measurement period and $21 million of asset impairment charges for right-of-use lease asset and related leasehold improvements in conjunction with exiting certain leased properties. • March 31, 2020 includes $15 million of expenses related to pre-acquisition contingencies of an acquired company identified outside of the measurement period and an adjustment of $4 million to an award for a legal proceeding based on the final settlement. • December 31, 2019 includes an award for a legal proceeding. • June 30, 2019, March 31, 2019, December 31, 2018, and September 30, 2018 include (gains) losses related to the sale of our U.S. consumer credit receivables portfolio executed during the year ended December 31, 2018. Q3 2020 Results 14 14 Results 2020 Q3


 

Q3 2020 Results 15 Reconciliation of GAAP Net Income to Non-GAAP Net Income, GAAP Diluted EPS to Non-GAAP Diluted EPS, and GAAP Effective Tax Rate to Non-GAAP Effective Tax Rate Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 2019 2019 2018 2018 (In millions, except per share data and percentages) (unaudited) GAAP income before income taxes $ 1,144 $ 1,799 $ 263 $ 854 $ 484 $ 943 $ 717 $ 686 $ 533 GAAP income tax expense 123 269 179 347 22 120 50 102 97 GAAP net income 1,021 1,530 84 507 462 823 667 584 436 Non-GAAP adjustments to net income: Non-GAAP operating income adjustments (see table above) 508 534 510 374 329 293 416 315 297 (Gains) losses on strategic investments(1) (209) (888) 124 (38) 228 (218) (180) (56) — Other(2) — (17) 259 230 — — — (6) 14 Tax effect of non-GAAP adjustments(1) (45) 104 (191) (85) (119) (50) (117) (54) (52) Non-GAAP net income $ 1,275 $ 1,263 $ 786 $ 988 $ 900 $ 848 $ 786 $ 783 $ 695 Diluted net income per share: GAAP $ 0.86 $ 1.29 $ 0.07 $ 0.43 $ 0.39 $ 0.69 $ 0.56 $ 0.49 $ 0.36 Non-GAAP $ 1.07 $ 1.07 $ 0.66 $ 0.83 $ 0.76 $ 0.71 $ 0.66 $ 0.65 $ 0.58 Shares used in GAAP diluted share calculation 1,190 1,184 1,185 1,187 1,188 1,187 1,188 1,196 1,199 Shares used in non-GAAP diluted share calculation 1,190 1,184 1,185 1,187 1,188 1,187 1,188 1,196 1,199 GAAP effective tax rate 11 % 15 % 68 % 41 % 5 % 13 % 7 % 15 % 18 % Tax effect of non-GAAP adjustments to net income 1 % (2) % (56) % (24) % 9 % 4 % 11 % 2 % (2) % Non-GAAP effective tax rate 12 % 13 % 12 % 17 % 14 % 17 % 18 % 17 % 16 % (1) Reflects the impact of reclassification as described in our Form 8-K filed with the SEC on April 9, 2020. (2) The three months ended for the periods presented, as applicable, include the following: • June 30, 2020, March 31, 2020, and December 31, 2019 include tax (benefit) expense related to intra-group transfer of intellectual property. • December 31, 2018 includes tax benefit of $15 million related to the Tax Cuts and Jobs Act ("Tax Act") and tax expense of $9 million related to intra-group transfer of intellectual property. • September 30, 2018 includes tax expense of $3 million related to the Tax Act and $11 million related to intra-group transfer of intellectual property. Q3 2020 Results 15 15 Results 2020 Q3


 

Q3 2020 Results 16 PayPal Holdings, Inc. Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31, September 30, 2020 2020 2020 2019 2019 2019 2019 2018 2018 (In millions/unaudited) Net cash provided by operating activities 720 2,383 1,504 1,264 1,096 1,174 1,027 1,134 4,670 Less: Purchases of property and equipment (241) (193) (206) (174) (173) (139) (218) (224) (223) Free cash flow 479 2,190 1,298 1,090 923 1,035 809 910 4,447 Impact of held for sale accounting presentation related to our U.S. consumer credit receivables portfolio on cash flow from operating activities — — — — — — — — (3,675) Adjusted free cash flow $ 479 $ 2,190 $ 1,298 $ 1,090 $ 923 $ 1,035 $ 809 $ 910 $ 772 Q3 2020 Results 16 16 Results 2020 Q3