PayPal(PYPL) - 2022 Q4 - Annual Report

Part I Business PayPal operates a global two-sided platform connecting 435 million active accounts, processing $1.36 trillion in TPV in 2022, with revenue primarily from transaction fees - Revenue is primarily generated by charging fees for payment transactions, supplemented by foreign currency conversion, instant transfers, cryptocurrency services, partnerships, and credit product interest and fees[11] - The company's growth strategy focuses on expanding its global customer base, increasing engagement, enhancing value propositions for merchants and consumers, and pursuing strategic partnerships and acquisitions[34] - As of December 31, 2022, PayPal employed approximately 29,900 people globally, with significant presence across the Americas, Asia-Pacific, Europe, and the Middle East[59] - The company is subject to extensive global government regulation, including laws related to money transmission, banking, lending, consumer protection, anti-money laundering (AML), and data privacy[43][44] Key Performance Metrics (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Active Accounts | 435 million | | Consumer Active Accounts | 400 million | | Merchant Active Accounts | 35 million | | Total Payment Volume (2022) | $1.36 Trillion | | Payment Transactions (2022) | 22.3 Billion | Risk Factors The company faces significant cybersecurity, legal, regulatory, business, operational, and economic risks, including intense competition and evolving global compliance requirements - Cybersecurity and technology risks include sophisticated cyberattacks, phishing, ransomware, and system failures, potentially leading to data breaches, financial loss, and reputational damage[71][72][73] - Legal, regulatory, and compliance risks stem from complex and evolving global laws governing money transmission, banking, credit, cryptocurrency, consumer protection, and AML, with non-compliance risking significant fines and operational restrictions[85][87] - Business and operational risks include intense competition, changes to payment card network rules, credit losses from lending products, fraud, challenges in cross-border trade, and reliance on third-party partners[111][114][120] - Adverse global economic conditions, including recessions, inflation, and reduced consumer spending, could negatively impact transaction volumes and demand for the company's products and services[139] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[159] Properties As of December 31, 2022, PayPal owns and leases 5.3 million square feet of global property for its operations, with 1.1 million owned and 4.2 million leased Owned and Leased Facilities (in millions of sq. ft.) | Region | Owned Facilities (millions sq. ft.) | Leased Facilities (millions sq. ft.) | Total Facilities (millions sq. ft.) | | :--- | :--- | :--- | :--- | | United States | 1.0 | 2.2 | 3.2 | | Other Countries | 0.1 | 2.0 | 2.1 | | Total | 1.1 | 4.2 | 5.3 | Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 13 of the consolidated financial statements - Information regarding legal proceedings is incorporated by reference from "Note 13—Commitments and Contingencies—Litigation and Regulatory Matters" to the consolidated financial statements[161] Mine Safety Disclosures This item is not applicable to the company - Not applicable[161] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities PayPal's common stock trades on NASDAQ (PYPL), has never paid dividends, and actively repurchases shares, with 11.8 million shares bought in Q4 2022 - The company's common stock is traded on the NASDAQ Global Select Market under the ticker symbol PYPL[163] - PayPal has never paid cash dividends and does not currently anticipate paying any in the foreseeable future[164] - As of December 31, 2022, approximately $15.9 billion remained available for future repurchases under authorized stock repurchase programs[167] Stock Repurchase Activity (Q4 2022) | Period | Total Shares Purchased (millions) | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Oct 2022 | 8.2 | $85.81 | | Nov 2022 | 3.6 | $85.42 | | Dec 2022 | — | — | | Total Q4 2022 | 11.8 | N/A | Management's Discussion and Analysis of Financial Condition and Results of Operations In FY2022, net revenues grew 8% to $27.5 billion and TPV increased 9% to $1.36 trillion, but operating income declined 10% and net income fell 42% due to higher expenses and investment losses Consolidated Financial Results Summary | Metric | 2022 ($M) | 2021 ($M) | % Change | | :--- | :--- | :--- | :--- | | Net Revenues | $27,518 | $25,371 | 8% | | Operating Income | $3,837 | $4,262 | (10)% | | Operating Margin | 14% | 17% | (3 p.p.) | | Net Income | $2,419 | $4,169 | (42)% | | Diluted EPS | $2.09 | $3.52 | (41)% | Key Metrics Summary | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Active Accounts (EOP) | 435 M | 426 M | 2% | | Payment Transactions | 22.3 B | 19.3 B | 16% | | Total Payment Volume (TPV) | $1.36 T | $1.25 T | 9% | | Payment Transactions per Active Account | 51.4 | 45.4 | 13% | - Transaction revenues grew 8% in 2022, driven by unbranded card processing (Braintree) and Venmo, partially offset by declines in core PayPal services and eBay marketplace revenue[194] - Operating expenses increased 12% in 2022, primarily due to an 18% rise in transaction expense from unfavorable product mix and a 48% increase in transaction and credit losses[178][202] - The company's liquidity position is strong, supported by $13.7 billion in cash, cash equivalents, and investments, and $5.0 billion available under its main revolving credit facility as of year-end 2022[228][243] Quantitative and Qualitative Disclosures About Market Risk PayPal is exposed to interest rate, foreign currency exchange, and equity investment risks, which are managed through hedging programs and affect investment portfolio value and net income - A hypothetical 100 basis point increase in interest rates would have decreased the fair value of cash equivalents and available-for-sale debt securities by approximately $161 million as of December 31, 2022[278] - A hypothetical 10% adverse change in foreign currency exchange rates would have resulted in a net negative impact of approximately $29 million on income before taxes as of December 31, 2022, after considering hedging contracts[282][286] - The company holds $2.1 billion in strategic investments as of year-end 2022, where a hypothetical 10% adverse change would decrease the portfolio's carrying value by approximately $215 million[287] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2020-2022, with PricewaterhouseCoopers LLP providing an unqualified opinion and identifying 'Allowance for Loans Receivable' as a critical audit matter - PricewaterhouseCoopers LLP issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022[299] - The 'Allowance for Loans Receivable' was identified as a critical audit matter due to the high subjectivity in evaluating models that apply macroeconomic forecasts to estimate expected credit losses[306][307] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - None[288] Controls and Procedures As of December 31, 2022, management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[289] - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022, based on the COSO framework[290] Other Information The company reports no other information for this item - None[291] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections The company reports no information for this item - None[291] Part III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders[292] Executive Compensation Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders[292] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders[292] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders[293] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders - Information is incorporated by reference from the registrant's definitive proxy statement for its 2023 Annual Meeting of Stockholders[294] Part IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements, valuation and qualifying accounts schedule, and required exhibits - This item includes the Consolidated Financial Statements, the Report of Independent Registered Public Accounting Firm, and Financial Statement Schedule II—Valuation and Qualifying Accounts[296] Form 10-K Summary The company reports no information for this item - None[599]