PayPal Reports Fourth Quarter and Full Year 2019 Results

SAN JOSE, Calif., Jan. 29, 2020 /PRNewswire/ -- Global technology platform and digital payments leader PayPal Holdings, Inc. (NASDAQ: PYPL) today announced fourth quarter and full year results for the period ended December 31, 2019.

"PayPal delivered strong results in 2019, achieving many records including revenue, net income and operating margin performance. We added 37.3 million net new active accounts, bringing total active accounts to 305 million, up 14% year over year. In Q4 alone, we processed nearly $200 billion of TPV and engagement grew 10% to 40.6 transactions per active account. We strengthened our value proposition for consumers and merchants, expanded our international scope and scale, and announced transformative strategic acquisitions, investments and commercial partnerships," said Dan Schulman, President and CEO of PayPal.

Financial highlights for fourth quarter 2019

    --  Revenue of $4.96 billion; growing 17% on a spot basis and 18% on a
        foreign currency-neutral (FX-neutral or FXN) basis.
    --  GAAP operating income of $0.8 billion, increasing 34%; non-GAAP
        operating income of $1.2 billion, increasing 28%.
    --  GAAP operating margin of 16.1% with non-GAAP operating margin of 23.6%.
    --  GAAP EPS of $0.43, decreasing 13%; non-GAAP EPS of $0.86, increasing
        24%.
        --  GAAP and non-GAAP EPS include a net unrealized gain of $0.02 on
            strategic investments, driven primarily by MercadoLibre (NASDAQ:
            MELI).
        --  GAAP EPS also includes an approximate $0.19 of negative impact from
            taxes related to the acquisition of iZettle.
    --  Cash flow from operations of $1.3 billion with free cash flow of $1.1
        billion.
    --  Repurchased approximately 2.9 million shares of common stock, returning
        $305 million to stockholders.

Operating highlights for fourth quarter 2019

    --  9.3 million net new active accounts, bringing total active accounts to
        305 million accounts, up 14%.
    --  3.5 billion payment transactions, up 21%.
    --  $199 billion in total payment volume (TPV), up 22% on a spot and
        FX-neutral basis.
        --  Merchant Services volume grew 25% on a spot basis and 26% on an
            FX-neutral basis.
        --  Venmo processed more than $29 billion of TPV, growing 56%.

Financial highlights for full year 2019

    --  Revenue of $17.77 billion; growing 15% on a spot and FX-neutral basis.
        --  The completed sale of the U.S. consumer credit receivables portfolio
            to Synchrony in July 2018 negatively affected revenue growth by
            approximately three and one-half percentage points.
    --  GAAP operating income of $2.7 billion, increasing 24%; non-GAAP
        operating income of $4.1 billion, increasing 23%.
    --  GAAP operating margin of 15.3% with non-GAAP operating margin of 23.2%.
    --  GAAP EPS of $2.07, increasing 21%; non-GAAP EPS of $3.10, increasing
        28%.
        --  GAAP and non-GAAP EPS include a net unrealized gain of $0.14 on
            strategic investments, driven primarily by MercadoLibre.
        --  GAAP EPS also includes an approximate $0.19 of negative impact from
            taxes related to the acquisition of iZettle.
    --  Cash flow from operations of $4.6 billion with free cash flow of $3.9
        billion.
    --  Repurchased approximately 14 million shares of common stock, returning
        $1.4 billion to stockholders.

Operating highlights for full year 2019

    --  37.3 million net new active accounts, bringing total active accounts to
        305 million accounts, up 14%.
    --  12.4 billion payment transactions, up 25%.
    --  $712 billion in total payment volume (TPV), up 23%, or 25% on an
        FX-neutral basis.
        --  Merchant Services volume grew 27% on a spot basis and 29% on an
            FX-neutral basis.
        --  Venmo processed more than $102 billion, up 65%.
    --  40.6 payment transactions per active account on a trailing twelve months
        basis, up 10%.

PayPal's key business initiatives

In November, PayPal announced its agreement to acquire Honey Science Corporation, a rapidly-growing technology platform for shopping and rewards, for approximately $4 billion. This transaction, which closed in January 2020, is expected to transform the shopping experience for PayPal's consumers while increasing sales and customer engagement for merchants.

Following a strategic investment in March 2019, PayPal executed a commercial agreement with MercadoLibre in December. This agreement will allow PayPal and MercadoLibre to jointly leverage their scale and capabilities to strengthen both companies' networks.

In December, PayPal completed its acquisition of a 70% equity interest in Guofubao Information Technology Co., Ltd. (GoPay), following approval of the transaction by the People's Bank of China in September 2019. With the completion of this deal, PayPal became the first foreign payments platform licensed to provide online payment services in China.

In January 2020, PayPal announced a strategic partnership with UnionPay International (UPI) whereby both companies will work together to better serve joint consumers and merchants. As part of this partnership, UPI will support PayPal's merchant and consumer initiatives in China and PayPal will support UPI acceptance globally where PayPal is accepted, providing UPI consumers more choice when shopping.

Fourth Quarter 2019 Financial and Operating Highlights


                                                                     
       
     
        Fourth Quarter



                 (presented in
                  millions, except
                  per share data and
                  percentages)             2019            2018              YoY Growth                         FX-Neutral
                                                                                      YoY Growth



      Total Payment Volume                      $
         199,404                                   $
         163,648                   $
        35,756        22      22
       (TPV)                                                                                                                                        %      %


                 GAAP


      Net revenues                                $
         4,961                                     $
         4,226                      $
        735        17      18
                                                                                                                                                    %      %


      Operating margin               16.1
        %                 14.2
      %              
            **                  196     
      bps              N/A


      Effective tax rate             40.6
        %                 14.9
      %              
            **                 25.7    
      pts               N/A



     Net income                                    $
         507                                       $
         584                     $
        (77)     (13)
                                                                                                                                                    %    N/A


      Earnings per diluted                         $
         0.43                                      $
         0.49                   $
        (0.06)     (13)
       share                                                                                                                                        %    N/A


      Net cash provided by
       operating                                                                                                                                    %
       activities                                 $
         1,264                                     $
         1,134                      $
        130        11     N/A


                 Non-GAAP


      Net revenues                                $
         4,961                                     $
         4,226                      $
        735        17      18
                                                                                                                                                    %      %


      Operating margin               23.6
        %                 21.6
      %              
            **                  204     
      bps              N/A


      Effective tax rate             17.2
        %                 17.7
      %              
            **                 (0.5    
      pts)              N/A



     Net income                                  $
         1,017                                       $
         824                      $
        193        23
                                                                                                                                                    %    N/A


      Earnings per diluted                         $
         0.86                                      $
         0.69                     $
        0.17        24
       share                                                                                                                                        %    N/A


      Free cash flow                              $
         1,090                                       $
         910                      $
        180        20
                                                                                                                                                    %    N/A



               
              ** Not meaningful.

Cash, Cash Equivalents, and Investments - PayPal's cash, cash equivalents, and investments totaled $13.6 billion as of December 31, 2019.

Long-Term Debt - PayPal's long-term debt totaled $5.0 billion as of December 31, 2019.

2020 Financial Guidance

Full year 2020 revenue and earnings guidance

    --  PayPal expects revenue to grow approximately 17 - 18% at current spot
        rates and approximately 18 - 19% on an FX-neutral basis, to a range of
        $20.8 - $21.0 billion.
    --  PayPal expects GAAP earnings per diluted share in the range of $1.84 -
        $1.95 and non-GAAP earnings per diluted share in the range of $3.39 -
        $3.46.
        --  GAAP earnings per diluted share guidance includes an estimated $0.02
            of unrealized gains from PayPal's strategic investment portfolio in
            2020.
        --  In 2020, non-GAAP earnings per diluted share will exclude the impact
            of realized and unrealized gains and losses on PayPal's strategic
            investment portfolio.
        --  In 2019, GAAP and non-GAAP earnings per diluted share included
            approximately $0.14 of net unrealized gains from PayPal's strategic
            investment portfolio.
        --  Estimated non-GAAP amounts for the twelve months ending December 31,
            2020, reflect adjustments of approximately $1.82 - $1.94 billion,
            including estimated stock-based compensation expense and related
            payroll taxes in the range of $1.31 - $1.38 billion.
        --  The dilutive impact of acquisitions is estimated to be in the range
            of $0.68 - $0.70 on GAAP earnings per diluted share, including an
            estimated $0.30 of negative impact related to taxes associated with
            the acquisition of Honey, and $0.08 - $0.10 on non-GAAP earnings per
            diluted share.

First quarter 2020 revenue and earnings guidance

    --  PayPal expects revenue to grow 16 - 17% at current spot rates and 17 -
        18% on an FX-neutral basis, to a range of $4.78 - $4.84 billion.
    --  PayPal expects GAAP earnings per diluted share in the range of $0.16 -
        $0.21 and non-GAAP earnings per diluted share in the range of $0.76 -
        $0.78.
        --  GAAP earnings per diluted share guidance includes an estimated $0.02
            of unrealized gains from PayPal's strategic investment portfolio in
            the first quarter of 2020.
        --  In 2020, non-GAAP earnings per diluted share will exclude the impact
            of realized and unrealized gains and losses on PayPal's strategic
            investment portfolio.
        --  In the first quarter of 2019, GAAP and non-GAAP earnings per diluted
            share included approximately $0.12 of net unrealized gains from
            PayPal's strategic investment portfolio.
        --  Estimated non-GAAP amounts for the three months ending March 31,
            2020, reflect adjustments of approximately $480 - $520 million,
            including estimated stock-based compensation expense and related
            payroll taxes in the range of $350 - $370 million.
        --  The dilutive impact of acquisitions is estimated to be in the range
            of $0.41 - $0.43 on GAAP earnings per diluted share, including an
            estimated $0.30 of negative impact related to taxes associated with
            the acquisition of Honey, and $0.02 - $0.03 on non-GAAP earnings per
            diluted share.

Please see "Non-GAAP Financial Measures" and "Non-GAAP Measures of Financial Performance" for important additional information.

Quarterly conference call and webcast

PayPal Holdings, Inc. will host a conference call to discuss fourth quarter and full year 2019 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.paypal-corp.com. In addition, an archive of the webcast will be accessible for 90 days through the same link.

PayPal Holdings, Inc. uses its Investor Relations website (https://investor.paypal-corp.com), its 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) and Dan Schulman's Facebook page (https://www.facebook.com/DanSchulmanPayPal/) 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.

About PayPal

PayPal has remained at the forefront of the digital payment revolution for more than 20 years. By leveraging technology to make financial services and commerce more convenient, affordable, and secure, the PayPal platform is empowering more than 300 million consumers and merchants in more than 200 markets to join and thrive in the global economy. For more information, visit paypal.com.

Presentation

All growth rates represent year-over-year comparisons, except as otherwise noted. FX-neutral results are calculated by translating the current period local currency results by the prior period exchange rate. FX-neutral growth rates are calculated by comparing the current period FX-neutral 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 include, but are not limited to, statements regarding projected financial results for the first quarter and full year 2020, 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 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 the PayPal, PayPal Credit, Braintree, Venmo, Xoom, iZettle, and other products, 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 formal notification of its intent to withdraw 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 or 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 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.paypal-corp.com or the SEC's website at www.sec.gov. All information in this release speaks as of January 29, 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.


                     PayPal Holdings, Inc.





       Investor Relations Contacts



       Gabrielle Rabinovitch                                
     Akila Moorthy


                                    grabinovitch@paypal.com                  amoorthy@paypal.com

    ---






       Media Relations Contact



       Amanda Miller


                                    amandacmiller@paypal.com

    ---


       408.219.0563

Copyright © 1999-2020 PayPal. All rights reserved. Other company and product names may be trademarks of their respective owners.


                                      
              
                PayPal Holdings, Inc.


                         
              
                Unaudited Condensed Consolidated Balance Sheets






                                                                                  December 31,
                                                                             2019


                                                                                                                  December 31,
                                                                                                                          2018

                                                                                                                            ---

                                                                                  (In millions, except par value)



     
                ASSETS



     Current assets:



     Cash and cash equivalents                                   $
              7,349                                               $
        7,575



     Short-term investments                                                3,412                                          1,534



     Accounts receivable, net                                                435                                            313


      Loans and interest receivable, net                                    3,972                                          2,532


      Funds receivable and customer accounts                               22,527                                         20,062


      Prepaid expenses and other current assets                               800                                            947

                                                                                                                            ---


     Total current assets                                                 38,495                                         32,963

                                                                                                                            ---


     Long-term investments                                                 2,863                                            971



     Property and equipment, net                                           1,693                                          1,724



     Goodwill                                                              6,212                                          6,284



     Intangible assets, net                                                  778                                            825



     Other assets                                                          1,292                                            565

                                                                                                                            ---


     Total assets                                               $
              51,333                                              $
        43,332

                                                                                                                                         ===


     
                LIABILITIES AND EQUITY



     Current liabilities:



     Accounts payable                                              $
              232                                                 $
        281



     Short-term debt                                                           -                                         1,998


      Funds payable and amounts due to customers                           24,527                                         21,562


      Accrued expenses and other current
       liabilities                                                          2,087                                          2,002



     Income taxes payable                                                     73                                             61

                                                                                                                            ---


     Total current liabilities                                            26,919                                         25,904


      Deferred tax liability and other long-term
       liabilities                                                          2,520                                          2,042



     Long-term debt                                                        4,965

                                                                                                                            ---


     Total liabilities                                                    34,404                                         27,946

                                                                                                                            ---


     Equity:


      Common stock, $0.0001 par value; 4,000
       shares authorized; 1,173 and 1,174 shares
       outstanding as of December 31, 2019 and
       2018, respectively                                                       -


      Preferred stock, $0.0001 par value; 100
       shares authorized, unissued                                              -


      Treasury stock at cost, 105 and 91 shares as
       of December 31, 2019 and 2018, respectively                         (6,872)                                       (5,511)



     Additional paid-in-capital                                           15,588                                         14,939



     Retained earnings                                                     8,342                                          5,880


      Accumulated other comprehensive income
       (loss)                                                                (173)                                            78



     Total PayPal Stockholders' equity                                    16,885                                         15,386



     Noncontrolling interest                                                  44

                                                                                                                            ---


     Total equity                                                         16,929                                         15,386

                                                                                                                            ---


     Total liabilities and equity                               $
              51,333                                              $
        43,332

                                                                                                                                         ===


                                                                          
              
                PayPal Holdings, Inc.


                                                               
         
                Unaudited Condensed Consolidated Statements of Income




                                                                 Three Months Ended December 31,                                      Year Ended December 31,


                                                   2019                       2018                    2019                            2018

                                                                                                                                    ---

                                                            
         
                (In millions, except per share amounts)





     Net revenues                                        $
         4,961                                      $
              4,226                                 $
       17,772  $
        15,451



     Operating expenses:



     Transaction expense                         1,913                                 1,578                                       6,790                            5,581


      Transaction and loan losses                   381                                   340                                       1,380                            1,274


      Customer support and
       operations(1)(2)                             438                                   377                                       1,615                            1,407


      Sales and marketing (1)(2)                    400                                   401                                       1,401                            1,314


      Technology and development
       (1)(2)                                       558                                   490                                       2,085                            1,831


      General and administrative
       (1)(2)                                       472                                   430                                       1,711                            1,541


      Restructuring and other charges                 -                                   12                                          71                              309



      Total operating expenses                    4,162                                 3,628                                      15,053                           13,257




     Operating income                              799                                   598                                       2,719                            2,194


      Other income (expense), net                    55                                    88                                         279                              182


      Income before income taxes                    854                                   686                                       2,998                            2,376




     Income tax expense                            347                                   102                                         539                              319




     Net income                                            $
         507                                        $
              584                                  $
       2,459   $
        2,057




     Net income per share:



     Basic                                                $
         0.43                                       $
              0.50                                   $
       2.09    $
        1.74



     Diluted                                              $
         0.43                                       $
              0.49                                   $
       2.07    $
        1.71



     Weighted average shares:



     Basic                                       1,174                                 1,177                                       1,174                            1,184



     Diluted                                     1,187                                 1,196                                       1,188                            1,203




                   (1) Includes stock-based compensation as
                    follows:


      Customer support and
       operations(2)                                 54                                    45                                         198                              174


      Sales and marketing(2)                         32                                    32                                         127                              125


      Technology and development(2)                 128                                    81                                         420                              303


      General and administrative(2)                  79                                    77                                         305                              269


                                                            $
         293                                        $
              235                                  $
       1,050     $
        871



                            (2
                ) Prior period
                             amounts have been updated to
                             reflect the classification
                             changes described in the Form
                             8-K filed on April 9, 2019.


                                                                              
              
                PayPal Holdings, Inc.


                                                               
           
                Unaudited Condensed Consolidated Statements of Cash Flows




                                                                    Three Months Ended December 31,                                       Year Ended December 31,


                                                       2019                         2018                      2019                              2018

                                                                                                                                              ---

                                                                            
              
                (In millions)





     Cash flows from operating activities:



     Net income                                               $
           507                                            $
              584                             $
             2,459   $
         2,057



     Adjustments:



     Transaction and loan losses                       381                                      340                                          1,380                            1,274



     Depreciation and amortization                     227                                      223                                            912                              776



     Stock-based compensation                          285                                      230                                          1,021                              853



     Deferred income taxes                           (147)                                   (137)                                         (269)                           (171)


      Cost basis adjustments to loans and interest
       receivable held for sale                           -                                                                                                                   244


      Unrealized (gains) losses on strategic
       investments                                     (37)                                    (55)                                         (207)                            (86)



     Other                                            (20)                                    (38)                                         (150)                            (86)



     Changes in assets and liabilities:



     Accounts receivable                              (17)                                      74                                          (120)                            (59)


      Changes in loans and interest receivable held
       for sale, net                                      -                                                                                     4                            1,407



     Accounts payable                                   55                                       21                                              4                               26



     Income taxes payable                              (7)                                    (23)                                          (40)                            (44)



     Other assets and liabilities                       37                                     (85)                                         (433)                           (708)



      Net cash provided by operating activities       1,264                                    1,134                                          4,561                            5,483




     Cash flows from investing activities:


      Purchases of property and equipment             (174)                                   (224)                                         (704)                           (823)


      Proceeds from sales of property and equipment       -                                       3                                             17                                3


      Changes in principal loans receivable, net      (520)                                   (452)                                       (1,631)                           3,121



     Purchases of investments                      (8,073)                                 (6,740)                                      (27,881)                        (22,381)


      Maturities and sales of investments             7,488                                    5,951                                         24,878                           21,898


      Acquisitions, net of cash and restricted cash
       acquired                                        (70)                                      12                                           (70)                         (2,124)



     Funds receivable                                  950                                    1,573                                          (342)                           1,146


      Net cash (used in) provided by investing
       activities                                     (399)                                     123                                        (5,733)                             840




     Cash flows from financing activities:


      Proceeds from issuance of common stock             60                                       61                                            138                              144



     Purchases of treasury stock                     (305)                                   (595)                                       (1,411)                         (3,520)


      Tax withholdings related to net share
       settlements of equity awards                    (31)                                    (27)                                         (504)                           (419)


      Borrowings under financing arrangements             -                                                                                 5,471                            2,075


      Repayments under financing arrangements           (7)                                    (14)                                       (2,516)                         (1,115)


      Funds payable and amounts due to customers        134                                  (1,194)                                         2,510                            1,573



      Net cash (used in) provided by financing
       activities                                     (149)                                 (1,769)                                         3,688                          (1,262)



      Effect of exchange rate changes on cash, cash
       equivalents, and restricted cash                  43                                     (24)                                           (6)                           (113)



      Net change in cash, cash equivalents, and
       restricted cash                                  759                                    (536)                                         2,510                            4,948


      Cash, cash equivalents, and restricted cash
       at beginning of period                        14,984                                   13,769                                         13,233                            8,285



      Cash, cash equivalents, and restricted cash
       at end of period                                     $
           15,743                                         $
              13,233                            $
             15,743  $
         13,233




     Supplemental cash flow disclosures:



     Cash paid for interest                                     $
           2                                             $
              22                                $
             78      $
         69



     Cash paid for income taxes, net                          $
           445                                            $
              100                               $
             665     $
         328


                                PayPal Holdings, Inc.


                        Unaudited Summary of Consolidated Net
                                       Revenues




     We earn revenue from the following types of
      transactions:




     --                            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 PayPal,
                                   PayPal Credit, Venmo, Braintree,
                                   Xoom, and iZettle products. 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.




     --                            Other value added services: Net
                                   revenues derived primarily from
                                   revenue earned through
                                   partnerships, subscription fees,
                                   gateway fees, and other services
                                   we provide to our merchants and
                                   customers. We also earn revenues
                                   from interest and fees earned
                                   primarily on our portfolio of
                                   merchant and consumer loans
                                   receivable, and interest earned on
                                   certain PayPal customer account
                                   balances.





     Net Revenues by
      Type                                                        
         
             Three Months Ended


                         December 31,          September 30,                             June 30,                  March 31,    December 31,
                                 2019                    2019                                  2019                        2019             2018



                                                              
          
        (In millions, except percentages)


     Transaction
      revenues                        $
     4,535                                                       $
         3,955                                $
       3,878             $
     3,731 $
     3,851


     Current quarter vs            15                                 2                                                      4                           (3)        15
      prior quarter        
            %                           
        %                                            
            %                        
       %      
      %


     Current quarter vs            18                                18                                                     17                            17         19
      prior year quarter   
            %                           
        %                                            
            %                        
       %      
      %


     Percentage of total           91                                90                                                     90                            90         91
                           
            %                           
        %                                            
            %                        
       %      
      %




     Other value added
      services                    426                               423                                                    427                           397        375


     Current quarter vs             1                               (1)                                                     8                             6         10
      prior quarter        
            %                           
        %                                            
            %                        
       %      
      %


     Current quarter vs            14                                24                                                   (21)                         (19)      (25)
      prior year quarter   
            %                           
        %
                                                                                                                           %                            %         %


     Percentage of total            9                                10                                                     10                            10          9
                           
            %                           
        %                                            
            %                        
       %      
      %




     Total net revenues               $
     4,961                                                       $
         4,378                                $
       4,305             $
     4,128 $
     4,226


     Current quarter vs            13                                 2                                                      4                           (2)        15
      prior quarter        
            %                           
        %                                            
            %                        
       %      
      %


     Current quarter vs            17                                19                                                     12                            12         13
      prior year quarter   
            %                           
        %                                            
            %                        
       %      
      %






     Net Revenues by
      Geography                                                   
         
             Three Months Ended


                         December 31,          September 30,                             June 30,                  March 31,    December 31,
                                 2019                    2019                                  2019                        2019             2018



                                                              
          
        (In millions, except percentages)


     U.S. net revenues                $
     2,606                                                       $
         2,327                                $
       2,297             $
     2,187 $
     2,189


     Current quarter vs            12                                 1                                                      5                               %      12
      prior quarter        
            %                           
        %                                            
            %                                   
      %


     Current quarter vs            19                                19                                                      7                             8          7
      prior year quarter   
            %                           
        %                                            
            %                        
       %      
      %


     Percent of total              53                                53                                                     53                            53         52
                           
            %                           
        %                                            
            %                        
       %      
      %




     International net
      revenues                  2,355                             2,051                                                  2,008                         1,941      2,037


     Current quarter vs            15                                 2                                                      3                           (5)        18
      prior quarter        
            %                           
        %                                            
            %                        
       %      
      %


     Current quarter vs            16                                19                                                     18                            17         20
      prior year quarter   
            %                           
        %                                            
            %                        
       %      
      %


     (FXN) Current
      quarter vs prior     
            %                           
        %                                            
            %                        
       %      
      %
      year quarter                 17                                20                                                     18                            17         19


     Percent of total              47                                47                                                     47                            47         48
                           
            %                           
        %                                            
            %                        
       %      
      %




     Total net revenues               $
     4,961                                                       $
         4,378                                $
       4,305             $
     4,128 $
     4,226


     Current quarter vs            13                                 2                                                      4                           (2)        15
      prior quarter        
            %                           
        %                                            
            %                        
       %      
      %


     Current quarter vs            17                                19                                                     12                            12         13
      prior year quarter   
            %                           
        %                                            
            %                        
       %      
      %


     (FXN) Current
      quarter vs prior     
            %                           
        %                                            
            %                        
       %      
      %
      year quarter                 18                                19                                                     12                            12         13


                                                                                                        
              
                PayPal Holdings, Inc.


                                                                                                
              
                Unaudited Supplemental Operating Data




                                                                                    
         
            Three Months Ended,


                                       December 31,            September 30,                              June 30,                                                 March 31,    December 31,
                                               2019                      2019                                   2019                                                       2019             2018

                                                                                                                                                                                         ---

                                                                                 
          
       (In millions, except percentages)


                  Active accounts(1)            305                                   295                                                                                  286                                 277         267


                  Current quarter vs              3                                     3                                                                                    3                                   3           5
                   prior quarter                  %                                    %                                                                                   %                                  %          %


                  Current quarter vs
                   prior year                     %                                    %                                                                                   %                                  %          %
                   quarter                       14                                    16                                                                                   17                                  17          17




                  Number of payment
                   transactions(2)            3,461                                 3,090                                                                                2,973                               2,838       2,867


                  Current quarter vs             12                                     4                                                                                    5                                 (1)         16
                   prior quarter                  %                                    %                                                                                   %                            
         %          %


                  Current quarter vs
                   prior year                     %                                    %                                                                                   %                                  %          %
                   quarter                       21                                    25                                                                                   28                                  28          28




                  Payment
                   transactions per
                   active account(3)           40.6                                  39.8                                                                                 39.0                                37.9        36.9


                  Current quarter vs              2                                     2                                                                                    3                                   3           1
                   prior quarter                  %                                    %                                                                                   %                                  %          %


                  Current quarter vs
                   prior year                     %                                    %                                                                                   %                                  %          %
                   quarter                       10                                     9                                                                                    9                                   9           9




                  Total Payment
                   Volume(4)                        $
     199,404                                                        $
              178,670                                                        $
           172,359              $
     161,492 $
     163,648


                  Current quarter vs             12                                     4                                                                                    7                                 (1)         14
                   prior quarter                  %                                    %                                                                                   %                            
         %          %


                  Current quarter vs
                   prior year                     %                                    %                                                                                   %                                  %          %
                   quarter                       22                                    25                                                                                   24                                  22          23


                  (FXN) Current
                   quarter vs prior               %                                    %                                                                                   %                                  %          %
                   year quarter                  22                                    27                                                                                   26                                  25          25




     Transaction
      Expense Rate(5)                0.96
            %                           0.95
        %                                                                      0.94
            %                        0.96
         %    0.96
     %


     Transaction and
      Loan Loss Rate(6)              0.19
            %                           0.19
        %                                                                      0.18
            %                        0.21
         %    0.21
     %


                  Transaction
                   Margin(7)         53.8
            %                           53.4
        %                                                                      54.8
            %                        54.2
         %    54.6
     %



      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, not
                                      including gateway-exclusive
                                      transactions, within the past 12
                                      months.



     
                (2)              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)              TPV is the value of payments, net
                                      of 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 loan loss rate is
                                      calculated by dividing
                                      transaction and loan loss by TPV.



     
                (7)              Transaction margin is total
                                      revenue less transaction expense
                                      and transaction and loan loss,
                                      divided by total revenue.

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.

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.


                                                        
              
                PayPal Holdings, Inc.


                                       
       
                Reconciliation of GAAP Operating Margin to Non-GAAP Operating Margin




                                          Three Months Ended December 31,                                      Year Ended December 31,


                                2019                      2018                    2019                             2018

                                                                                                                 ---

                                        
       
                (In millions, except percentages)


                                            
              
                (unaudited)


      GAAP operating income            $
       799                                         $
              598                                $
     2,719      $
     2,194


      Stock-based compensation
       expense and related
       employer payroll taxes    297                                  237                                        1,104                       920


      Amortization of acquired
       intangible assets          51                                   59                                          211                       146



     Restructuring                -                                                                              78                        25



     Other(1)                    23                                   12                                           16                        40


      Acquisition related
       transaction expense         3                                    7                                            3                        24



      Total non-GAAP operating
       income adjustments        374                                  315                                        1,412                     1,155



      Non-GAAP operating income      $
       1,173                                         $
              913                                $
     4,131      $
     3,349



      Non-GAAP operating margin   24                                   22                                           23                        22
                                   %                                   %                                           %                        %

                                                                                                                                                 ---



                            (1)Includes an award for a legal
                             proceeding for the three months
                             and year ended December 31, 2019.
                             Additionally, the year end
                             December 31, 2019 includes a gain
                             related to the sale of our U.S.
                             consumer credit receivables
                             portfolio executed during the year
                             ended December 31, 2018. Includes
                             net loss related to the sale of
                             our U.S.consumer credit
                             receivables portfolio for the
                             three months and year ended
                             December 31, 2018.


                                                          
              
                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 December 31,                                       Year Ended December 31,


                                           2019                        2018                      2019                               2018

                                                                                                                                  ---

                                                             (In millions, except per share data and percentages)


                                                          
              
                (unaudited)


      GAAP income before
       income taxes                               $
          854                                           $
              686                            $
           2,998      $
      2,376


      GAAP income tax
       expense                              347                                     102                                             539                        319



      GAAP net income                       507                                     584                                           2,459                      2,057


      Non-GAAP adjustments to net income:


      Non-GAAP operating
       income adjustments
       (see table above)                    374                                     315                                           1,412                      1,155



     Other(1)                              230                                     (6)                                            230                         43


      Tax effect of non-
       GAAP adjustments                    (94)                                   (69)                                          (417)                     (342)



      Non-GAAP net income                       $
          1,017                                           $
              824                            $
           3,684      $
      2,913





      Diluted net income per share:



     GAAP                                       $
          0.43                                          $
              0.49                             $
           2.07       $
      1.71



     Non-GAAP                                   $
          0.86                                          $
              0.69                             $
           3.10       $
      2.42


      Shares used in GAAP
       diluted share
       calculation                        1,187                                   1,196                                           1,188                      1,203


      Shares used in non-
       GAAP diluted share
       calculation                        1,187                                   1,196                                           1,188                      1,203




      GAAP effective tax           41
            %                                     15                                    18
            %                        13
       rate                                                                          %                                                                        %


      Tax effect of non-
       GAAP adjustments to                    %                                      %                                              %
       net income                          (24)                                      3                                             (2)                 5
          %

                                                                                                                                                                   ---

      Non-GAAP effective           17
            %                                     18                                    16
            %                        18
       tax rate                                                                      %                                                                        %

                                                                                                                                                                   ---



                            (1) Three months and year
                             ended December 31, 2019
                             include tax expense related
                             to intra-group transfer of
                             intellectual property;
                             three months ended December
                             31, 2018 include tax
                             benefit related to Tax Cuts
                             and Jobs Act of $15 million
                             and tax expense related to
                             intra-group transfer of
                             intellectual property of $9
                             million. Year ended
                             December 31, 2018 includes
                             tax expense related to
                             intra-group transfer of
                             intellectual property of
                             $23 million and Tax Cuts
                             and Jobs Act of $20
                             million.


                                                      
              
                PayPal Holdings, Inc.


                               
      
                Reconciliation of Operating Cash Flow to Free Cash Flow and Adjusted Free Cash Flow




                                 Three Months Ended December 31,                                       Year Ended December 31,


                         2019                   2018                      2019                             2018

                                                                                                         ---

                                   
              
                (In millions/unaudited)


     Net cash provided
      by operating
      activities              $
      1,264                                         $
              1,134                                  $
         4,561 $
     5,483


     Less: Purchases of
      property and
      equipment         (174)                             (224)                                        (704)                            (823)


     Free cash flow           $
      1,090                                           $
              910                                  $
         3,857 $
     4,660



     Impact of held for
      sale accounting
      presentation
      related to our
      U.S. consumer
      credit
      receivables
      portfolio on cash
      flow from
      operating
      activities            -                                                                                                         (1,508)



     Adjusted free cash
      flow                    $
      1,090                                           $
              910                                  $
         3,857 $
     3,152

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SOURCE PayPal Holdings, Inc.