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PayPal(PYPL) - 2023 Q4 - Annual Report
PYPLPayPal(PYPL)2024-02-07 16:00
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Financial Performance - Net revenues increased by 2.3billion,or82.3 billion, or 8%, in 2023 compared to 2022, driven by a 13% growth in total payment volume (TPV)[184] - Operating income increased by 1.2 billion, or 31%, in 2023 compared to 2022, with operating margins improving to 17% from 14%[185] - Net income increased by 1.8billion,or761.8 billion, or 76%, in 2023 compared to 2022, driven by higher operating income and gains on strategic investments[186] - Total Payment Volume (TPV) increased by 13% to 1.53 trillion in 2023 compared to 1.36trillionin2022[203]−Numberofpaymenttransactionsgrewby121.36 trillion in 2022[203] - Number of payment transactions grew by 12% to 25.0 billion in 2023 from 22.3 billion in 2022[203] - Transaction revenues grew by 7% or 1.7 billion in 2023, driven by growth in TPV and payment transactions from Braintree products[202] - Revenues from other value-added services increased by 26% or 602millionin2023,primarilyduetohigherinterestearnedoncustomeraccountbalances[206]−Cross−borderTPVaccountedfor13602 million in 2023, primarily due to higher interest earned on customer account balances[206] - Cross-border TPV accounted for 13% of total TPV in 2023, down from 16% in 2021[203] - Transaction revenues were negatively impacted by a 190 million decline in contractual compensation from sellers violating terms, primarily in international markets[202] - The company's PayPal branded credit programs funded by a partner institution exceeded the minimum return threshold through December 31, 2023[207] - No individual quarter in 2023 accounted for more than 30% of annual net revenue, indicating minimal seasonality[208] Operational Metrics - Total Payment Volume (TPV) reached 1.53trillionin2023[13]−25.0billionpaymenttransactionswereprocessedin2023[13]−Activeaccountstotaled426million,including391millionconsumeraccountsand35millionmerchantaccountsasofDecember31,2023[9][17]−Activeaccountsdecreasedby21.53 trillion in 2023[13] - 25.0 billion payment transactions were processed in 2023[13] - Active accounts totaled 426 million, including 391 million consumer accounts and 35 million merchant accounts as of December 31, 2023[9][17] - Active accounts decreased by 2% to 426 million in 2023 from 435 million in 2022[203] - Number of payment transactions per active account increased by 14% to 58.7 in 2023 from 51.4 in 2022[203] Global Presence and Market Operations - PayPal operates in approximately 200 markets globally[17] - The payments platform supports transactions in approximately 200 markets and 150 currencies, with fund withdrawals in 56 currencies and account balances in 24 currencies[35] - Approximately 42% of net revenues in 2023 were generated from customers outside the U.S., subjecting the company to foreign currency exchange risks[187] - Foreign currency exchange rate movements had a favorable impact of 239 million on net revenues in 2023, partially offset by hedging impacts[188] - The company operates in approximately 200 markets but allows customers in only about half of these markets to receive payments, with restrictions on balance holding and fund withdrawals[86] Product and Service Offerings - PayPal's payment solutions support a variety of funding sources, including bank accounts, credit/debit cards, cryptocurrencies, and stored value products[10][23] - PayPal's merchant financing solutions, such as PayPal Working Capital and PayPal Business Loan, provide access to capital for small and medium-sized businesses[21] - PayPal's consumer credit products, including buy now, pay later options, are available in markets like the U.S., U.K., France, and Germany[26] - PayPal's Venmo digital wallet is a leading mobile application in the U.S. for P2P payments and purchases at select merchants[24] - PayPal's Xoom service enables secure, fast, and cost-effective international money transfers[24] - PayPal's protection programs help safeguard merchants and consumers from financial loss due to fraud or non-performance[28] - The company's cryptocurrency offerings, including the PYUSD stablecoin, are subject to evolving regulations, which could lead to additional compliance costs and operational changes[91][92] Regulatory and Compliance - The company holds a full Bitlicense in New York for cryptocurrency services and operates under money transmitter licenses in the U.S. and other jurisdictions[44] - PayPal's AML program is designed to prevent money laundering, terrorist financing, and illicit activities, overseen by an AML/Bank Secrecy Act Officer[52] - The company is subject to EU Multilateral Interchange Fee Regulation, which caps interchange fees and imposes business rules for payment card transactions[53] - The company operates under financial services supervision in the U.K. and EU, regulated by the FCA and CSSF, respectively[47] - PayPal's consumer short-term, interest-free installment products are subject to federal and state laws in the U.S. and local regulations in various countries[48] - The company is subject to extensive and complex regulatory requirements across multiple jurisdictions, including banking, data protection, and cryptocurrency regulations[82][83] - Non-compliance with regulations could result in significant fines, penalties, and enforcement actions, potentially harming the company's reputation and financial condition[84] - In Europe, the company's subsidiary PayPal (Europe) may face increased regulatory scrutiny and costs if deemed a significant supervised entity by the European Central Bank[87] - The company's Singapore-based subsidiary, PayPal Pte. Ltd., holds a Major Payment Institution license, requiring compliance with regulatory requirements that increase operational complexity and costs[88] - The company's U.K. subsidiary faces post-Brexit regulatory requirements, including authorizations as an electronic money institution and cryptoasset business, which could impact operations if not met[100] - The company must comply with anti-money laundering and counter-terrorist financing regulations, which could increase compliance costs and operational challenges[100] - PayPal relies on Binding Corporate Rules and Standard Contractual Clauses for transferring personal data of EEA individuals to the U.S., with the EU-U.S. Data Privacy Framework becoming effective in July 2023[102] - The company faces risks from inconsistent privacy and data protection laws, which could result in significant fines, penalties, and reputational harm[101] - PayPal is subject to regulatory scrutiny and potential legal proceedings under antitrust and competition laws in the U.S. and internationally[104] Cybersecurity and Technology - PayPal's technology infrastructure incorporates multiple layers of protection for business continuity, system redundancy, and cybersecurity risk mitigation[37] - The company's systems and operations are vulnerable to cyberattacks, which could result in significant costs, third-party liabilities, and reputational damage[69][70][72] - PayPal continues to undertake system upgrades and re-platforming efforts to improve the availability, reliability, resiliency, and speed of its payments platform[76] - The company faces risks related to third-party technology access and development, which could limit its ability to innovate and adapt to new technologies[81] - Cybersecurity risks are managed through a three-lines-of-defense model, with regular assessments and 24/7 monitoring via the PayPal Cyber Defense Center[160][163] - The Board oversees cybersecurity risks, with the ARC Committee receiving periodic reports from the Chief Information Security Officer[165][166] - The company's cybersecurity efforts are overseen by the CISO organization, which monitors cyber regulation requirements and conducts risk assessments[169] Employee and Workforce - PayPal employed approximately 27,200 people globally as of December 31, 2023, with 45% in the Americas, 42% in Asia-Pacific, and 13% in Europe and the Middle East[59] - 78% of employees reported that the leadership principles are now part of their day-to-day work, a year after their launch in 2022[60] - The 2023 annual employee survey had an 82% response rate, with an engagement score of 77% and an intent-to-stay score of 77%[61] - 46% of PayPal's Board and 75% of the senior leadership team identified as women and/or from a diverse ethnic group as of December 31, 2023[64] - PayPal's workforce reached 55% overall diverse representation, including 43% global gender diversity and 54% U.S. ethnic diversity as of December 31, 2023[64] - PayPal supports employee financial wellness by offering individual financial coaching and matching eligible employee donations and volunteer time up to 2,500annuallyperemployee[63]−PayPal′sglobalCommunityImpactprogrammatchesemployeedonationsandvolunteertimewithnon−profitorganizations[63]−PayPal′semployeeresourcegroupspromotecommunityandbelongingforemployeesidentifyingasBlack,Latinx/Hispanic,women,interfaith,veterans,LGBTQ+,Asian,anddisabledpersons[65]−Thecompanyfacesintensecompetitionforskilledtalent,particularlyintechnologyandexecutiveroles,whichcouldharmbusinessoperations[157]RiskManagement−Thecompanyisregularlyinvolvedinlitigation,regulatoryinvestigations,andgovernmentinquiries,whichcouldresultinsubstantialjudgments,fines,andreputationalharm[106]−PayPalmayfaceintellectualpropertyinfringementclaims,whichcouldleadtocostlylitigationandrequirechangestoproductsorservices[107]−Thecompanyoperatesinahighlycompetitiveglobalpaymentsindustry,withintensecompetitionfrombothlargerandsmallercompanies[110]−Changesinpaymentcardnetworkfees,rules,orpracticescouldincreaseoperatingcostsandreducePayPal′scompetitiveposition[112]−PayPal′sfinancialperformanceissensitivetochangesinhowconsumersfundtransactions,withhighercostsassociatedwithpaymentcardusage[116]−Thecompany′screditproductsexposeittorisksrelatedtocreditriskmanagementandregulatorycompliance[117]−PayPal′sabilitytoofferconsumercreditandmerchantfinancingproductsdependsonpartnershipswithunaffiliatedfinancialinstitutions,whichcouldbeinterruptedorlimited[118]−Thecompanyfacesrisksofincreasednon−paymentratesamongaccountholdersduetofactorssuchaseconomicdownturns,risinginterestrates,andhighunemployment,whichcouldnegativelyimpactfinancialperformance[120]−Thecompanyreliesonthird−partyfundingforitscreditportfolio,andfailuretosecuresuchfundingcouldadverselyaffectgrowthandfinancialcondition[123]−Cross−bordertrade,asignificantrevenuesource,maybenegativelyimpactedbyfactorslikecurrencyfluctuations,tariffs,andtraderestrictions,potentiallyreducingtransactionvolumesandprofits[125][126]−Thecompanyincurssubstantiallossesfromfraud,abusivebehaviors,anderroneoustransactions,whichcouldharmbusinessoperationsandcustomerconfidence[127][128]−PurchaseandSellerProtectionProgramsresultinsignificantlosses,withpotentialchallengesinrecoveringfundsfrommerchants[129]−Thecompanyisexposedtorisksfromillegalactivitiesonitsplatform,includingmoneylaunderingandfraud,whichcouldleadtolegalandregulatoryactions[132][133]−Strategictransactions,includingacquisitionsandinvestments,carryriskssuchasintegrationchallenges,regulatoryhurdles,andpotentialfinanciallosses[135][136]−Internationaloperationsgenerateasignificantportionofrevenuesbutaresubjecttoriskslikeregulatorycompliance,currencyfluctuations,andpoliticalinstability[137][138]−Adverseglobaleconomicconditions,suchasrecessionsorfinancialmarketturmoil,couldreducedemandforthecompany′sproductsandservices[140]−Keymetricsarecalculatedusinginternalcompanydataandrequiresignificantjudgment,withpotentialinaccuraciesharmingthecompany′sreputation[142]−Thecompanycontinuouslyimprovesfrauddetectionmodelsandremovesillegitimateactivityfromkeymetrics,thoughpriorperiodsarenottypicallyupdated[143]−ESGissues,includingclimate−relatedrisks,couldadverselyaffectthecompany′sbusiness,reputation,andfinancialcondition[144][146]−Thecompanyholdssignificantcashandinvestmentswithfinancialinstitutions,exposingittocounterpartydefaultrisks[148]−Customerfundmanagementiscritical,withregulatorycomplianceandpublicconfidencebeingkeytobusinesssuccess[149]−Thecompanyhassignificantindebtedness,whichcouldlimitfinancialflexibilityandimpactcashflowforotherpurposes[150]−Changesintaxlaws,includingdigitalservicestaxesandglobalminimumtaxprovisions,couldmateriallyaffectthecompany′seffectivetaxrateandcashflows[153]−Thecompanyfacesmacroeconomicrisks,includingglobalconflicts,inflation,andsupplychainshortages,whichcouldimpactfuturefinancialresults[183]CorporateGovernanceandESG−ThecompanyiscommittedtoESGmanagement,focusingonresponsiblebusinesspractices,employeeculture,socialinnovation,andenvironmentalsustainability[58]−Regulatoryscrutinyonprivacy,dataprotection,andcybersecurityisincreasingglobally,withevolvinglawsandpotentialimpactsonbusinesscosts[55]−Thecompanyrepurchased10.1millionsharesinQ42023atanaveragepriceof2,500 annually per employee[63] - PayPal's global Community Impact program matches employee donations and volunteer time with non-profit organizations[63] - PayPal's employee resource groups promote community and belonging for employees identifying as Black, Latinx/Hispanic, women, interfaith, veterans, LGBTQ+, Asian, and disabled persons[65] - The company faces intense competition for skilled talent, particularly in technology and executive roles, which could harm business operations[157] Risk Management - The company is regularly involved in litigation, regulatory investigations, and government inquiries, which could result in substantial judgments, fines, and reputational harm[106] - PayPal may face intellectual property infringement claims, which could lead to costly litigation and require changes to products or services[107] - The company operates in a highly competitive global payments industry, with intense competition from both larger and smaller companies[110] - Changes in payment card network fees, rules, or practices could increase operating costs and reduce PayPal's competitive position[112] - PayPal's financial performance is sensitive to changes in how consumers fund transactions, with higher costs associated with payment card usage[116] - The company's credit products expose it to risks related to credit risk management and regulatory compliance[117] - PayPal's ability to offer consumer credit and merchant financing products depends on partnerships with unaffiliated financial institutions, which could be interrupted or limited[118] - The company faces risks of increased non-payment rates among account holders due to factors such as economic downturns, rising interest rates, and high unemployment, which could negatively impact financial performance[120] - The company relies on third-party funding for its credit portfolio, and failure to secure such funding could adversely affect growth and financial condition[123] - Cross-border trade, a significant revenue source, may be negatively impacted by factors like currency fluctuations, tariffs, and trade restrictions, potentially reducing transaction volumes and profits[125][126] - The company incurs substantial losses from fraud, abusive behaviors, and erroneous transactions, which could harm business operations and customer confidence[127][128] - Purchase and Seller Protection Programs result in significant losses, with potential challenges in recovering funds from merchants[129] - The company is exposed to risks from illegal activities on its platform, including money laundering and fraud, which could lead to legal and regulatory actions[132][133] - Strategic transactions, including acquisitions and investments, carry risks such as integration challenges, regulatory hurdles, and potential financial losses[135][136] - International operations generate a significant portion of revenues but are subject to risks like regulatory compliance, currency fluctuations, and political instability[137][138] - Adverse global economic conditions, such as recessions or financial market turmoil, could reduce demand for the company's products and services[140] - Key metrics are calculated using internal company data and require significant judgment, with potential inaccuracies harming the company's reputation[142] - The company continuously improves fraud detection models and removes illegitimate activity from key metrics, though prior periods are not typically updated[143] - ESG issues, including climate-related risks, could adversely affect the company's business, reputation, and financial condition[144][146] - The company holds significant cash and investments with financial institutions, exposing it to counterparty default risks[148] - Customer fund management is critical, with regulatory compliance and public confidence being key to business success[149] - The company has significant indebtedness, which could limit financial flexibility and impact cash flow for other purposes[150] - Changes in tax laws, including digital services taxes and global minimum tax provisions, could materially affect the company's effective tax rate and cash flows[153] - The company faces macroeconomic risks, including global conflicts, inflation, and supply chain shortages, which could impact future financial results[183] Corporate Governance and ESG - The company is committed to ESG management, focusing on responsible business practices, employee culture, social innovation, and environmental sustainability[58] - Regulatory scrutiny on privacy, data protection, and cybersecurity is increasing globally, with evolving laws and potential impacts on business costs[55] - The company repurchased 10.1 million shares in Q4 2023 at an average price of 60.37 per share, totaling 6.4billion[178]−AsofDecember31,2023,thecompanyownedandleasedpropertiestotaling3.8millionsquarefeet,with2.0millionsquarefeetintheU.S.[170]−Thecompanyhasastockrepurchaseprogramauthorizedforupto6.4 billion[178] - As of December 31, 2023, the company owned and leased properties totaling 3.8 million square feet, with 2.0 million square feet in the U.S.[170] - The company has a stock repurchase program authorized for up to 15 billion, with $10.859 billion remaining as of December 31, 2023[176] - In June 2023, the company entered into a multi-year agreement to sell up to €40 billion of U.K. and European BNPL loan receivables, with sales beginning in October 2023[122]