PayPal Holdings, Inc. — FY2021 Form 10-K
Business context and reporting period. This is PayPal’s annual report for the fiscal year ended December 31, 2021, not a standalone fourth-quarter report. PayPal operates a global digital payments platform serving merchants and consumers in more than 200 markets. It reported 426 million active accounts and $1.25 trillion of total payment volume (TPV) in 2021.
Key financial metrics
Amounts are in U.S. dollars; financial figures are in billions except per-share data.
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Net revenue | $25.371 | $21.454 | +18% |
| Operating income | $4.262 | $3.289 | +30% |
| Operating margin | 17% | 15% | +2 percentage points |
| Net income | $4.169 | $4.202 | -1% |
| Diluted EPS | $3.52 | $3.54 | -1% |
| Cash from operating activities | $6.340 | $5.854 | +8% |
| Cash, cash equivalents and investments | $12.981 | $15.852 | -$2.871 |
| Long-term debt carrying amount | $8.049 | $8.939 | -$0.890 |
- Transaction revenue was $23.402 billion, up 17%; revenue from other value-added services was $1.969 billion, up 28%.
- Operating expenses rose 16% to $21.109 billion. Transaction expense increased 30% to $10.315 billion, while transaction and credit losses fell 39% to $1.060 billion. The reported decrease in losses included a $312 million net release of loan-loss reserves.
- Net income was nearly flat despite higher operating income, primarily because other income (expense) fell to a $163 million expense from $1.776 billion of income in 2020. Net gains on strategic investments were $46 million in 2021 versus $1.914 billion in 2020. The 2021 income tax benefit was $70 million, compared with $863 million of tax expense in 2020.
- TPV increased 33% to $1.25 trillion; payment transactions rose 25% to 19.3 billion; active accounts grew 13% to 426 million; and transactions per active account rose to 45.4 from 40.9.
- Cash, cash equivalents and investments exclude $36.1 billion of funds receivable and customer accounts and $3.2 billion of strategic investments. Customer-related and regulatory requirements mean not all reported cash is available for general corporate use. Cash provided by investing activities was negative $5.485 billion and financing activities used $764 million; the net change in cash, cash equivalents and restricted cash was negative $11 million.
- PayPal had $9.0 billion of fixed-rate debt principal outstanding, including $1.0 billion due in 2022; the balance-sheet carrying amount was $8.049 billion. The company had no borrowings under its $5.0 billion unsecured revolving facility at year-end and reported investment-grade ratings.
Material changes and unusual items
- Revenue growth reflected higher TPV and transaction counts, recovery in travel and events, and growth in PayPal, Braintree and Venmo. Growth was partly offset by declining eBay marketplace volume and revenue. eBay accounted for 6% of 2021 revenue, compared with 13% in 2020.
- Transaction revenue grew more slowly than TPV, in part because of lower eBay volume, a mix shift toward larger merchants and partner channels with lower rates, slower foreign-exchange fee growth, and hedging effects.
- PayPal acquired Paidy, a Japanese buy-now-pay-later platform, in October 2021 for approximately $2.7 billion; five 2021 acquisitions together had an aggregate purchase price of $3.1 billion. Paidy contributed 3.2 million active accounts at acquisition. PayPal excluded Paidy from its 2021 internal-control assessment under SEC acquisition guidance.
- Gross consumer and merchant loans receivable increased 48% to $5.3 billion. Consumer receivables rose 77% to $3.8 billion, while merchant receivables were approximately $1.4 billion. Consumer balances more than 90 days past due rose to 1.5% from 0.9%; consumer net charge-off rate rose to 4.3% from 2.4%.
- PayPal repurchased approximately $3.4 billion of shares in 2021, compared with $1.6 billion in 2020. It has never paid cash dividends and does not anticipate doing so in the foreseeable future.
Outlook, risks and contingencies
- The filing provides no quantified revenue, earnings or other forward guidance. Management stated that existing cash, investments, operating cash generation and expected capital-market access should be sufficient to meet cash requirements over the next 12 months and beyond.
- Management expected the decline in eBay marketplace TPV to continue to weigh on revenue growth, to a lesser extent, in the first half of 2022. The filing also warns that a return to pre-pandemic shopping behavior could adversely affect results.
- Key risks include intense payments competition; changes in consumer funding mix and payment-network fees; fraud, chargebacks and credit losses; cybersecurity incidents or service outages; evolving payments, privacy, consumer-credit and cryptocurrency regulation; foreign-exchange and macroeconomic exposure; and reliance on banking, processing, lending and technology partners.
- Regulatory matters included CFPB information requests concerning PayPal products and buy-now-pay-later offerings, CFPB inquiries involving Venmo transfers and PayPal Credit, an SEC investigation relating to branded debit-card programs, and an AUSTRAC investigation concerning Australian funds-transfer reporting. PayPal also disclosed OFAC subpoenas and self-reported transactions potentially involving sanctions compliance.
- A putative securities class action and related derivative actions concern alleged disclosures and compliance relating to PayPal Credit and debit-card programs. PayPal said legal and regulatory accruals for probable, estimable losses were not material for 2021, but potential losses from some matters could not be estimated and outcomes remain uncertain.
- Other notable exposures include $1.678 billion of gross unrecognized tax benefits and approximately $13.907 billion of scheduled purchase obligations, operating leases, transition tax and long-term debt payments. The filing reports no off-balance-sheet arrangements expected to have a material effect.
Most important facts for investors to verify
- Whether the reserve release that reduced reported credit-loss expense is sustainable, and how consumer delinquencies and charge-offs develop as the installment-loan portfolio grows.
- How transaction revenue and take rates evolve relative to TPV, particularly as eBay volume declines and the merchant and funding mix changes.
- The financial contribution, integration progress and credit exposure associated with Paidy and the other acquisitions.
- Developments and potential financial or operational consequences from the disclosed CFPB, SEC, AUSTRAC, OFAC, securities and derivative matters.
- Cash available for corporate purposes after customer-fund and regulatory restrictions, alongside debt maturities, repurchases and credit-product funding needs.
- The audited financial statements received an unqualified opinion, and management concluded internal control over financial reporting was effective as of year-end; Paidy was excluded from that control assessment.