FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES

6 Months Ended

Jun. 30, 2023

FAIR VALUE MEASUREMENT OF ASSETS AND LIABILITIES

FINANCIAL ASSETS AND LIABILITIES MEASURED AND RECORDED AT FAIR VALUE ON A RECURRING BASIS

The following tables summarize our financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:


	June 30, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)
Assets:
Cash and cash equivalents(1)	$	155	$	—	$	155
Short-term investments(2):

U.S. government and agency securities	689		—		689
Foreign government and agency securities	634		—		634
Corporate debt securities	971		—		971
Asset-backed securities	477		—		477
Commercial paper	1,007		—		1,007

Total short-term investments	3,778		—		3,778
Funds receivable and customer accounts(3):
Cash and cash equivalents	26		—		26
U.S. government and agency securities	8,951		—		8,951
Foreign government and agency securities	1,315		—		1,315
Corporate debt securities	1,586		—		1,586
Asset-backed securities	1,277		—		1,277
Municipal securities	655		—		655
Commercial paper	2,954		—		2,954
Total funds receivable and customer accounts	16,764		—		16,764
Derivatives	201		—		201
Crypto asset safeguarding asset	1,016		—		1,016
Long-term investments(2),(4):
U.S. government and agency securities	384		—		384
Foreign government and agency securities	143		—		143
Corporate debt securities	476		—		476
Asset-backed securities	1,117		—		1,117
Marketable equity securities	513		513		—
Total long-term investments	2,633		513		2,120
Total financial assets	$	24,547	$	513	$	24,034
Liabilities:
Derivatives	$	113	$	—	$	113
Crypto asset safeguarding liability	1,016		—		1,016
Total financial liabilities	$	1,129	$	—	$	1,129

(1) Excludes cash of $5.3 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $11 million and time deposits of $674 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $16.9 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of $1.8 billion measured using the Measurement Alternative or equity method accounting.


	December 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)
	(In millions)
Assets:
Cash and cash equivalents(1)	$	932	$	—	$	932
Short-term investments(2):
U.S. government and agency securities	812		—		812
Foreign government and agency securities	424		—		424
Corporate debt securities	627		—		627
Asset-backed securities	406		—		406
Commercial paper	324		—		324
Total short-term investments	2,593		—		2,593
Funds receivable and customer accounts(3):
Cash and cash equivalents	192		—		192
U.S. government and agency securities	8,484		—		8,484
Foreign government and agency securities	1,777		—		1,777
Corporate debt securities	1,694		—		1,694
Asset-backed securities	1,298		—		1,298
Municipal securities	407		—		407
Commercial paper	3,689		—		3,689
Total funds receivable and customer accounts	17,541		—		17,541
Derivatives	244		—		244
Crypto asset safeguarding asset	604		—		604
Long-term investments(2), (4):
U.S. government and agency securities	457		—		457
Foreign government and agency securities	364		—		364
Corporate debt securities	929		—		929
Asset-backed securities	1,067		—		1,067
Marketable equity securities	323		323		—
Total long-term investments	3,140		323		2,817
Total financial assets	$	25,054	$	323	$	24,731
Liabilities:
Derivatives	$	298	$	—	$	298
Crypto asset safeguarding liability	604		—		604
Total financial liabilities	$	902	$	—	$	902

(1) Excludes cash of $6.8 billion not measured and recorded at fair value.

(2) Excludes restricted cash of $17 million and time deposits of $537 million not measured and recorded at fair value.

(3) Excludes cash, time deposits, and funds receivable of $18.7 billion underlying funds receivable and customer accounts not measured and recorded at fair value.

(4) Excludes non-marketable equity securities of $1.8 billion measured using the Measurement Alternative or equity method accounting.

Our marketable equity securities are valued using quoted prices for identical assets in active markets (Level 1). There are no active markets for our crypto asset safeguarding liability or the corresponding safeguarding asset. Accordingly, we have valued the asset and liability using quoted prices on the active exchange that has been identified as the principal market for the underlying crypto assets (Level 2). All other financial assets and liabilities are valued using quoted prices for identical instruments in less active markets, readily available pricing sources for comparable instruments, or models using market observable inputs (Level 2).

A majority of our derivative instruments are valued using pricing models that take into account the contract terms as well as multiple inputs where applicable, such as currency rates, interest rate yield curves, option volatility, and equity prices.

As of June 30, 2023 and December 31, 2022, we did not have any assets or liabilities requiring measurement at fair value on a recurring basis with significant unobservable inputs that would require a high level of judgment to determine fair value (Level 3).

We elect to account for available-for-sale debt securities denominated in currencies other than the functional currency of our subsidiaries under the fair value option. Election of the fair value option allows us to recognize any gains and losses from fair value changes on such investments in other income (expense), net on the condensed consolidated statements of income (loss) to significantly reduce the accounting asymmetry that would otherwise arise when recognizing the corresponding foreign exchange gains and losses relating to customer liabilities. The following table summarizes the estimated fair value and amortized cost of our available-for-sale debt securities under the fair value option as of June 30, 2023 and December 31, 2022:


	June 30, 2023				December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In millions)				(In millions)
Funds receivable and customer accounts	$	442	$	504	$	441	$	481

The following table summarizes the gains (losses) from fair value changes recognized in other income (expense), net related to the available-for-sale debt securities under the fair value option for the three and six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
	(In millions)
Funds receivable and customer accounts	$	4	$	(109)	$	11	$	(143)

ASSETS MEASURED AND RECORDED AT FAIR VALUE ON A NON-RECURRING BASIS

The following tables summarize our assets held as of June 30, 2023 and December 31, 2022 for which a non-recurring fair value measurement was recorded during the six months ended June 30, 2023 and the year ended December 31, 2022, respectively:


	June 30, 2023		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(In millions)
Loans and interest receivable, held for sale	$	1,903	$	—	$	1,903
Non-marketable equity securities measured using the Measurement Alternative(1)	146		106		40
Other assets(2)	102		102		—
Total	$	2,151	$	208	$	1,943

(1) Excludes non-marketable equity securities of $1.5 billion accounted for under the Measurement Alternative for which no observable price changes occurred during the six months ended June 30, 2023.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the six months ended June 30, 2023. See “Note 6—Leases” for additional information.


	December 31, 2022		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)
	(In millions)
Non-marketable equity investments measured using the Measurement Alternative(1)	$	1,122	$	724	$	398
Other assets(2)	165		165		—
Total	$	1,287	$	889	$	398

(1) Excludes non-marketable equity securities of $565 million accounted for under the Measurement Alternative for which no observable price changes occurred during the year ended December 31, 2022.

(2) Consists of ROU lease assets recorded at fair value pursuant to impairment charges that occurred during the year ended December 31, 2022. See “Note 6—Leases” for additional information.

The fair value of loans and interest receivables held for sale is classified within Level 3 as we estimate fair value using significant unobservable inputs. The significant unobservable input is the price at which the Company expects to sell the loans based upon our agreement with the global investment firm that will purchase these loans. The price is determined based upon certain loan and risk classifications of the portfolio. The following table presents the valuation techniques covering the majority of Level 3 non-recurring fair value measurements and the most significant unobservable inputs used in those measurements as of June 30, 2023:


	Fair Value (In millions)		Methodology	Input	Low(1)		High(1)		Weighted Average(1)(2)
Loans and interest receivable, held for sale	$	1,903	Price-based	Price	$	0.98	$	0.99	$	0.99

(1) Prices are measured in relation to $1.00 par.

(2) Weighted average is calculated based on the fair value of the loans.

We measure the non-marketable equity securities accounted for under the Measurement Alternative at cost minus impairment, if any, adjusted for observable price changes in orderly transactions for an identical or similar investment in the same issuer. Non-marketable equity securities that have been remeasured during the period based on observable price changes are classified within Level 2 in the fair value hierarchy because we estimate the fair value based on valuation methods which only include significant inputs that are observable, such as the observable transaction price at the transaction date. The fair value of non-marketable equity securities are classified within Level 3 when we estimate fair value using significant unobservable inputs such as when we remeasure due to impairment and use discount rates, forecasted cash flows, and market data of comparable companies, among others.

We evaluate ROU assets related to leases for indicators of impairment whenever events or changes in circumstances indicate that the carrying amount of an ROU asset may not be recoverable. Impairment losses on ROU lease assets related to office operating leases are calculated initially using estimated rental income per square foot derived from observable market data, and the impaired asset is classified within Level 2 in the fair value hierarchy.

FINANCIAL ASSETS AND LIABILITIES NOT MEASURED AND RECORDED AT FAIR VALUE

Our financial instruments, including cash, restricted cash, time deposits, loans and interest receivable, net, certain customer accounts, and long-term debt related to borrowings on our credit facilities, are carried at amortized cost, which approximates their fair value. Our notes receivable had a carrying value of approximately $461 million and fair value of approximately $389 million as of June 30, 2023. Our notes receivable had a carrying value of approximately $441 million and fair value of approximately $396 million as of December 31, 2022. Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $10.5 billion and fair value of approximately $9.7 billion as of June 30, 2023. Our term debt (including current portion) in the form of fixed rate notes had a carrying value of approximately $10.3 billion and fair value of approximately $9.5 billion as of December 31, 2022. If these financial instruments were measured at fair value in the financial statements, cash would be classified as Level 1; restricted cash, time deposits, certain customer accounts, and term debt (including current portion) would be classified as Level 2; and the remaining financial instruments would be classified as Level 3 in the fair value hierarchy.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details