PayPal Holdings Inc. (NASDAQ:PYPL)

The analysis of the annual current and deferred income tax expense data reveals several noteworthy patterns over the five-year period.

Current portion of income tax expense

This item exhibits a generally rising trend with fluctuations. Starting at $490 million in 2018, it increased sharply to $808 million in 2019, then decreased to $698 million in 2020. A further decline occurred in 2021, reaching $412 million, followed by a significant increase to $1,758 million in 2022. The substantial rise in 2022 marks the highest level observed during this period.

Deferred portion of income tax expense (benefit)

The deferred tax expense shows considerable volatility and alternating signs, reflecting varying deferred tax benefits and expenses. The amount was a benefit (negative) of $171 million in 2018, increasing in magnitude to a $269 million benefit in 2019. In 2020, this reversed to an expense of $165 million. In 2021 and 2022, it reverted to benefits of $482 million and $811 million, respectively, with the benefit in 2022 being the largest in absolute terms for the period.

Total income tax expense (benefit)

The aggregate income tax expense, combining current and deferred portions, demonstrates fluctuations over the years. It increased from $319 million in 2018 to $539 million in 2019 and further to $863 million in 2020. A significant change occurred in 2021 when the total tax expense became a benefit of $70 million, indicating an overall tax gain for the company that year. In 2022, the total income tax expense rose sharply to $947 million, exceeding all prior years except 2020 in absolute positive expense terms.

Overall, the current income tax expense shows a notable spike in 2022, indicating increased taxable income or changes in tax rates or policies. The deferred tax component fluctuates with significant benefits recorded in 2019, 2021, and 2022, suggesting adjustments or timing differences affecting taxable income recognition. The combined tax expense reflects these dynamics, including a year with a net tax benefit in 2021, followed by a return to substantial tax expense in 2022. These patterns may indicate shifts in earnings composition, tax planning strategies, or changes in tax legislation impacting the overall tax liabilities.

The analysis of the effective income tax rate and its components reveals significant fluctuations over the five-year period observed. The federal statutory tax rate remained constant at 21%, providing a stable benchmark against which other tax rate variations can be evaluated.

Domestic income taxed at different rates

This component was not recorded in the early years but emerged negatively in 2021 and 2022, at -1.7% and -0.6% respectively, suggesting a slight reduction in the overall tax burden from income subject to different domestic rates.

State taxes, net of federal benefit

State tax impact fluctuated but generally remained low, with a minor negative effect in 2018 (-0.1%) and positive contributions ranging between 0.3% to 2.2% in the following years; notably, this figure was missing for 2022.

Foreign income taxed at different rates

This factor showed an increasing negative impact on the effective tax rate, moving from -3.9% in 2018 to -13.4% in 2021, slightly reducing to -12.2% in 2022, indicating growing foreign income subjected to more favorable tax treatments or lower tax jurisdictions.

Stock-based compensation expense

Expenses related to stock-based compensation showed a fluctuating pattern, initially negative (a tax benefit effect) from -4.1% in 2018 to -1.2% in 2020, a sharp rise to -7.3% in 2021, and an unexpected positive shift to 4.1% in 2022, which may indicate changes in accounting or compensation structures impacting taxable income.

Tax credits

Tax credits consistently reduced the effective tax rate, though their impact decreased over time from -2.1% in 2018 to a smaller benefit of -0.4% in 2022, suggesting diminishing available tax credits or less utilization.

Change in valuation allowances

This component appeared starting in 2019 and showed a rising impact on increasing the tax rate, from near zero at 0.1% to 2.2% in 2022, indicating potential recognition of deferred tax asset adjustments or allowances for uncertain tax positions.

Intra-group transfer of intellectual property

Significant variability was observed here, with a sizeable positive impact on the tax rate in 2019 (7.6%), dropping in subsequent years but sharply increasing again to 10% in 2022, possibly reflecting restructuring or intercompany transactions affecting taxable income allocation.

Other factors

Minor and inconsistent contributions were recorded, with values ranging from 0.2% to 4% in non-consecutive years.

Effective income tax rate trends

The effective income tax rate before the Tax Act started at 12.5% in 2018 and rose to 18% in 2019 followed by a slight dip to 17% in 2020. A notable reversal occurred in 2021 with a negative tax rate of -1.7%, indicating a tax benefit or credit exceeding tax liability. In 2022, the effective tax rate surged to 28.1%, the highest within the period, indicating a substantial increase in tax expense.

U.S. tax reform (the Tax Act)

The U.S. tax reform had a small impact, adding 0.9% in 2018 and with no recorded effects in subsequent years, implying that the most significant effects were realized early post-reform.

Effective income tax rate overall

Mirroring the before Tax Act rate, the effective income tax rate showed relative stability initially, a sharp negative value in 2021, and a dramatic rise in 2022, underscoring volatility in the company's tax situation.

The financial data reveals several noteworthy trends over the analyzed period. Net operating loss and credit carryforwards consistently increased from 196 million USD in 2018 to 355 million USD in 2022, indicating a growing capacity to offset future taxable income. Accruals, allowances, and prepaids also showed an upward trajectory until 2021, peaking at 622 million USD before declining to 427 million in 2022, suggesting shifting working capital components or allowance adjustments.

Lease liabilities emerged starting in 2019 at 120 million USD and saw moderate fluctuations, decreasing slightly from 188 million in 2020 to 173 million in 2022. This pattern aligns with the recognition of ROU lease assets, which were introduced in 2019 and decreased steadily from 172 million USD in 2020 to 138 million USD in 2022. These figures indicate the ongoing impact of lease accounting standards and adjustments for leased assets and obligations.

Partnership investment values declined from 9 million USD in 2018 to 5 million USD in 2021, with a negative figure recorded in 2022 (-12 million USD), which may reflect impairment or divestment impacts. Stock-based compensation expenses rose from 136 million USD in 2018 to a peak of 196 million USD in 2020, then moderated to 154 million USD by 2022, indicating variable equity incentive costs.

Net unrealized losses showed a sharp increase in 2022 to 151 million USD, a significant jump from prior years’ low single-digit values, possibly reflecting market volatility or portfolio valuation changes. Fixed assets and other intangibles displayed considerable volatility with 655 million USD recorded in 2022 after earlier fluctuations and lower values, which corresponds with the introduction of acquired intangibles worth 38 million USD that year, suggesting recent asset acquisitions or reclassifications.

Deferred tax assets showed consistent growth from 528 million USD in 2018 to 1,953 million USD in 2022, reflecting strengthening tax benefits. The valuation allowance fluctuated negatively, increasing from -132 million USD in 2018 to -341 million USD in 2022, indicating larger reserves against deferred tax assets. Net deferred tax assets grew steadily, aligned with the gross deferred tax assets and allowance movements, from 396 million USD in 2018 to 1,612 million USD in 2022.

Unremitted foreign earnings remained negative and relatively stable, with a slight increase in the deficit to -42 million USD by 2022. Offsetting deferred tax liabilities increased significantly in 2020 to -786 million USD but decreased to -327 million USD by 2022, possibly reflecting changes in taxable temporary differences or tax planning strategies. The combined net deferred tax assets (liabilities) fluctuated widely, peaking at 1,285 million USD in 2022 after a low of 67 million USD in 2020, indicating significant changes in net tax positions.

Overall, the data suggests growth in tax assets and liabilities alongside fluctuating asset valuations and lease-related accounting adjustments. The significant rise in deferred tax assets and net operating loss carryforwards point to an expanding capacity to reduce future tax liabilities, while the increase in valuation allowances and unrealized losses introduces some caution regarding asset realizability and market risks. The patterns highlight active management of tax positions, asset acquisitions, and equity-based compensation costs over the period.

Deferred tax assets, non-current

The non-current deferred tax assets show a generally increasing trend over the analyzed period. Starting at $224 million in 2018, there was a moderate increase to $396 million in 2019. The value then declined sharply to $142 million in 2020, before reversing course and rising significantly to $547 million in 2021. By 2022, this figure surged to $1,310 million, marking a substantial increase compared to previous years. This pattern suggests a considerable growth in the company's recognized deferred tax assets, particularly in the last two years.

Deferred tax liabilities, non-current

The non-current deferred tax liabilities exhibit a fluctuating pattern throughout the period. Starting at $109 million in 2018, the liabilities decreased gradually to $89 million in 2019 and further to $75 million in 2020. However, in 2021, there was a marked increase to $186 million. This surge was followed by a significant decline to $25 million in 2022, the lowest point among the reported years. Overall, the deferred tax liabilities have demonstrated volatility, with no consistent upward or downward trend.

The data reveals a consistent upward trend in the company's total assets over the five-year period, both in reported and adjusted figures. Reported total assets increased from approximately 43.3 billion US dollars at the end of 2018 to about 78.7 billion by the end of 2022, representing a near doubling. Adjusted total assets followed a similar trajectory, with a slight negative adjustment each year compared to reported values, but maintaining strong growth overall.

Liabilities exhibited significant growth as well, rising from about 27.9 billion US dollars in 2018 to approximately 58.4 billion in 2022 on a reported basis. Adjusted liabilities closely mirror the reported figures, with minor downward adjustments annually. The increase in liabilities is more pronounced starting from 2020, indicating a possible expansion phase or increased borrowing.

Shareholders’ equity, both reported and adjusted, showed growth from 2018 through 2021. Reported equity rose from roughly 15.4 billion to a peak of about 21.7 billion in 2021. However, in 2022, a noticeable decline occurred, dropping to approximately 20.3 billion reported and down to 19.0 billion in adjusted equity. This decline may point to challenges or restructuring impacting equity during the latest period.

Net income figures display greater volatility. Reported net income increased steadily from 2.06 billion US dollars in 2018 to a peak of 4.2 billion in 2020, before holding relatively steady in 2021 and sharply decreasing to around 2.4 billion in 2022. Adjusted net income generally follows the reported trend but with differences in magnitude and timing: it starts slightly lower than reported values, peaks in 2020 more prominently than the reported figure, then declines more sharply in 2021 and further in 2022 to 1.6 billion. This divergence suggests that adjustments, possibly linked to deferred tax or other accounting factors, significantly affect the profitability assessment.

Overall, the company shows strong asset and liability growth over time, reflecting expansion. Equity growth supported this trend until 2022, when a decline suggests potential strategic or market challenges. Profitability, as measured by net income, peaked in 2020 followed by notable decreases, with adjusted figures indicating more pronounced fluctuations. These patterns emphasize the importance of considering both reported and adjusted figures for a comprehensive financial evaluation.

Total Assets

Increased steadily from 43.3 billion to 78.7 billion US dollars (reported), with adjusted values slightly lower but showing the same growth pattern.

Total Liabilities

Showed significant growth, nearly doubling from 27.9 billion to 58.4 billion US dollars (reported), reflecting a potential rise in financing or operational scale.

Stockholders’ Equity

Grew between 2018 and 2021 from 15.4 billion to 21.7 billion US dollars (reported), but declined in 2022, indicating possible financial stress or equity-related transactions.

Net Income

Experienced peak profitability in 2020, followed by a decline in subsequent years; adjusted net income indicates more variation and a sharper drop in recent periods.

The financial data indicates several notable trends over the five-year period.

Net Profit Margin

Both reported and adjusted net profit margins show an overall fluctuating pattern. Reported net profit margin increased from 13.31% in 2018 to a peak of 19.59% in 2020, then declined to 8.79% by 2022. Adjusted net profit margin follows a similar pattern with a peak at 20.36% in 2020, but the decline after 2020 is more pronounced, reaching 5.84% in 2022. This suggests a reduction in profitability in recent years after strong performance around 2020.

Total Asset Turnover

Reported total asset turnover shows a mild decrease from 0.36 in 2018 to 0.3 in 2020, followed by slight recovery to 0.35 in 2022. Adjusted total asset turnover demonstrates a comparable trend but maintains slightly higher values after 2019, ending at 0.36 in 2022. This indicates some improvement in asset utilization in recent periods, particularly when adjustments for income taxes are considered.

Financial Leverage

Reported financial leverage steadily increases over the period, rising from 2.82 in 2018 to 3.88 in 2022. The adjusted financial leverage exhibits a consistent upward trend as well but ends higher at 4.08 in 2022. This indicates increasing reliance on debt or other liabilities to finance assets, potentially amplifying both risks and returns.

Return on Equity (ROE)

Reported ROE follows a pattern of growth through 2020, reaching a maximum of 20.99%, then declining to 11.93% in 2022. Adjusted ROE, which accounts for income tax effects, rises sharply to 21.89% in 2020 but falls more steeply to 8.47% in 2022. The pronounced drop in adjusted ROE highlights a weakening ability to generate returns on equity capital in recent years.

Return on Assets (ROA)

Reported ROA increases from 4.75% in 2018 to a high of 5.97% in 2020 before declining to 3.07% in 2022. Adjusted ROA shows a similar rise to 6.22% in 2020 but then decreases more sharply to 2.08% in 2022. This suggests that asset efficiency in generating profit has deteriorated more significantly when tax adjustments are considered.

Overall, the data reflects strong profitability and efficiency improvements up to 2020, followed by a notable weakening in profitability, returns, and asset efficiency through 2022. At the same time, increasing financial leverage indicates growing use of external financing, which may contribute to higher financial risk during periods of declining profitability.

Reported net income

The reported net income showed an increasing trend from 2018 to 2020, rising from 2,057 million USD to a peak of 4,202 million USD in 2020. This was followed by a slight decline in 2021 to 4,169 million USD, and a more pronounced decrease in 2022 down to 2,419 million USD. Overall, the net income nearly doubled over the first three years and then reduced by approximately 42% from 2020 to 2022.

Adjusted net income

Adjusted net income followed a similar pattern, increasing from 1,886 million USD in 2018 to a peak of 4,367 million USD in 2020. However, it then declined more sharply compared to reported net income, dropping to 3,687 million USD in 2021 and then further to 1,608 million USD in 2022. The decrease in adjusted net income in 2022 was more severe, showing a reduction by over 63% from its peak value in 2020.

Reported net profit margin

The reported net profit margin increased from 13.31% in 2018 to a high of 19.59% in 2020, indicating improving profitability. It then declined to 16.43% in 2021 and further reduced significantly to 8.79% in 2022. The margin more than halved from its peak in 2020 to 2022, suggesting a considerable compression in profitability relative to revenue.

Adjusted net profit margin

The adjusted net profit margin followed a comparable trajectory, rising slightly from 12.21% in 2018 to 20.36% in 2020. Subsequently, it declined markedly to 14.53% in 2021 and further to 5.84% in 2022. The adjusted margin’s reduction by nearly 71% from 2020 to 2022 implies significant impact on adjusted earnings profitability over the period.

Overall observations

Both reported and adjusted net income and profit margins improved substantially up to 2020, reflecting a period of strong financial performance. After 2020, these metrics experienced a marked downward trend, with the adjusted figures showing a sharper decline compared to reported figures. This pattern may reflect changes in tax adjustments, operating conditions, or other adjustments impacting net income and profitability. The decline in 2022 is particularly notable, indicating challenges that substantially affected earnings and profitability in that year.

The data reveals the evolution of total assets and asset turnover ratios over a five-year period.

Total Assets

Both reported and adjusted total assets show a consistent upward trend from 2018 to 2022. Reported total assets increased from 43,332 million US dollars in 2018 to 78,717 million US dollars in 2022.

Similarly, adjusted total assets grew from 43,108 million US dollars in 2018 to 77,407 million US dollars in 2022. The close alignment between reported and adjusted assets indicates minimal impact from income tax adjustments on the asset base.

Total Asset Turnover Ratio

The reported total asset turnover ratio shows a slight fluctuation over the period. It began at 0.36 in 2018, decreased to 0.30 in 2020, and then recovered to 0.35 by 2022. This pattern suggests a temporary decline in the efficiency of asset utilization during 2020 followed by improvement.

The adjusted total asset turnover ratio follows a similar trajectory, starting at 0.36 in 2018, dipping marginally less to 0.31 in 2020, and subsequently increasing to 0.36 in 2022. The adjustment for deferred and reported income tax appears to slightly enhance the turnover ratio during the dip period, reflecting better operational performance when accounting for tax effects.

Overall, after a period of diminished asset efficiency around 2020, the company restored and slightly exceeded its earlier levels of asset turnover by 2022.

Total Assets

There is a consistent upward trend in both reported and adjusted total assets from 2018 through 2022. Reported total assets increased from 43,332 million USD in 2018 to 78,717 million USD in 2022, representing substantial growth. Adjusted total assets follow a very similar pattern, rising from 43,108 million USD to 77,407 million USD over the same period. The slight difference between reported and adjusted figures is minimal and stable, indicating consistent adjustments for income tax effects.

Stockholders’ Equity

Reported stockholders’ equity rose steadily from 15,386 million USD in 2018 to a peak of 21,727 million USD in 2021, before declining to 20,274 million USD in 2022. Adjusted equity shows a parallel trend, increasing up to 21,366 million USD in 2021, then falling more sharply to 18,989 million USD in 2022. This decline in equity in the last year may indicate challenges impacting net retained earnings or comprehensive income adjusted for deferred tax considerations.

Financial Leverage

Financial leverage, measured as a ratio, shows a general increasing trend over the five-year period. Reported financial leverage rose from 2.82 in 2018 to 3.88 in 2022, indicating a growing reliance on debt relative to equity. Adjusted financial leverage exhibits a similar pattern but at slightly higher levels, ending at 4.08 in 2022. The increasing leverage ratios suggest amplified financial risk and greater use of leverage in the company's capital structure, particularly after adjusting for deferred income tax effects.

Overall Insights

The data reveals a trajectory of asset growth and expanding financial leverage over the examined period. Despite significant asset growth, the contraction in adjusted stockholders’ equity in 2022 alongside rising leverage may reflect heightened financial risk and potential tax-related impacts. The close alignment between reported and adjusted figures implies that while deferred income tax adjustments affect the values slightly, the overall trends remain consistent. This suggests that the company’s financial position has strengthened in terms of asset base but with increased leverage and some pressure on equity in the most recent year.

Reported Net Income

The reported net income increased steadily from 2018 to 2020, reaching a peak of $4,202 million in 2020. It remained relatively stable in 2021 at $4,169 million before declining significantly to $2,419 million in 2022.

Adjusted Net Income

The adjusted net income followed a similar upward trend from 2018 to 2020, peaking at $4,367 million in 2020. However, unlike the reported net income, it decreased more markedly in 2021 to $3,687 million and further dropped sharply to $1,608 million in 2022.

Reported Total PayPal Stockholders’ Equity

This metric showed continuous growth from 2018 through 2021, increasing from $15,386 million to a high of $21,727 million. In 2022, there was a slight decline to $20,274 million, indicating a minor reduction in equity after several years of growth.

Adjusted Total PayPal Stockholders’ Equity

The adjusted stockholders’ equity follows the same pattern as the reported equity, increasing each year from $15,271 million in 2018 to $21,366 million in 2021. It then decreased more sharply to $18,989 million in 2022, suggesting greater adjustments impacted the equity figures in the most recent period.

Reported Return on Equity (ROE)

The reported ROE increased steadily from 13.37% in 2018 to a peak of 20.99% in 2020, then declined to 19.19% in 2021 and fell considerably to 11.93% in 2022. This indicates a decrease in the company’s efficiency in generating profits from equity in the latest year.

Adjusted Return on Equity (ROE)

The adjusted ROE shows a similar trajectory but with notable differences. It rose from 12.35% in 2018 to a high of 21.89% in 2020, higher than the reported ROE for that year. However, it declined more sharply to 17.26% in 2021 and continued down to 8.47% in 2022, reflecting a more pronounced drop in adjusted profitability relative to equity.

The financial data over the five-year period reveals several notable trends in profitability, asset base, and return on assets (ROA) for the company.

Net Income (Reported vs. Adjusted)

Reported net income showed a general upward trend from 2018 to 2020, increasing from $2,057 million to $4,202 million, peaking in 2020. It then plateaued slightly in 2021 at $4,169 million before experiencing a significant decline to $2,419 million in 2022.

Adjusted net income exhibited a similar pattern but with some variances. It rose steadily from $1,886 million in 2018 to a peak of $4,367 million in 2020, which is higher than the reported figure for that year. After that, it declined to $3,687 million in 2021 and further decreased sharply to $1,608 million in 2022. The adjusted net income consistently remained lower than the reported figure except in 2020.

Total Assets (Reported vs. Adjusted)

Total assets under both reported and adjusted measures expanded substantially throughout the period. Reported total assets increased from approximately $43.3 billion in 2018 to $78.7 billion in 2022, showing steady growth with a slowing pace in the latter years.

Adjusted total assets closely track the reported figures, ranging from $43.1 billion in 2018 to $77.4 billion in 2022, slightly lower than reported assets in all years but maintaining a similar trend and growth rate.

Return on Assets (Reported vs. Adjusted)

Reported ROA rose modestly from 4.75% in 2018 to a peak of 5.97% in 2020, before declining to 5.5% in 2021 and sharply dropping to 3.07% in 2022. This pattern reflects the net income trends with peak profitability around 2020 and a considerable decrease thereafter.

Adjusted ROA followed a comparable trajectory but remained consistently lower than the reported ROA, starting at 4.38% in 2018, rising to 6.22% in 2020, then falling to 4.9% in 2021 and further to 2.08% in 2022. The greater disparity in 2022 suggests increased impact from adjustments on profitability measures.

In summary, the company experienced significant growth in assets and peak profitability around 2020, with subsequent declines in net income and ROA levels through 2021 and 2022. The adjusted measures generally showed a more conservative view of profitability and returns, particularly notable in the most recent year where adjustments markedly reduced net income and ROA. The data indicates a shift from prior growth and efficiency trends toward lower profitability relative to asset base in the latest reporting period.