TipRanks Smart Value #14: Fintech Frontier
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Dear Investors,
Dear Investors,
Welcome to the 14th edition of our recently launched TipRanks Smart Value Newsletter!
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This Week’s Top Value Pick: PayPal Holdings (PYPL)
PayPal Holdings (PYPL) is a U.S.-based global fintech company providing digital payment solutions and financial services. It operates a leading digital payments platform that facilitates secure transactions for individuals and businesses worldwide. Its core offerings include PayPal for peer-to-peer and merchant payments, Venmo for social payments, and Xoom for international money transfers. PayPal’s robust technology supports millions of users, with innovations like PayPal Checkout and integrated cryptocurrency features enhancing digital commerce. Committed to financial inclusion and efficiency, PayPal invests in seamless payment experiences and expanding its global reach.
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Payment Evolution
PayPal’s evolution began in 1998 when it was founded as Confinity, a startup focused on security software for handheld devices. The company quickly pivoted toward digital payments, setting the stage for its transformation. A defining moment came in 2000 when Confinity merged with X.com, an online financial services company founded by Elon Musk. The combined entity was soon rebranded as PayPal, and it went public in 2002. Just months later, eBay acquired PayPal for $1.5 billion, integrating it as the primary payment platform for millions of transactions on its marketplace. PayPal remained under eBay’s umbrella until 2015, when it spun off as an independent publicly traded company, gaining the freedom to expand its services and global reach.
Over the years, PayPal pursued a series of strategic acquisitions to build a comprehensive digital payments ecosystem. The 2013 purchase of Braintree for $800 million brought the popular Venmo peer-to-peer app and boosted PayPal’s unbranded payment capabilities. In 2015, PayPal acquired Xoom for $890 million to enter the cross-border remittance market and enable person-to-person payments across over 130 countries. In 2018, the $2.2 billion acquisition of iZettle (now Zettle), a Swedish point-of-sale and small business solution provider, expanded PayPal’s reach into physical retail, particularly in Europe and Latin America. Two years later, PayPal added Honey Science for $4 billion, integrating shopping tools like coupon discovery into its platform. Additional acquisitions, such as Hyperwallet for global payouts, GoPay in China, and Paidy in Japan, further extended PayPal’s capabilities and footprint in fast-growing international markets.
PayPal operates in 200 markets, serving over 435 million active consumer and merchant accounts through its two-sided platform. Its product suite includes branded checkout, BNPL, debit and credit cards, and crypto wallet features. With $1.68 trillion in total payment volume in 2024 and continued innovation, such as the launch of PYUSD stablecoin, PayPal remains a global fintech leader driven by scale, technology, and trust.
With a market cap of over $71 billion and annual revenues of approximately $32 billion, PYPL ranks #143 on the 2025 Fortune list.
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Money Movement
PayPal’s business model is rooted in transaction-based revenue, with merchants paying fees to process payments through its branded platforms such as PayPal Checkout, Braintree, and Venmo. While this forms the core of its income, the company has built a diversified revenue stream that includes value-added services like instant money transfers, crypto transactions, and interest income from customer balances and its credit portfolio. It also generates revenue from consumer and merchant lending products, including PayPal Working Capital, Business Loans, and Buy Now, Pay Later offerings. This integrated model allows PayPal to monetize activity across a wide spectrum of digital commerce, from online and mobile transactions to offline payments through its Zettle point-of-sale solutions and co-branded debit and credit cards.
Geographically, PayPal derives the majority of its revenue from the United States, which accounts for approximately 60% of its total income. The remaining 40% comes from international markets, with Europe serving as the company’s most significant international contributor. This regional mix highlights PayPal’s strong domestic foundation alongside its growing global presence, particularly in key European economies where digital payment adoption continues to rise.
With its global scale and broad product integration, PayPal is evolving from a pure-play payments processor into a unified commerce platform. The company is investing heavily in AI-powered personalization, seamless omnichannel infrastructure, and the consolidation of PayPal, Venmo, and Xoom into a more cohesive user ecosystem. Growth is being driven by its core branded checkout offering, Venmo, debit cards, and BNPL products.
The newly redesigned branded checkout experience, now used by 45% of U.S. users, has improved conversion rates and reduced checkout friction, with plans for international rollout. Venmo continues to gain momentum, with total payment volume (TPV)1 rising over 50% and monthly active users up 30%, supported by strong merchant adoption. The company added around 2 million first-time PayPal and Venmo debit card users in the first quarter, with cardholders proving to be more active and valuable than online-only users. In April 2025, branded checkout TPV showed signs of stronger U.S. consumer activity and is projected to grow 8–10% annually by 2027, fueled by adoption of the redesigned checkout, Venmo growth, and deeper integration of Buy Now, Pay Later features. The “PayPal Everywhere” initiative, launched in late 2024, has added 4 million new debit card users and driven debit card TPV up more than 100%, reinforcing its omnichannel push and ecosystem engagement.
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1 – TPV is the value 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.
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Strategic Shift
In late 2023, PayPal appointed a new CEO in response to mounting concerns over its strategic direction, innovation pace, and lagging growth relative to peers in the dynamic fintech space. The company ultimately tapped Alex Chriss, a long-time executive at Intuit, to succeed Dan Schulman as CEO.
Under Chriss’s leadership, PayPal is strategically shifting its focus toward higher-margin, branded payment experiences while pulling back from lower-margin unbranded processing offered through Braintree’s payment service providers (PSPs). Though this transition aims to enhance profitability, it has impacted short-term metrics. In Q1 2025, the company’s transaction take rate, a key indicator measuring the percentage of total payment volume (TPV) retained as revenue, declined by 6 basis points to 1.67%. The dip reflects a changing product mix as PayPal de-emphasizes less profitable Braintree volume in favor of branded checkout and consumer-facing services. In March 2025, PayPal launched a co-branded physical credit card, expanding its credit offering to in-store retail.
Despite this recalibration, PayPal is gaining traction in key international markets. In Germany, its bank-linked payment model, combined with the integration of Buy Now, Pay Later features and rewards, is expanding its relevance in offline wallet use. Meanwhile, in the UK, recent upgrades to its mobile app, such as biometric authentication, have boosted consumer convenience and reinforced merchant demand for PayPal’s trusted brand across online and physical retail channels.
The company remains cautiously optimistic about the macroeconomic backdrop, supported by resilient consumer spending and a stable labor market. Credit performance across both consumer and merchant portfolios remains solid, with low and improving delinquency and charge-off rates. Its lending business, which includes working capital loans repaid as a share of sales and cash flow-based business loans, continues to perform well. In March 2025, PayPal tightened underwriting standards as a precautionary move against potential risks from tariffs or supply chain disruptions. Since 2013, it has extended over $30 billion in loans and advances to more than 420,000 small and mid-sized businesses worldwide, enabling them to manage liquidity and invest in growth.
In the U.S., PayPal’s Total Payment Volume (TPV) is evenly split between goods and services, providing balance across market cycles. Retail spending spans sectors such as fashion, beauty, discount, and sporting goods, helping mitigate downturns in any single category. Internationally, cross-border volumes remain strong, particularly within intra-European markets. While currency fluctuations, such as a weaker U.S. dollar, can impact reported earnings, PayPal’s global footprint and multi-currency capabilities offer a natural hedge, supporting long-term revenue stability and financial resilience.
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Financial Fortitude
PayPal has delivered solid financial performance in recent years, supported by its global scale, diversified payments platform, and cost-efficiency initiatives. Over the past three years, the company’s revenue and adjusted EPS grew at a CAGR of 7.3% and 13.6%, respectively. Growth was driven by strong transaction volumes, user expansion, product innovation, and strategic partnerships, despite some margin pressure from pricing and competitive dynamics.
In Q1 2025, PayPal reported $7.8 billion in revenue, a modest 1% year-over-year increase that fell short of Wall Street estimates. However, operating income rose 31% to $1.5 billion, reflecting disciplined cost control. Adjusted EPS jumped 23% to $1.33, beating estimates of $1.16, supported by Venmo’s growth, credit improvements, and a favorable tax rate.
Transaction margin dollars (TMD), which reflect profit from payment transactions after processing costs, rose 7% year-over-year to $3.7 billion, driven by branded checkout, Venmo, value-added services, and credit. Transaction revenues remained the company’s core, contributing over 90% of total revenue, while value-added services revenue rose 17% year-over-year to $775 million, aided by higher interest income and credit growth.
TPV reached $417.2 billion in Q1, up 3% year-over-year, driven by continued strength across large enterprise platforms, marketplaces within PayPal checkout, and Pay with Venmo. Active accounts rose to 436 million, with monthly active accounts growing 2% to 224 million.
For Q2 2025, PayPal expects low-to-mid-single-digit revenue growth (currency-neutral), with adjusted EPS of $1.30 and total managed dollars (TMD) reaching $3.78 billion, both at the midpoint. FY25 guidance includes adjusted EPS of $5.03 at midpoint, versus the consensus estimate of $5.00 per share and TMD growth of at least 5% (excluding interest on customer balances). Free cash flow is projected between $6 billion and $7 billion, with $6 billion earmarked for share buybacks. Despite macro risks, PayPal’s focus on branded checkout, AI-powered personalization, and operational streamlining positions it well for sustained earnings and cash flow growth.
PayPal maintains a solid financial position with a debt-to-equity ratio of 0.56 and investment-grade credit ratings of “A-” from both S&P Global and Fitch, reflecting its strong balance sheet and stable outlook.
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Valuation Upside
PayPal has reinforced its commitment to shareholder returns through an aggressive share repurchase strategy, while continuing to invest in growth and innovation. The company does not currently pay a dividend, prioritizing buybacks to return capital, reduce share count, and boost earnings per share.
In Q1 2025 alone, PayPal repurchased approximately 19 million shares, returning $1.5 billion to shareholders. Over the trailing 12 months, the company has bought back 86 million shares for a total of $6 billion, reducing weighted average shares by 7%. PYPL buybacks have reduced its shares outstanding to 999 million in Q1 2025 from 1.1 billion a year earlier, supporting per-share metrics and enhancing long-term valuation. These buybacks were funded through robust free cash flow and a strong balance sheet, which included $15.8 billion in cash, cash equivalents, and investments as of March 31, 2025.
The company’s capital allocation remains disciplined. In the first quarter, PayPal generated $964 million in free cash flow and $1.38 billion in adjusted free cash flow, excluding the timing impact of European BNPL receivables. This financial strength allows the company to maintain flexibility to invest in innovation, preserve liquidity, and return value to shareholders.
PayPal’s stock gave back a large part of its previous gain as the broad markets were impacted by macro and trade uncertainty – with the company’s consumer-facing multi-currency operations adding to investor hesitancy and the stock falling by nearly 40% from its January peak. However, with most of the turbulence seemingly in the rearview mirror, PYPL has strongly rebounded, gaining about 30% from its April 7 trough.
Analysts remain optimistic, with consensus estimates pointing to around a 10% upside over the next 12 months, and some forecasts suggesting gains of up to 30%, buoyed by strong Q1 results and growing BNPL adoption. Importantly, the strength reflected in PYPL’s latest earnings report has led several leading brokerages – such as Jefferies, Evercore ISI, and others – to raise their price targets on the stock.
Valuation metrics bolster the bullish case. PYPL trades at around 15x on its non-GAAP P/E, while its forward P/E stands at about 14.4x. While these valuations represent a ~30% premium over the Financials sector median, they are roughly half the median for the Technology sector. Fintech companies, including PayPal, operate on the intersection of the two sectors, dealing in finance through technological means; this makes them inherently more tech than classic finance. Thus, on the P/E front PYPL looks very moderately valued. Moreover, when compared to its closest Fintech peers, PayPal appears considerably undervalued. Along with its P/E ratios, its TTM and forward EV/EBITDA are among the lowest in its peer group, while its Price/FCF ratio also comes near the bottom of the peer valuation scale. Moreover, discounted cash flow analysis suggests the stock is undervalued by approximately 40%, signaling strong potential upside for long-term investors.
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Investing Takeaway
PayPal is undergoing a strategic transformation under new leadership, refocusing on higher-margin branded payments while scaling back from less profitable segments. This shift, paired with cost discipline and AI-driven product innovation, aims to enhance profitability and streamline the user experience. The company’s broad product ecosystem, including PayPal Checkout, Venmo, and BNPL, supports its omnichannel strategy across global markets. Strong performance in international regions, growing credit and debit card adoption, and resilient lending portfolios point to durable demand. Financially, PayPal’s robust free cash flow and share repurchase program reflect a shareholder-friendly approach. Despite near-term challenges, the company’s scale, trusted brand, and long-term growth initiatives position it well for valuation upside, making it a compelling opportunity for patient investors.
