PayPal is a Bargain – A Rare Chance for 19% Annualized Returns
Strong Fundamentals, Growing Moat, and a Strategy That’s Finally Working—Yet Still Deeply Undervalued
On Wednesday, July 29, PayPal released its second-quarter results, and shares got hammered once again in the following trading session, losing 9% of their value.
Meanwhile, PayPal actually delivered a mostly strong report that impressed me in most areas. In fact, it was a beat-and-raise quarter. The company blew past top and bottom-line consensus estimates, surpassed its own guidance, and subsequently raised its FY25 guidance with a solid hike. Also, underlying operational numbers remain strong, with healthy engagement and stable user growth.
And yet, shares sold off quite significantly, and honestly, without a valid reason, as I’ll explain later on. This pushed shares right back to seemingly very compelling levels at below 14x earnings.
As a result, I will continue to argue that PayPal might just be one of the most misunderstood large-cap investment opportunities out there today.
Written off by many as a pandemic-era beneficiary now in structural decline, PayPal remains a fundamentally strong business with a wide competitive moat, global reach, and exceptional cash generation. While sentiment has soured and the stock has been heavily de-rated, the core of what once made PayPal valuable hasn’t disappeared. It’s still a scaled digital wallet with over 400 million active accounts—and growing again—embedded across millions of merchants and consumers worldwide. This positions it squarely to benefit from the continued secular growth of the global payments industry.
Its dual-sided network—serving both consumers and merchants—creates a powerful flywheel that’s difficult to replicate. Additionally, the PayPal brand continues to rank among the most trusted in online payments, offering staying power in an increasingly fragmented ecosystem and providing it with a considerable moat.
Therefore, as digital commerce accelerates, cross-border transactions grow, and embedded financial services become more prevalent, PayPal is structurally positioned to capture a meaningful share of these long-term tailwinds.
Despite ongoing concerns about competitive pressures, PayPal continues to grow its user count, see growing engagement, and growing adoption, while still generating billions in free cash flow annually, maintaining strong margins, and operating with a pristine balance sheet. This is, at its core, still a high-quality business in solid financial health, and its user numbers are once again growing strongly, reaching new highs quarter after quarter, despite its considerable base of well over 400 million users.
Furthermore, importantly, the company is not standing still. Under new CEO Alex Chriss, PayPal is undergoing a thoughtful strategic reset. Chriss has sharpened the company’s focus on profitable growth, streamlined operations, and renewed its product roadmap to make PayPal more competitive across the digital payments value chain. Today, PayPal is steadily transforming into a one-stop shop for digital payments—offering tools, services, and flexibility for both consumers and merchants, expanding its offering in all the right directions.
Crucially, the underlying fundamentals are starting to reflect that shift. Growth metrics, such as user engagement, multi-product usage, and new feature adoption, are improving, chipping away at the bear case. While the competitive landscape remains fierce, PayPal is making the right strategic moves to reposition itself for long-term relevance—and doing so while still delivering impressive cash flow and margin performance.
In short, contrary to common perceptions, this remains a high-quality business with durable economics, a strong moat, and renewed strategic clarity to position itself better in the evolving payments landscape.
PayPal isn’t going anywhere—it remains deeply embedded in the fabric of global digital commerce, and if it stays on its current trajectory, it’s poised to emerge stronger, leaner, and more competitive than ever, with a long runway for profitable growth ahead, even in the face of growing competition.
Really, current skepticism is unjustified. I believe the PayPal investment case is only getting better, yet the market still doesn’t give it any credit.
Today, I will take you through its most recent financial results and developments before updating my investment thesis, financial projections, and target price.
Let’s delve right in!
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PayPal’s Q2 results show great strategic advancement
As I mentioned, PayPal delivered a very strong Q2 earnings report, meeting most key metrics that investors should be watching, and making clear progress on its strategic priorities. Ultimately, the company delivered a solid beat-and-raise quarter, beating both the top and bottom-line consensus estimates and raising guidance.
Starting at the top, PayPal reported total payment volume growth of 6% YoY to nearly $444 billion in Q2, which is a solid step up from the meager 3% growth the company reported in Q1. Crucially, this sequential growth improvement was driven by PayPal’s strategic initiatives starting to pay off. PayPal is experiencing healthy and improving growth in its branded checkout experience, alongside enhanced user metrics. Meanwhile, headwinds to PSP revenues are easing, as strategic volume corrections have bottomed out. This opens the door for improving growth, and it’s showing.
As I mentioned, PayPal is driving accelerating growth in TPV, despite tougher macro conditions, by making progress on its strategic priorities. This is slowly transforming PayPal from a payments company into a much broader and useful commerce platform.
In other words, PayPal aims to be more than just a payments processor, helping people and businesses send and receive money securely online. It aims to become a full-stack commerce enabler for both merchants and consumers, providing tools and services that enable merchants to sell more and consumers to shop smarter and more conveniently.
Ultimately, this should make PayPal a much more complete and usable platform, through which it can capture more transaction volume, deepen user engagement, and attract both new merchants and consumers into its ecosystem. As more businesses rely on PayPal to drive sales and more consumers find value in using it beyond just payments, the network effects strengthen—leading to higher usage, growing volumes, and a healthier, more embedded platform over time, which should drive considerable long-term growth and allow it to better compete!
I think Alex Chriss is bang on with this strategy, and he has been executing it strongly so far, as it is slowly becoming visible through improved operational results. So, let’s break these down.
