Investment Case Updated: July 30, 2025
Price: $69.71 (7/30)
Market Capitalization: $66.6B
Enterprise Value: $68.6B
What the Company Does
PayPal is a leading payment processor facilitating transactions for 438 million customer accounts in more than 200 markets around the world. PayPal primarily generates revenues by charging volume-based fees for completing transactions on behalf of their customers but also earns interest on consumer credit products and customer balances. The company processed roughly 26 billion transactions worth ~$1.7 trillion in 2024 (equivalent to Australia’s GDP), with 28% of this volume coming from PayPal’s legacy branded business, 36% from unbranded (i.e. not PayPal) card processing, 25% from peer-to-peer (P2P) transactions, and the balance coming from other merchant services and eBay.
Why We Own It
PayPal is a high-quality business with a new management team, strong growth prospects and a compelling valuation. Alex Chriss started as CEO in September of 2023 and formerly led Intuit’s small business group, where he grew customers and revenues at annual rates of 20% and 23%, respectively. He is now taking the same customer-first approach to PayPal’s massive installed base in an effort to improve the customer experience and also reduce waste. New products like Fastlane improve the user checkout experience and purchase conversion, while unbranded efforts are also starting to see a profitability boost. Peer-to-peer transaction app Venmo has significant growth potential via monetization of the app’s >60MM users with initiatives such as the Venmo debit card and ‘Pay with Venmo’ capability integrations with several retail partners (e.g. Sephora, Taco Bell) expected to fuel a low-teens revenue compound annual growth rate (CAGR) through 2027 for the app (vs. 20%+ in 2Q25). Even as PYPL transitions into a more omnichannel platform, the company’s ecommerce focus is desirable, with the ecommerce market expected to grow at a 7% CAGR over the next four years to a roughly $8 trillion market by the end of 2027. Management sees payment volume growth in its enterprise customer business matching this ecommerce industry growth driven by international expansion in its unbranded business (~70% occurs in North America) and further adoption of higher-margin value-add services (foreign exchange (FX), risk and fraud management). Management unveiled two initiatives in 2Q25 that could further expand PYPL’s addressable market: PayPal World, a collaboration with premier digital wallet companies, could extend PYPL’s branded checkout business from 400MM customers to >2B customers worldwide, while Pay with Crypto connects merchants to the >$3T cryptocurrency market by offering instant stablecoin or fiat conversion at an attractive net take rate for PYPL.
Management sees an acceleration in profit growth on the horizon, with guidance for high single-digit transaction margin dollar growth and low-teens Adjusted EPS growth by the end of 2027, topping expected transaction margin dollar and Adjusted EPS growth of 5.5% and 12.5% in 2025, respectively. Despite robust profitability, and many avenues for potential growth, shares trade at a forward (FY25) EV/EBITDA multiple of 9.9x, or a nearly 45% discount to peers (SQ, MA, V, AXP, FI, FIS, ADYEN NA, GPN).
How Management Allocates Capital
With minimal net debt, a highly cash-generative business model, and an aligned management team, the company plans on spending $6B, or more than 90% of this year’s expected free cash flow ($6.5B), to repurchase stock, or approximately 9% of the company’s current market cap. Management is more focused on growing and investing in their current portfolio of assets, but noted they will maintain flexibility for “selective” M&A opportunities.