Investment Case Updated: May 7, 2025

Price: $68.05 (5/6/25)
Market Capitalization: $66.2B
Enterprise Value: $67.1B

What the Company Does

PayPal is a leading payment processor facilitating transactions for 436 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 too via monetization of the app’s ~62MM users (as of 4Q24) with initiatives such as the Venmo debit card expected to fuel a low-teens revenue compound annual growth rate (CAGR) through 2027 for the app. Even as PYPL transitions into becoming a more omnichannel platform, the company’s ecommerce focus is desirable, with the ecommerce market expected to grow at a compound annual growth rate of 7% 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 today) and further adoption of higher-margin value-add services (FX, risk and fraud management etc). Meanwhile, inflecting total payment volume (TPV) growth with smaller merchants (~14% of company’s total TPV) presents an additional tailwind due to increased loan originations and new business-to-business bill payment solutions ($2T market), which should re-circulate more dollars within the PayPal ecosystem.

Management sees an acceleration in profit growth on the horizon, with expectations for high single-digit transaction margin growth and low-teens Adjusted EPS (earnings per share) growth by the end of 2027, topping expected transaction margin and Adjusted EPS growth of 5%+ and 8% in 2025, respectively. Despite robust profitability, and many avenues for potential growth, shares currently trade at a forward (FY25) EV/EBITDA multiple of 9.7x, or a nearly 44% 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.