PayPal’s (PYPL) second-quarter results checked all the right boxes on paper. Growth came in stronger than expected, and Venmo once again proved its value to the platform, posting more than 20% revenue growth and driving a 12% surge in payment volume. Even so, the market reaction was anything but enthusiastic. PYPL stock dropped 8.7% after the report, bringing a sharper question into focus for investors: is this weakness an opening to buy the dip, or a sign to reassess?
Part of the caution stemmed from what propped up some of the quarter’s key metrics. Transaction margin dollars (TM$) — a closely watched gauge of core profitability — rose 7%, marking the sixth straight quarter of growth. But that headline figure was inflated by a one-time boost tied to the renewal and expansion of a major payment partner agreement. Excluding that, TM$ momentum showed early signs of tapering.
Management acknowledged that, while transaction revenue should continue to trend upward, other value-added services are facing more resistance. Interest rate headwinds and difficult year-over-year (YOY) comps in credit are expected to slow that side of the business in the quarters ahead.
The selloff, then, was not a knee-jerk reaction. It reflected a more tactical adjustment to the underlying signals. Still, the broader narrative of PayPal’s strategic reset remains intact. For investors with a steady hand and a long-term horizon, this dip might not be a red flag, but a potential entry point worth considering.
Headquartered in San Jose, California, PayPal is among the most trusted names in global digital payments. It serves both consumers and merchants through a seamless transaction ecosystem anchored by its flagship products, PayPal and Xoom.
Its peer-to-peer service, Venmo, has been pivotal in expanding the company’s payment volume and deepening user engagement across demographics. With a market capitalization of $65 billion, the company remains a dominant force in fintech.
Over the last 52 weeks, however, PYPL stock has underperformed, up 12% but trailing the Financial Select Sector SPDR Fund (XLF), which has gained 26% in the same period. The latest earnings miss triggered a sharper reaction. For the past five trading days, PYPL is down 5%, reflecting disappointment despite the beat.
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Valuation tells a more nuanced story. The stock trades at 12.8 times adjusted forward earnings and 2 times sales. These figures come in well below its own five-year averages, suggesting the market may be underestimating its earnings potential.
On July 29, PayPal delivered Q2 2025 results, handily surpassing consensus expectations. The company reported revenue of $8.29 billion, up 5.1% from a year earlier and ahead of analysts’ forecast of $8.08 billion. Adjusted EPS hit $1.40, rising 17.6% YOY and beating the $1.30 per share estimate.
The headline figures marked a clear win, but the underlying trends painted a more layered picture. Transaction margin dollars totaled $3.84 billion, rising 7% and extending the streak to six consecutive quarters of growth. Yet, when factoring out a one-time benefit from a strategic payment partnership, momentum showed signs of cooling.
Meanwhile, adjusted free cash flow — one of the most closely watched figures in any fintech balance sheet — plunged 42.5% to $656 million. That was nearly two-thirds below analyst expectations and down from $1.4 billion in Q1.
Still, some key metrics held firm. Total payment volume (TPV) stood at $443.5 billion, exceeding projections of $433.6 billion. Active accounts rose 2% to 438 million, nudging past expectations of 437.8 million. These gains suggest PayPal’s core franchise remains intact, despite the margin pressure and rising costs.
Looking ahead, management is guiding for Q3 adjusted EPS between $1.18 and $1.22. Transaction margin dollars are expected to grow by 4%, reaching between $3.76 billion and $3.82 billion.
For the full year, adjusted EPS is now forecast between $5.15 and $5.30. The company also expects annual free cash flow between $6 billion and $7 billion, indicating confidence in its ability to rebound in the second half of the year.
Meanwhile, analysts expect Q3 2025 EPS to come in at $1.20. For the full fiscal year 2025, the bottom line is estimated to grow 12.9% from the prior year to $5.25. Moreover, for fiscal year 2026, EPS is predicted to increase 9.9% from the previous year to $5.77.
Analysts are largely keeping faith in PYPL’s recovery path. Canaccord Genuity has reaffirmed its “Buy” rating on the stock, setting a target price of $96 following the Q2 print. The firm pointed to strength in Venmo and better-than-expected earnings as reasons to stay constructive on the name.
Among 43 analysts covering PYPL stock, the consensus stands at “Moderate Buy.” Some 15 analysts maintain a “Strong Buy” rating, two have a “Moderate Buy,” 23 advise to “Hold,” and three analysts recommend a “Strong Sell” rating.
PYPL stock’s average price target of $81.14 represents potential upside of 20%. On the more bullish end, the Street-high target of $105 represents 55% potential upside from current levels.
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On the date of publication, Aanchal Sugandh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
