Is It Time to Buy PayPal?
Quick Snapshot
Market Cap: ~$67B
Industry: Fintech / Digital Payments
CEO: Alex Chriss (since Sept 2023)
Founded: 1998 by Elon Musk, Peter Thiel, Luke Nosek
Valuation: ~15x PE | ~13x FCF | ~2.4% FCF yield
2024 FCF: $5.6B
Users: 434M active accounts | 35M merchants | 200 markets
Balance Sheet: Net debt $6.8B | Interest coverage 14x | Strong liquidity
PayPal (NASDAQ: PYPL) is one of those rare names investors love to hate. A once high-flying fintech that fell 70% from its peak — and now trades like a company past its prime.
Yes, Apple Pay’s expansion to all browsers ramps up competition, challenging PayPal’s dominance in online checkout and peer-to-peer payments.
But PayPal’s global scale, diversified services (BNPL, credit, ads), and deep merchant integrations still give it a strong defensive moat — and a path to evolve from wallet to full commerce platform.
The business isn’t broken — it just lost focus. And under new CEO Alex Chriss, PayPal is cutting the noise, streamlining its core, and quietly rebuilding momentum.
Key Investment Thesis: PayPal (PYPL)
Leadership Reset: Chriss came in swinging — scrapped the “super app” distractions and brought PayPal back to basics: payments, profitability, and focus.
Cash Flow Powerhouse: $5.6B in free cash flow, 16%+ FCF margin, minimal debt. That’s elite efficiency in fintech.
Dominant Network: 434M users, 35M merchants, across 200 markets — the world’s largest open digital payments network.
Fastlane Catalyst: A new one-click checkout that could reignite PayPal’s branded checkout and lift margins.
Shareholder Discipline: $6B in buybacks last year, $15B authorized (~22% of shares). Management is returning 70–80% of FCF to investors.
Valuation Disconnect: Trades at ~13x earnings — the market’s pricing in 1% growth. Even 5% EPS compounding via buybacks alone makes that absurdly cheap.
Execution Risk, Not Existential Risk: Apple, Stripe, and Adyen compete, yes — but PayPal’s moat still runs deep in trust, scale, and regulation.
Long-Term Runway: Payments still growing ~5% annually through 2028. PayPal is reinvesting in AI, PYUSD stablecoin, and SMB expansion to stay relevant and compound quietly.
Great Margin Of Safety: Cash flow protects the downside; execution offers more than 50% upside if Chriss delivers.
The Pragmatic Pivot
Chriss’ strategy is refreshingly simple:
Win Checkout: Fix branded checkout, lift conversion rates.
Scale Omni: Push “PayPal Everywhere” — online, in-store, globally.
Grow Venmo: Monetize 80M+ active users.
Accelerate SMB: Become a full-stack commerce partner, not just a button.
That’s a refreshing change after years of “super app” bloat.
The Money Still Moves
Despite the noise, PayPal is delivering:
$1.68T in payment volume (+10% YoY)
$31.8B in revenue (+6.8%)
$5.6B in FCF
18.4% operating margin (+116 bps)
Those aren’t “decline” numbers — they’re recovery numbers.
PayPal remains a toll booth on digital commerce. And toll booths rarely go out of style.
How PayPal Makes Money
PayPal runs on three powerful revenue engines:
Branded Checkout (PayPal button): Still the core moneymaker — high-margin, trusted, and deeply embedded across e-commerce.
Braintree (unbranded processing): The growth driver — powering enterprise clients with thinner margins but expanding reach.
Venmo: A sleeping giant — 97M+ active users, still early in monetization but full of untapped potential.
Add FX fees, credit products, and interest on customer balances, and you get a diversified, durable cash flow machine.
Braintree and Venmo need sharper execution, but the core cash engine is steady. If Fastlane, PayPal’s new one-click guest checkout, scales — margins and conversion could rise meaningfully.
Management: Focused, Rational, Shareholder-First
Under Alex Chriss, PayPal finally looks like a company that answers to shareholders, not hype.
$6B in buybacks last year; another $15B authorized (~22% of shares).
Net debt: ~$6B — nearly debt-free, 16x interest coverage.
Goodwill: just 13% of assets — a clean, disciplined balance sheet.
Insider ownership: modest at 0.075% (~$51M), but the incentives are aligned around capital returns, not empire-building.
They’re returning 70–80% of FCF to shareholders, not burning it on acquisitions as they did in the past.
That’s exactly what you want in a turnaround — less noise, more compounding.
Capital Allocation Discipline
ROIC: Up from 11% (2014) to 19% (2024).
ROE: Up from 10% to 23% — driven by efficiency and buybacks.
Free Cash Flow / Net Income: 113% LTM — great profit conversion.
Chriss is proving that PayPal can still compound quietly: fewer words, better numbers, and smarter capital returns.
Margins Holding the Line
Gross margin has contracted from ~65% to ~47% over the decade (CAGR –2.8%) — the cost of scale and mix shift to Braintree’s lower-margin volumes.
Operating margin rose modestly (+12% total, +1% CAGR), holding near 16–18%, showing strong cost discipline despite competitive pressure.
Free Cash Flow to Net Income still exceeds 100% (113% LTM) — that’s rare.
The company is experiencing increased competition, which is reflected in its declining gross margin.
Moat Check: Wide but Weathered
Let’s be honest — PayPal’s moat has narrowed.
Apple Pay and Stripe are eating away at convenience and innovation.
But PayPal still has:
Global reach — 200 markets, 35M merchants and with 400 million consumers.
Regulatory licenses that new entrants can’t replicate.
Brand trust built over 25 years.
“Fastlane” could extend that moat. If adoption climbs, conversion rates go up — and that’s the kind of metric Wall Street notices.
Valuation:
The valuation is cheap due to market low expectations
P/E has fallen 53% since 2017; P/FCF down 41% — a dramatic derating for a still-profitable fintech.
The stock trades around 15x free cash flow and ~13x earnings, levels typically reserved for no-growth industrials, not global payment leaders.
Yet PayPal continues to generate $5B+ in FCF, with rising ROIC (~19%) and durable margins.
What the Market’s Missing
The market’s implying just 1% growth — as if PayPal’s best days are gone.
But even without heroics, buybacks alone add ~5% EPS growth annually.
Combine that with mid-single-digit organic growth, and you’ve got a quite decent return.
Long-Term Growth & Reinvestment Potential ( Add chart here)
PayPal still has room to scale.
Global digital payments growing ~5% annually through 2028.
Expanding SMB services, cross-border payments, and digital wallets.
Leveraging AI and data to drive personalization and security.
$5.3B in annual free cash flow funds both innovation and buybacks.
A steady compounder with the cash, reach, and tech to reinvest profitably — not fast growth, but durable growth.
Performance vs Peers:
The market has been ruthless to PayPal — and overly generous to its peers.
But under the surface, the setup looks increasingly asymmetric.
PayPal (PYPL): Down –63% since early 2021 (CAGR –18%).
Adyen (ADYEN): Essentially flat, –2.3% over the same period (CAGR –0.5%).
Shopify (SHOP): Up +71% (CAGR +11.3%), recovering strongly after its post-COVID reset.
The market’s been brutal — but overreaction creates opportunity. PayPal’s fundamentals remain solid; sentiment is the outlier.
Risks:
Competitive pricing pressure from Stripe, Adyen, and Apple.
Slower e-commerce growth post-pandemic.
Regulatory and cybersecurity overhangs.
Execution risk — new leadership still proving itself.
But PayPal has the balance sheet to absorb mistakes. That’s the difference between a risky stock and a risky company.
Conclusion
PayPal today is a good business trading like a bad one.
If Chriss sustains margin discipline and scales Fastlane, PayPal’s FCF power could drive a meaningful re-rate.
It’s not a “great” business anymore. But it’s still a good one at a great price — and that’s how compounding starts.
SCC Rating: 70% | Undervalued
At silvercrosscapital we built the Outlier Portfolio on one truth: a handful of stocks create nearly all long-term wealth.
Our mission? Find the next outlier before Wall St. does.
The question: Is PayPal an outlier? Not even close.
