The Most Hated Compounder in the Payments Space

They don’t all need to be long winded or complex.

People genuinely don’t like Paypal, and sentiment on the name bounces somewhere between “not worth my time” and “you’d have to be an idiot to buy them”. Which naturally gets me curious. And in a world where everyone is rushing into growth at any price, boring compounder types definitionally have to be over looked and maybe even undervalued.

So here’s 5 questions asked & answered that got me where I am today on PYPL …

To level set, this is part of my turnaround sleeve, already at 2.5%. PayPal isn’t sexy, but it’s compounding EPS in the mid-teens, buying back 10% of the float, and quietly regaining branded share, all while trading at <10x FCF. The market still hates it, but the numbers say the reset is real. Buying now is owning a mispriced compounder with a credible floor and growing operating leverage.

Earnings wasn’t terrible but the reaction wasn’t great. Branded checkout growth was solid at +5%, but didn’t accelerate, kind of still stuck where it’s been, despite Fastlane traction. Take-rate ticked lower by 4bps, reinforcing fears that mix and margin pressure haven’t fully stabilized. Transaction losses came in higher at 9bps, up from 7bps last quarter, chalked up to normalization, but still a red flag for credit-sensitive flows. Revenue grew +5%, but top-line guidance for Q3 sits around +4%, signaling no growth breakout yet. And while the long-term optionality, ads, stablecoins, PayPal World, is compelling, it remains early. The result? Clean quarter. Strong execution. But not enough to shake off the bear case for those still anchored in the past. It sold off enough for me to be interested.

Onto the five questions …

Does Management Have Integrity?

Management credibility was a bit of a running joke when PayPal peaked in 2021, but eight quarters of transcripts prove Alex Chriss is the antidote. Dan Schulman retired after nine years just as the stock sat down 75 % from its highs and Elliott Management disclosed a $2 B activist stake. Chriss was brought in to impose discipline and predictability, and he delivered: raising FY ‘24 EPS guidance three times and still landing +21 % YoY at the top end. Six quarters in, he hasn’t missed once. He promised PayPal would no longer be “difficult to model,” and it’s not, because every target is now a floor, not a forecast. Even in Q1 ‘25, after another beat (+23 % EPS YoY), he held full‑year guidance steady instead of chasing headlines. To me, you have the beginnings of trust with management, which is a big deal.

Is There Achievable Bottom Line Upside?

Branded checkout still throws off > 70 % of PayPal’s transaction‑margin dollars, despite making up just ~40 % of TPV. Remember, branded is when you see the Paypal/Venmo yellow button at checkout, whereasunbranded (Braintree) is the lower margin behind the scenes rails. After years of share bleed to typed‑card flows and native wallets, it’s now growing again: +8 % YoY in Q1 ‘25, the first high‑single‑digit print in four years. Fastlane kills password friction, Venmo broadens appeal, and branded conversion in live cohorts is lifting 100–400 bps. This means merchants make more money when leveraging PayPal’s branded rails. Keep in mind, management has already pushed Fastlane across 25 % of U.S. checkout traffic, with more to come. The big deal is that every 1 % of branded mix shift adds $150–200mm of margin, roughly a dime of EPS, with no incremental TPV required. And Chriss is focused on growing this and hitting targets.

Is There Operating Leverage & Sound Capital Allocation?

Nothing kills a business faster than chasing growth for growth’s sake, or worse, spitting off cash while the CEO builds monuments to himself. For years, PayPal did both and now it does neither. Fiscal ’24 revenue crawled +7 %, but EPS jumped +21 % because OpEx was capped at low-single digits and margin dollars did the lifting. The 2025 plan still spits out $6–7 B in free cash and funds a $6 B buy-back, while the stock trades for <10× that cash flow. Keep in mind despite a slower revenue Q1 ‘25 due to mix shift and some e-comm slow down, they posted their 6th quarter in a row with greater than mid-teens operating income growth.

Do People Undervalue It?

Visa trades at 25×, Mastercard at 31×, and even Coinbase commands 77× FY ‘25 earnings on the heels of the biggest crypto gold rush ever. Meanwhile, PayPal beats EPS every quarter, grows faster than both networks, and throws off $6–7 B in free cash, yet still trades at just ~15×. There’s also some confusion on what Paypal was and now is. They used to be a growth company, now are less of that and more of a compounder in training. New CFO Jamie Miller’s first move was to rebuild the earnings deck, “you’ll notice several things different”, a quiet admission that opacity, not performance, broke trust. Before her, PayPal leaned on vanity metrics like “net new accounts” even as engagement fell. On top of this KPIs shifted quarter to quarter, transaction-margin dollars, the real profit engine, barely got airtime and branded vs. unbranded mix was buried. Miller wiped the slate: NNA gone, margin dollars front and center, branded growth and cost control driving the call. The bears I think are putting an old narrative on a new story.

Do I Have a Margin of Safety?

If branded growth stalls, if take-rate compresses, if transaction-margin dollar growth slips below 3%, we know what the downside looks like. This business still throws off $6-7b in free cash, buys back nearly 10% of the float annually, and grows EPS in the mid-teens while trading for less than 10x cash flow. I hate to call this a “floor”, but that is how I’m thinking about it. And in a market still pricing hype, Coinbase at 70x , Shopify at 60x, Stripe privately marked near 100x, the math here is grounded. Everyone loves revenue growth because it’s sexy. But remember friends, trees do not grow to the sky. When the cycle turns and the macro cracks, they all get hit, but the high flyers take the elevator down. PayPal walks down the stairs, still paying you to wait.

Closing Thoughts

I don’t need PayPal to become a growth stock again. I just need it to keep doing exactly what it’s doing, growing EPS in the mid-teens, buying back 10% of the float, and letting branded checkout regain a few points of share. At $5.65 to $5.75 in 2026 EPS and even a modest 17x multiple, you’re looking at a $95 to $100 stock in 12 to 18 months. Low bar? Sure. Boring? Definitely. But things are frothy and people are paying absurd prices for castles to the sky, so relatively speaking this deserves some part of the portfolio for me.

And if you step back, when the world is pricing in 50% daily gains for memes, NFTs, crypto pipe dreams, and money-losing tech, that tells you one thing. Boring compounders aren’t just unloved, they’re underpriced by definition. PayPal’s not sexy, and maybe that’s the point.

The best is ahead,

Victaurs

PS - I ignored the “upside surprise” stuff they’re working on in this note, but when you think about upside optionality these are the things I notice. One, Fastlane is lifting branded conversion by 100 to 400bps and now powers more than 60% of U.S. checkout. PayPal World expands reach to over 2 billion wallets globally, turning branded into a cross-border rail without requiring new merchant integrations. Venmo is no longer just peer-to-peer. Pay with Venmo TPV is up 45%, Venmo debit spend is up 60%, and the app is now embedded across brands like Sephora, Taco Bell, and KFC. Buy Now Pay Later volumes are up more than 20%, and management is preparing to push receivables off balance sheet, turning it from a break-even product into one with 30%incremental margin. Tap to Pay and NFC debit in Germany is driving 16x monthly usage and is now rolling out to the UK. Ads are already live in the U.S., Germany, and the UK, with storefront units connected to branded checkout. Stablecoin integrations with Stellar, Arbitrum, and Coinbase are opening up float and FX yield layers. And PayPal is already embedded in agentic commerce pilots with Perplexity and Salesforce. So you have a lot of potential chances for them to actually surprise to the upside over the long haul.

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