The PayPal Paradox: Record Volume, Stagnant Stock. Why?
PayPal’s Growing Business But Falling Stock: What’s Going On?
Key Points at a Glance
Important Callout: Here are the three big things you need to know right now:
- Payment volume is up: PayPal processed $486 billion in payments last quarter — that’s 10% more than last year
- Stock is down: Despite the growth, the stock has dropped 81% from its 2021 peak
- Main culprit: The company’s most profitable segment (branded checkout) is barely growing, and Apple Pay is stealing the spotlight
PayPal’s Strong Foundation: The Good News
Think of PayPal like a digital wallet that 228 million people use every month. That’s a lot of people! Here’s why the business itself is actually pretty healthy:
- Huge network effect: More users attract more merchants, which attracts more users — a virtuous cycle
- Impressive scale: Been in business for over 20 years — they’re not a startup anymore
- Solid financials expected: Analysts predict $6 billion in free cash flow (money left after expenses) on $34.7 billion in revenue by 2026
- Payment volume keeps climbing: Total Payment Volume (TPV) — the total dollar value of all transactions — rose 10% year-over-year to $486 billion in Q2 (ended June 30)
ELI5 Analogy: Imagine a popular marketplace where millions of buyers and sellers meet every day. The marketplace takes a small cut of every transaction. More transactions = more money for the marketplace. PayPal’s "marketplace" is growing!
The Big Problem: Branded Checkout Weakness
Here’s where things get tricky. Not all parts of PayPal are growing equally.
How Different Parts Performed Last Quarter:
| Segment | Growth Rate | What It Is |
|---|---|---|
| Venmo | +14% | Peer-to-peer payments (splitting dinner bills, paying friends) |
| Braintree/Payment Services | +13% | Helping other companies accept payments behind the scenes |
| Overall Revenue | +5% | Total money PayPal keeps as revenue |
| Branded Checkout | +2% | The star player — but it’s stumbling |
Why Branded Checkout Matters So Much:
Important Callout: Branded Checkout is PayPal’s "crown jewel" — their most profitable segment!
What is it? When you’re shopping online and see a "Pay with PayPal" button — that’s branded checkout. You click it, log in once, and pay without typing your credit card or address every time.
The concerning numbers:
- 2018–2021: Grew at 26% per year
- 2022: Slowed to 5%
- Latest quarter (Q2): Only 2% growth
- Makes up 28% of total payment volume — a huge slice of the pie!
The profit impact: Because this is the highest-margin business, transaction margin dollars only grew 1% last quarter. If branded checkout were healthy, this number should be much higher.
Competition Is Heating Up: Enter Apple Pay
The 800-Pound Gorilla: Apple Pay
- Estimated 900 million global users — that’s 4x PayPal’s monthly active users!
- Built into every iPhone, iPad, Mac, and Apple Watch
- One tap with Face ID/Touch ID — even easier than PayPal
- Merchants love it because customers already have it set up
Why This Hurts PayPal:
- Convenience wins: If Apple Pay is already on your phone, why create a PayPal account?
- Merchant adoption: Stores add Apple Pay first because "everyone has an iPhone"
- Network effect reversal: More Apple Pay users → more merchants add it → more users prefer it
CEO’s Take: Enrique Lores (PayPal’s CEO) says they’re "raising expectations for branded checkout to the low-single-digit range for the year." Translation: We expect slow growth to continue.
What This Means for Investors: 5 Key Takeaways
- Business ≠ Stock — A company can grow while its stock falls (exactly what’s happening here)
- Profit engine sputtering — The highest-margin segment growing at 2% drags down overall profitability
- Competition is structural — Apple Pay isn’t going away; it’s getting stronger
- Valuation stays low — The market has priced in "slow growth forever" for a long time
- Turnaround needed — For the stock to win, branded checkout must accelerate meaningfully
Summary: The Bottom Line
PayPal is like a healthy giant with a limp. The overall body is growing (payment volume +10%, Venmo +14%), but the most important leg — branded checkout — is barely moving (+2%). Meanwhile, a faster, newer competitor (Apple Pay) with 900M users is running circles around it.
Until branded checkout shows real life again, the stock will likely stay stuck in the mud. The market isn’t betting on a comeback — yet.
FAQ: Your Questions Answered
Q1: If PayPal’s payment volume is growing 10%, why is the stock down 81%?
A: The stock market cares about profitable growth, not just any growth. PayPal’s most profitable segment (branded checkout) is barely growing at 2%. Investors worry the profit engine is broken, so they’ve punished the stock price.
Q2: What exactly is "branded checkout" and why is it so important?
A: It’s the "Pay with PayPal" button you see on checkout pages. It lets you pay without entering card details or addresses. It’s important because:
- Highest profit margins
- Creates stickiness (you stay in PayPal’s ecosystem)
- Used to grow 26%/year — now only 2%
Q3: Can’t PayPal just compete better with Apple Pay?
A: It’s an uphill battle. Apple Pay comes pre-installed on 1+ billion devices. PayPal requires a separate app/account. Convenience usually wins. PayPal’s best hope is partnering with merchants who want an alternative to Apple/Google dominance.
Q4: Is Venmo doing well? I hear about it all the time.
A: Yes! Venmo grew 14% last quarter. But here’s the catch: Venmo is mostly peer-to-peer (friends paying friends), which has lower profit margins than branded checkout. So even though Venmo is popular, it doesn’t make as much money per dollar processed.
Q5: Should I buy PayPal stock now because it’s "cheap"?
A: "Cheap" doesn’t mean "good deal." The stock is cheap because the market expects slow growth to continue. Only buy if you believe:
- Branded checkout will re-accelerate
- New products (like PayPal Complete Payments) will offset the weakness
- Management has a credible turnaround plan
Disclaimer: This article is for educational purposes only. The Motley Fool has positions in Apple, PayPal, and eBay, and recommends specific options strategies. Always do your own research or consult a financial advisor before investing.