PayPal: A Great Business But a Disappointing Stock — Here’s Why (Explained Simply)

Image source: PayPal.

The Good News: PayPal Is Actually a Really Strong Business

Think of PayPal like a super-popular digital wallet that’s been around for over 20 years. Here’s why the business itself is healthy:

• 228 million people use it every month — that’s merchants (stores) and regular folks like you and me
• Massive "network effect" — the more people use it, the more useful it becomes for everyone (like a phone network: the more friends have phones, the more valuable your phone is)
• Huge money flowing through it — in just the second quarter (April–June), $486 billion moved through PayPal. That’s a 10% jump from last year
• Printing serious cash — analysts expect $6 billion in free cash flow (money left over after paying all bills) in 2026 on $34.7 billion in revenue

Key Term Explained: TPV (Total Payment Volume) = the total dollar amount of all payments processed. Think of it like the "total sales" rung up at a cash register, but for the whole PayPal network.

The Bad News: The Stock Has Been Crushed

Despite the strong business, the stock is down 81% from its 2021 peak (as of August 12). That’s a massive drop — like buying something for $100 and it’s now worth $19.

So what’s going on? Let’s dig in.

The Main Culprit: "Branded Checkout" Is Stuck in Slow Motion

What Is "Branded Checkout"? (ELI5 Version)

Imagine you’re shopping online. You get to the payment page and see a big "Pay with PayPal" button. You click it, log in once, and boom — paid. No typing card numbers, no typing addresses. That’s PayPal’s branded checkout.

It includes:

• The classic PayPal-branded checkout button
• Pay with Venmo (Venmo is owned by PayPal)
• eBay checkout (eBay used to be part of PayPal)

Why This Matters So Much

This is PayPal’s "crown jewel" — its most profitable segment.

• It accounts for 28% of all money moving through PayPal (TPV)
• It makes the highest profit per transaction
• When this sneezes, PayPal’s finances catch a cold

The Growth Has Collapsed

Meanwhile, other parts of PayPal are growing nicely:

• Venmo TPV: +14%
• Braintree (payment tools for merchants): +13%
• But overall revenue: only +5%

The Profit Squeeze

Because the high-margin branded checkout is barely growing, transaction margin dollars (profit per payment) only rose 1% last quarter. If the crown jewel were healthy, this number should be much higher.

Competition Is Breathing Down PayPal’s Neck

PayPal isn’t the only game in town anymore. The biggest threat? Apple Pay.

• Apple Pay has ~900 million global users — that’s nearly 4x PayPal’s monthly active users
• It’s built into every iPhone, iPad, and Mac — no app download needed
• When you’re checking out on Safari, Apple Pay is right there, super convenient

CEO Enrique Lores recently said they expect branded checkout to grow only in the "low-single-digit range" for the year. That’s code for: "Don’t expect a comeback anytime soon."

What This Means for the Stock

Until the crown jewel starts growing again, the stock will likely stay stuck.

IMPORTANT POINT

A great business ≠ a great stock right now. PayPal makes real money and has a massive network. But the market cares about future growth — and the segment that drives the most profit is barely growing. That’s why the stock is cheap.

Quick Summary (TL;DR)

1. PayPal the business: Healthy, profitable, huge network, growing TPV (+10%)
2. PayPal the stock: Down 81% from 2021 highs
3. Core problem: Branded checkout (the "Pay with PayPal" button) — the most profitable part — grew only 2% last quarter
4. Why it matters: This segment is 28% of volume and drives the best margins
5. Competition: Apple Pay (900M users) is a fierce rival
6. Outlook: CEO expects only low-single-digit growth ahead
7. Bottom line: For the stock to win, branded checkout needs a major turnaround

FAQ: Your Questions Answered

What exactly is "free cash flow" and why does $6 billion matter?

Free cash flow = cash a company generates after paying for everything to keep the lights on (servers, offices, salaries, equipment). It’s the real money available to: pay dividends, buy back shares, pay down debt, or reinvest. $6 billion is a lot — it means PayPal is a cash-generating machine.

If Venmo and Braintree are growing fast (14% and 13%), why is overall revenue only up 5%?

Great question! Branded checkout is 28% of total volume — it’s the biggest slice of the pie. When the biggest slice barely grows (2%), it drags down the average, even if the smaller slices (Venmo, Braintree) are sprinting.

Why is Apple Pay such a big threat?

Apple Pay is pre-installed on every iPhone (over 1 billion active iPhones worldwide). No download, no separate login — just double-click the side button and pay. It’s frictionless. Plus, Apple doesn’t need to make money on payments — it uses payments to sell more iPhones. PayPal needs payment profits.

Is PayPal stock a "buy" now because it’s down 81%?

Not necessarily. A stock down 81% can go down another 50%. "Cheap" doesn’t mean "can’t get cheaper." The market is waiting for proof that branded checkout can re-accelerate. Until then, it’s a "show me" story.

What would make the stock go up again?

Two main things:

1. Branded checkout growth picks up — ideally back to double digits
2. Margins expand — meaning PayPal makes more profit per transaction

If those happen, the market will likely re-rate the stock higher. Until then, expect volatility.

Disclaimer: This article is for educational purposes only. The author (Neil Patel) has no position in PayPal, Apple, or eBay. The Motley Fool has positions in and recommends all three. Always do your own research before investing.