Core Operating Engine: TPV Growth Versus Flat Users At NASDAQ:PYPL
Operationally the latest numbers show a business that is still scaling volume but not growing engagement in a clean way. In Q3 2025, net revenue was about $8.4 billion versus $7.8 billion a year earlier, up roughly 7%. Total payment volume reached around $458 billion versus $423 billion, up about 8%. Payment transactions fell from 6.60 billion to 6.33 billion, about a 5% decline, while active accounts only inched from 432 million to 438 million, around 1% growth. The constructive part is on the “branded experiences” side, which includes PayPal and Venmo checkout, debit and credit programs, in-store payments and BNPL. That branded bucket grew around 8% on a currency-neutral basis and roughly 10% in the U.S., which is exactly where PayPal has better pricing power and stickier user relationships. The negative part is that active accounts are essentially flat and transactions per account are falling, meaning a meaningful share of TPV growth is coming from higher average ticket size rather than more intense platform usage. That constrains the organic upside from the legacy consumer wallet until PayPal can push more features, loyalty mechanics and embedded credit to increase frequency. At the same time, value-added services growth is increasingly tied to the loan book and BNPL, which are by definition more cyclical and more exposed to credit quality than vanilla processing. That mix can support earnings and FCF as long as the credit cycle cooperates; it cuts the other way when delinquencies rise.
Margins, Cash Generation And The EPS–Cash Flow Gap At NASDAQ:PYPL
Profitability optics look better than the underlying cash profile. For the first nine months of 2025, net revenue was roughly $24.5 billion against $23.4 billion a year earlier, and operating income rose from about $3.9 billion to $4.6 billion, lifting the operating margin from around 16.6% to 18.6%. GAAP net income for that period moved from roughly $3.0 billion to about $3.8 billion. This improvement is driven by two levers: a shift away from lower-margin enterprise Braintree volume toward higher-margin branded experiences, and tighter control of structural costs such as G&A and restructuring, which run below revenue growth. Adjusted EPS strips out stock-based compensation, restructuring and strategic investment noise and therefore looks even better. The problem shows up in cash conversion. Over the same nine-month period, operating cash flow dropped from around $5.1 billion to about $4.0 billion, and free cash flow (operating cash flow minus capex) fell from roughly $4.6 billion to about $3.4 billion, even though GAAP net income increased. The bridge is mainly working capital and credit. PayPal reduced certain current liabilities and paid out more losses in cash as transaction and credit losses rose from about $1.0 billion to roughly $1.33 billion, above 5% of revenue. More originations of “held for sale” loans and BNPL exposure also consume cash even while they lift interest and fee income. In addition, fair-value swings in strategic investments moved from a positive OCF adjustment last year to a headwind this year. The net result is a business where adjusted EPS and GAAP earnings signal improvement, but free cash flow is more volatile and more sensitive to credit and working-capital dynamics than the headline margin story suggests.
Valuation Framework And Buy/Sell/Hold View On NASDAQ:PYPL
On current numbers NASDAQ:PYPL trades at roughly 11–12x next-year non-GAAP EPS and about 8–8.5x forward EV/EBITDA, with management and external models pointing to EPS around $5.3–$5.4 and free cash flow in a $5.7–$6.8 billion band as PayPal targets $6–$7 billion FCF. At a share count near 936 million this implies FCF per share in the $6.1–$7.3 range and a forward FCF multiple around 8.5–10x at a $60 stock price. Scenario-wise, a 10x P/E on $5.3 EPS gives roughly $53–$54 per share on the downside, consistent with recent lows. A mid-range 11.5x multiple anchors “fair value” around $62, close to spot. A modest re-rating to 14x on consistent FCF and successful execution of the bank charter and SMB mix shift would put the stock near $75, about 20%–25% upside from current levels, before any multiple expansion beyond that. The market is deliberately paying a discount versus premium payments peers such as Visa and Mastercard because PayPal carries more credit risk, more earnings volatility from BNPL and SMB credit, and a weaker moat at the network level. At the same time, the current valuation already embeds a meaningful risk premium and partially prices in fear of a “bank multiple” even before PayPal Bank contributes margin uplift. On balance, the stock around $60 looks like a data-dependent value situation rather than a broken story: if PayPal executes the ILC strategy, contains credit losses, proves that SMB-driven growth can stabilize TPV take rates and gets free cash flow back to a clean mid-teens yield, the current multiple offers room for re-rating. If credit costs rise, consumer weakness persists and PayPal Bank forces a structurally slower buyback pace without visible margin pay-off, the market will keep it inside a 10x–12x P/E band and treat it closer to a regulated financial than a compounder.
