PayPal (PYPL)

Digital payments platform PayPal (NASDAQ:PYPL) missed Wall Street’s revenue expectations in Q4 CY2025 as sales rose 3.7% year on year to $8.68 billion. Its non-GAAP profit of $1.23 per share was 4.5% below analysts’ consensus estimates.

Company Overview

Originally spun off from eBay in 2015 after being acquired by the auction giant in 2002, PayPal (NASDAQ:PYPL) operates a global digital payments platform that enables consumers and merchants to send, receive, and process payments online and in person.

Diversified financial services encompass specialized offerings outside traditional categories. These firms benefit from identifying niche market opportunities, developing tailored financial products, and often facing less direct competition. Challenges include scale limitations, regulatory classification uncertainties, and the need to continuously innovate to maintain market differentiation against larger competitors expanding their offerings.

PayPal's competitors include traditional payment processors like Visa (NYSE:V) and Mastercard (NYSE:MA), digital payment platforms such as Block's Cash App (NYSE:SQ), Stripe (private), Adyen (AMS:ADYEN), and emerging fintech companies like Affirm (NASDAQ:AFRM) and Klarna (private).

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Thankfully, PayPal’s 9.1% annualized revenue growth over the last five years was decent. Its growth was slightly above the average financials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within financials, a half-decade historical view may miss recent interest rate changes, market returns, and industry trends. PayPal’s recent performance shows its demand has slowed as its annualized revenue growth of 5.6% over the last two years was below its five-year trend. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, PayPal’s revenue grew by 3.7% year on year to $8.68 billion, falling short of Wall Street’s estimates.

Revenue growth is one major determinant of business quality, and the efficiency of operations is another. For Diversified Financial Services companies, we look at pre-tax profit rather than the operating margin that defines sectors such as consumer, tech, and industrials.

This is because for financials businesses, interest income and expense should be factored into the definition of profit but taxes - which are largely out of a company's control - should not.

Over the last five years, PayPal’s pre-tax profit margin has risen by 4.6 percentage points, going from 16.2% to 19%. Expenses have stabilized more recently as the company’s pre-tax profit margin was flat on a two-year basis.

PayPal’s pre-tax profit margin came in at 18.8% this quarter. This result was 1.9 percentage points better than the same quarter last year.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

PayPal’s EPS grew at an unimpressive 6.4% compounded annual growth rate over the last five years, lower than its 9.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to factors such as interest expenses and taxes.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For PayPal, its two-year annual EPS growth of 17.6% was higher than its five-year trend. This acceleration made it one of the faster-growing financials companies in recent history.

In Q4, PayPal reported adjusted EPS of $1.23, up from $1.19 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects PayPal’s full-year EPS of $5.30 to grow 8.6%.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, PayPal has averaged an ROE of 19.4%, excellent for a company operating in a sector where the average shakes out around 10% and those putting up 25%+ are greatly admired. This shows PayPal has a strong competitive moat.

PayPal reported $10.42 billion of cash and $9.99 billion of debt on its balance sheet in the most recent quarter.

Given the company has more cash than debt, leverage is not an issue here.

We struggled to find many positives in these results. Its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 14.6% to $44.86 immediately after reporting.

Updated: February 3, 2026 at 7:21 AM EST

Before making an investment decision, investors should account for PayPal’s business fundamentals and valuation in addition to what happened in the latest quarter.

We think PayPal is a solid business. To kick things off, its revenue growth was decent over the last five years. And while PayPal’s declining pre-tax profit margin shows the business has become less efficient, its market-beating ROE suggests it has been a well-managed company historically.

PayPal’s P/E ratio based on the next 12 months is 9.1x. When scanning the financials space, PayPal trades at a fair valuation. If you believe in the company and its growth potential, now is an opportune time to buy shares.

Wall Street analysts have a consensus one-year price target of $70.36 on the company (compared to the current share price of $44.86), implying they see 56.7% upside in buying PayPal in the short term.