PayPal (PYPL)

Digital payments platform PayPal (NASDAQ:PYPL) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 7.3% year on year to $8.42 billion. Its non-GAAP profit of $1.34 per share was 11.2% above 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 experience short-term success, but top-performing ones enjoy sustained growth for years. Luckily, PayPal’s revenue grew at a decent 10.1% compounded annual growth rate over the last five years. Its growth was slightly above the average financials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. PayPal’s recent performance shows its demand has slowed as its annualized revenue growth of 6.2% 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 reported year-on-year revenue growth of 7.3%, and its $8.42 billion of revenue exceeded Wall Street’s estimates by 2.2%.

Financial services companies rely heavily on the total number of transactions and loan originations to drive top-line growth. Understanding these volumes is essential for finding winners in the sector.

PayPal’s volumes have grown at an annual rate of 15.4% over the last five years, better than the broader financials industry and faster than its total revenue. When analyzing PayPal’s volumes over the last two years, we can see that growth decelerated to 9.1% annually.

PayPal’s volumes punched in at $458.1 billion this quarter, beating analysts’ expectations by 2.4%. This print was 8.4% higher than the same quarter last year.

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.

Financials companies manage interest-bearing assets and liabilities, making the interest income and expenses included in pre-tax profit essential to their profit calculation. Taxes, being external factors beyond management control, are appropriately excluded from this alternative margin measure.

Over the last four years, PayPal’s pre-tax profit margin has risen by 2.9 percentage points, going from 21.4% to 18.5%. Luckily, it seems the company has recently taken steps to address its expense base as its pre-tax profit margin expanded by 2.3 percentage points on a two-year basis.

PayPal’s pre-tax profit margin came in at 18.2% this quarter. This result was 1.5 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 7.7% compounded annual growth rate over the last five years, lower than its 10.1% 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 shorter period to see if we are missing a change in the business.

For PayPal, its two-year annual EPS growth of 19.4% was higher than its five-year trend. This acceleration made it one of the faster-growing financials companies in recent history.

In Q3, PayPal reported adjusted EPS of $1.34, up from $1.20 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects PayPal’s full-year EPS of $5.26 to grow 5.5%.

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, PayPal has averaged an ROE of 19.8%, 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 $10.76 billion of cash and $11.28 billion of debt on its balance sheet in the most recent quarter.

As investors in high-quality companies, we primarily focus on whether a company’s profits can support its debt.

With $8.39 billion of EBITDA over the last 12 months, we view PayPal’s 0.1× net-debt-to-EBITDA ratio as safe. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly PayPal blew past analysts’ EBITDA expectations this quarter. We were also glad its transaction volumes outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 14.7% to $80.55 immediately after reporting.

Updated: December 3, 2025 at 10:54 PM EST

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in PayPal.

There are things to like about PayPal. First off, its revenue growth was good over the last five years. And while its 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. On top of that, its transaction volume growth was impressive over the last five years.

PayPal’s P/E ratio based on the next 12 months is 11.2x. Looking at the financials space right now, PayPal trades at a compelling valuation. If you trust the business and its direction, this is an ideal time to buy.

Wall Street analysts have a consensus one-year price target of $82.82 on the company (compared to the current share price of $61.19), implying they see 35.3% upside in buying PayPal in the short term.