PayPal Holdings (PYPL) stock has surged 34% over the past year but is down 8% year-to-date. Could this payment pioneer be in the strike zone for buy-the-dip pickup for the long term? Since 2022, PayPal’s performance has been lackluster, with many market participants wondering if the company had lost its competitive spark. Despite the shares dipping lower following its most recent quarterly report, I believe the rally is set to resume. PayPal’s fundamentals are robust, particularly the surging levels of free cash flow, poised to support a generous $15-billion-dollar share buyback program.
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Share repurchases should prove highly accretive at the current valuation, reinforcing my bullish stance on PYPL stock. PayPal could be the living proof that comebacks are greater than setbacks, as Wall St. analysts expect PYPL stock to achieve a 24% upside later this year.
Resilient Growth in a Crowded Fintech Market
The fintech sector is undeniably crowded, yet PayPal continues to chug along with steady growth. In its most recent Q4 results, revenue rose 4% year-over-year to $8.4 billion. The quarterly figures were softer than previous reports, but this isn’t necessarily a sign of weakness. Broader macro themes and industry trends have compressed margins for every player in the fintech space, so it’s normal for PYPL’s metrics to plateau in current times. In my view, PYPL exemplifies resilience and staying power in a constantly evolving market.
Furthermore, PayPal’s total payment volume (TPV) increased 7% to $437.8 billion, driven by ongoing traction in flagship services like branded checkout, Venmo, and Braintree. Notably, active accounts ticked up 2.1% to 434 million, a notable achievement when many fintech platforms are actively struggling to maintain user growth. And while the total transaction count dipped slightly, the number of payments per active account advanced to 60.6 on a trailing twelve-month basis—a positive indicator of user engagement.
These numbers suggest PayPal has built a wide moat around its core offerings. Innovation in the checkout experience, especially the improvements in mobile and desktop latency, is one example that shows the company’s continued focus on refining the user experience. Management anticipates even broader adoption of these upgrades in 2025, hinting that the company is well-positioned to fend off rivals like Block (SQ) or newer “buy now, pay later” entrants looking to disrupt the payments space.
PYPL Navigates Margin Pressure with Strategic Investment
Despite posting respectable revenue and TPV figures, PayPal reported margin compression in the same period. Its adjusted operating margin dipped to 18.0%, down 34 basis points year-over-year, while the GAAP figure showed an even more significant decrease. Management attributed this to strategic investments in growth initiatives, pricing adjustments, and a shifting transaction mix.
These temporary pressures are part of the normal push-and-pull of innovating in a competitive market. It’s encouraging that PayPal continues investing in new offerings and partnerships over slashing costs to inflate short-term margins. Meanwhile, the company increased adjusted EPS by 5% and achieved full-year adjusted EPS growth of 21%, a testament to disciplined cost management.
However, what really stood out, and what matters most when assessing PayPal’s investment case, is its remarkable free cash flow. In the latest quarter alone, PayPal generated $2.2 billion in free cash flow, hitting $6.8 billion for the full year. This marked a 60% year-over-year increase and set a new record. With a free cash flow margin of over 21%, PayPal should have extraordinary flexibility to reward shareholders and fund pioneering ventures in the future—just like it did in its early days.
Share Buybacks Suggest Long-Term Value
Speaking of rewarding shareholders, PayPal repurchased 15 million shares for $1.2 billion in Q4 2024, bringing total 2024 buybacks to $6 billion. That translates to a buyback yield of about 8%, a rather compelling rate of shareholder returns for a stock that appears to be trading at a discount. This is further supported by the fact that PayPal’s board has authorized an additional $15 billion for repurchases, signaling shares remain highly undervalued.
With shares trading around 11x Wall Street’s forward free cash flow estimate of $6.85 billion, any buybacks could prove highly accretive and boost future EPS and shareholders’ total return prospects. In fact, with free cash flow rising and shares lagging in recent months, PayPal’s buyback yield is set to increase, allowing for faster retiring of outstanding shares.
Is Paypal (PYPL) a Buy or a Sell?
Based on its current share price levels, Wall Street analysts seem optimistic about PayPal’s prospects. In particular, PYPL stock features a Moderate Buy rating, with recent analyst ratings consisting of 16 Buy, 13 Hold, and zero Sell ratings over the past three months. At $96.84 per share, the average PYPL stock target implies an upside potential of ~24% from current levels, suggesting that PYPL’s halted rally will resume soon.
PayPal Remains a Buy Despite Margin Pressures
I closely monitor margin pressure, but PayPal’s strong fundamentals—such as its solid free cash flow, leadership in digital payments, and strategic capital allocation—give me confidence that the company can handle short-term challenges. In particular, the ongoing buyback program and PayPal’s attractive forward free cash flow multiple strengthen my belief that PYPL stock is still a buy.
