PayPal (PYPL) is trying to reset the narrative around the stock by doing two things investors have been asking for: improving efficiency and returning more cash to shareholders. While revenue growth has held up reasonably well, margins remain under pressure, which helps explain why the stock still trades close to its 2026 lows despite the broader market rebound.
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Management is now focusing more aggressively on costs, targeting roughly $1.5 billion in savings over the next few years. If execution improves, I think that could help PayPal return to stronger earnings growth by 2027. In the meantime, the valuation already looks unusually depressed for a company that continues generating substantial free cash flow and maintains a net cash position. That is why I remain bullish on PYPL today.
PYPL’s Q1 2026 Earnings Highlights
PYPL reported GAAP earnings per share (EPS) of $1.21 per share, down 6% year-over-year, as operating expense growth of almost 10% exceeded the revenue expansion of 7% relative to the prior year quarter. To address this unfavorable dynamic, PayPal aims to achieve at least $1.5 billion in cost savings over the next 2–3 years, most notably by expanding the use of artificial intelligence (AI) across the organization.
I calculate this would be enough to cut annual costs by approximately 5%, allowing PayPal to stabilize, and potentially improve its operating margin, which stood at 17.8% in the quarter, down 1.8% year-over-year.
Cost-control challenges aside, PayPal recorded modest growth across key operating metrics, with monthly active users increasing 1% year-over-year and total payment volume rising 11% relative to Q1 2025.
To sum up, PayPal continues to report solid revenue growth above inflation, indicating strong business momentum. As such, the key near-term challenge for the company is to maintain this robust performance while at the same time achieving better cost control, ultimately resulting in higher margins and earnings per share.
Confirmed 2026 Outlook
PayPal confirmed its 2026 outlook, indicating that the GAAP EPS decline in Q1 2026 was fully expected. For the full year, PYPL anticipates a mid-single-digit decline in EPS, which, relative to the 2025 EPS of $5.41 per share, indicates EPS somewhat above $5 per share.
It expects adjusted free cash flow of above $6 billion, indicating a result comparable to the $6.4 billion achieved in 2025. The company is also considering $6 billion in share repurchases, with PayPal’s $1.9 billion net cash position at the end of Q1 2026 enabling ongoing buybacks.
I see PayPal’s 2026 outlook as conservative, since it encompasses little near-term benefits from anticipated cost cuts. What is more, the $6 billion in share buybacks will be enough to retire roughly 15% of shares outstanding at the current market capitalization of $39 billion, providing a boost to EPS growth if margins stabilize later in the year.
All in all, I see 2026 as a transition year for PayPal, with the company likely to return to low-double-digit EPS growth in 2027, driven by cost-control initiatives and accretive share buybacks.
PYPL Valuation
For a company with a net cash position, PayPal’s free cash flow yield is very attractive, at around 16%. I think this provides a wide margin of safety should the company undershoot its $1.5 billion cost-saving target over the next two to three years.
What is more, PayPal continues to grow, showing both top-line revenue growth above the rate of inflation and underlying user and transaction volume growth. I do agree that this growth is currently unprofitable, as evidenced by the reported decline in EPS. Given the current valuation, however, the market appears to be giving PayPal little credit for its cost-cutting efforts.
A 2026 P/E multiple of around 8.6x places PayPal at an all-time valuation trough, not just relative to its own high-growth history, but relative to the broader financial technology sector average of 15x–18x. PayPal is effectively being priced like a legacy business in terminal decline, rather than a highly liquid market incumbent generating $6 billion in free cash flow.
To sum up, I see PayPal as attractively valued, confirming my previous Buy rating on the shares, notwithstanding risks from increased competition in the payments space and the possibility that PayPal may miss its cost-cutting targets in 2027–2028.
Wall Street’s Take
Turning to Wall Street, PayPal earns a Hold consensus rating based on three Buy, 22 Hold, and three Sell ratings over the past three months. Currently, the average PYPL stock price target is $48.71, implying a potential upside of about 10% over the next 12 months.
Conclusion
PayPal shares have failed to materially recover from a slump in early 2026, with traders apparently skeptical of the company’s cost-control initiatives. Indeed, outsized expense growth was a key contributor to negative EPS growth in the first quarter of the year, even as PYPL maintained robust top-line revenue momentum. While Wall Street’s aggregate targets reflect this cautious sentiment, the deeply reset valuation provides an attractive entry point for investors with a medium-term horizon.
Heavy share buybacks will reduce the total number of shares outstanding, while steady progress in cutting corporate expenses should protect profit margins. This combination leaves PayPal well-positioned to beat low market expectations and return to double-digit earnings growth by 2027. Consequently, my rating on PYPL remains a Buy.