Things have been tough for PayPal Holdings (PYPL) this year—and actually, for quite some time now. Since its peak in July 2021, the company has lost over 78% of its market value. While the past few years have been rough, nearly half of the more than 40% gains made in 2024 have already been wiped out this year.
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The main reasons boil down to challenges in turning user growth into real revenue, coupled with strong competition and shifting consumer behavior. The fundamentals are still solid, but the growth story isn’t. As TipRanks data shows, PYPL stock has lagged the S&P 500 (SPX) by ~20% so far this year.
Even the strong beat across the board in PayPal’s Q2 results, published last week, wasn’t enough to spark positive momentum. Concerns about heavy buybacks amid weak monetization—especially with merchants and Venmo—continue to hold the stock back. In short, recent performance suggests the market remains skeptical about PayPal, pricing in weak growth potential at least through this year, as the company sends mixed signals about how to allocate its capital for growth. That’s why I’m sticking with a Sell rating on the stock.
PYPL Undergoes Beat, Raise, and Drop
Sometimes, not even checking off all the usual boxes is enough to lift a stock. I’m talking about beating EPS and revenue estimates, and raising both EPS and revenue guidance—the classic “beat and raise.” PayPal did all of that in Q2 2025, and still, shares dropped by double digits after the announcement, piling up annual losses of more than 20%.
And it’s not like the beats were minor. EPS came in about 7.7% above analyst expectations, and revenue beat by 2.6%. PayPal also raised its full-year guidance for transaction margin dollars to between $15.35 billion and $15.5 billion—an annual growth of 5% to 6%. EPS guidance was raised to a range of $5.15 to $5.30, up 11% to 14% year-over-year, which is nearly 6% higher than what the market was expecting earlier this year, based on the mid-range.
Even with some impact from the timing of working capital investments, PayPal stayed cash-flow positive in the quarter, generating $656 million in free cash flow—down 42% year-over-year, but primarily due to a one-off factor. Over the last twelve months, PayPal generated $5.7 billion in free cash flow, which implies an 8% yield. The company also bought back $1.5 billion in shares during the quarter, bringing the total over the past year to $6.5 billion — that’s 115% of its annual free cash flow.
So why the sell-off? The high FCF yield and aggressive buybacks suggest PayPal is focused more on returning capital to shareholders than investing in growth. That might be part of what’s spooking the market—it’s sending mixed signals, and investors aren’t sure how to interpret them.
The Roadblock to PayPal’s Merchant Success
But wait, there’s more behind the bearish momentum. PayPal’s investment thesis today largely hinges on its bright spot: Venmo—the company’s main growth engine and a clear leader among younger users. The business has done really well in peer-to-peer (P2P) payments, with Venmo representing around 80% of PayPal’s P2P volume. But lately, the market’s excitement around Venmo seems to be cooling off.
Let’s start with competition. Apple Pay, Google Pay, Zelle, and to some extent Cash App, are all chipping away at PayPal’s market share—especially in mobile and P2P transactions. On the surface, PayPal’s Q2 2025 looked solid: active accounts rose by 2 million, total payment volume (TPV) grew 6% year-over-year, and Venmo TPV was up 12%. On top of that, strong cost control helped boost PayPal’s business total operating margins to 19.3%, up from 17.9% a year ago.
But under the surface, it’s not all that pretty. That 6% TPV growth is actually below PayPal’s historical norms, and more importantly, the take rate fell to 1.68%, down 4 basis points year-over-year. In simple terms, PayPal is making less per dollar processed. And the main reason is its struggle with peer-to-merchant (P2M) payments—the real monetization engine.
P2P, in general, doesn’t make much money since it’s often free or carries razor-thin margins. While both PayPal and Venmo have been trying to expand into customer-to-merchant payments, adoption has been limited. And a lot of that market has already been captured by competitors.
Branded TPV—which includes PayPal Checkout, Tap to Pay, and debit cards—grew 8% year-over-year. But that’s still not impressive when you compare it to platforms like Shopify, which is surging, or Apple Pay, which continues to see rapid adoption—especially among iPhone users.
So, the bottom line here is that PayPal’s monetization potential in P2M remains limited, even though that’s where the upside lies. If they can successfully turn Venmo into a widely accepted merchant payment tool, it could be a major catalyst. But that’s not what we’ve seen in 2025 so far—and definitely not in Q2.
PYPL Still Discounted, But For a Reason
That said, PayPal currently trades at a forward P/E of 13.2x, compared to its 2-year average of 14.2x—and still about 23% above the broader industry average. So while the stock is trading at a historical 7% discount to its own norms, it’s also far from the highs it saw at the end of 2024, when the forward multiple touched ~20x during a more bullish market.
The stock has rebounded a bit from recent lows, climbing back to around $68 per share—but that recovery hasn’t been driven by excitement. The forward P/E has stayed subdued. To me, that says the bounce is more about earnings stability than renewed optimism. And that lines up with what we saw in the latest quarter: solid numbers, but still overshadowed by competitive threats and slow progress on monetizing Venmo.
In the end, with the P/E sitting near the low end of its range, it looks like the market is pricing in PayPal’s structural challenges in a pretty rational way—not just reacting emotionally to one quarter’s results.
Is PayPal a Buy, Sell, or Hold?
There’s been quite a bit of skepticism among Wall Street analysts about PayPal over the past three months. Out of the 25 experts covering the stock, ten are bullish, 13 are neutral, and two are bearish. PYPL’s average stock price target stands at $83.53, which suggests a potential upside of ~24.5% from the current share price.
PayPal’s Growth Struggles Keep It on the Sell Watch
The market has noticed that PayPal is missing key opportunities in merchant payments—struggling to convert Venmo users into merchant payers, which is where the real money is, not just in peer-to-peer transfers. While Venmo has been great for bringing in users, it hasn’t translated into strong monetization growth, and that has overshadowed PayPal’s strengths recently.
Reversing these structural challenges won’t be easy; it requires beating tougher competition, driving merchant adoption, and adapting to changing consumer habits. On top of that, the heavy deployment of cash toward buybacks suggests the management team has little clarity on how to tackle these headwinds.
Even if the fundamentals remain solid and valuations stay historically discounted, momentum could remain stuck for a while if these issues aren’t addressed. That’s why I still expect PayPal to underperform the broader market at least through this year, and why I’m maintaining a Sell rating.