Amid an uncertain macroeconomic environment, PayPal (PYPL 0.80%) continues posting healthy gains. Revenue and adjusted earnings per share were up 8% and 20%, respectively, in the third quarter.

While these were solid numbers, the stock isn’t doing too well. It’s down 20% so far this year, lagging the double-digit percentage gains of both the S&P 500 and the Nasdaq Composite indexes. Trading at a forward price-to-earnings ratio of just 11.4, it’s a potentially lucrative investment opportunity.

If you’re thinking about buying shares of this fintech pioneer today, here are three things to know about the business first.


Most investors know PayPal for its popular digital wallet that allows consumers to send money to others, shop from their favorite stores, and even buy cryptocurrencies. The branded checkout PayPal service represented 30% of the company’s total payment volume in 2022. It competes with the likes of Apple Pay and Alphabet‘s Google Pay.

However, Braintree, which is the company’s merchant-facing payment solution, is growing faster. It, too, accounted for 30% of total payment volume last year, but this dollar figure was up 40% versus 2021. PayPay acquired Braintree for $800 million in 2013. In hindsight, this looks like a smart purchase, given how important it has become to the overall enterprise.

We also can’t forget about Venmo, which came over to PayPal in the Braintree acquisition. Venmo started out as a peer-to-peer payments service, but now has become a full-blown commerce system of its own. Merchants can set up shop and accept payments via Venmo. Plus, there are Venmo credit and debit cards. Block‘s Cash App is a key rival in the space.

All three of these pieces make up the bulk of the PayPal organization that we know today. Management is focused on growing all of them.


You wouldn’t guess it from looking at PayPal’s stock chart, but this is a financially sound business. In the third quarter, PayPal posted an adjusted operating margin of 22%. That level of profitability is hard to come by in the fintech sector.

PayPal also has a strong balance sheet. As of Sept. 30, it had $15.4 billion of cash, cash equivalents, and investments on its balance sheet, and $10.6 billion of debt. That’s a favorable position to be in.

This is a cash-flow machine. After generating $5.1 billion of free cash flow last year, the leadership team forecasts it will bring in $4.6 billion in 2023. The company has been using that free cash to aggressively buy back stock, which might be a smart capital allocation strategy right now, given how depressed the valuation is. It plans to repurchase a whopping $5 billion worth of shares this year.

Investors can have confidence that PayPal should be able to weather even a prolonged economic storm. In fact, the company has the resources to continue investing in growth opportunities.


There’s no doubt that PayPal’s growth has slowed dramatically compared to the pandemic days. And this is probably why the stock has plunged.

In order to get the business back on track, Alex Chriss was brought over from Intuit to be the new CEO, taking over that position from longtime chief Dan Schulman. During his first earnings call as CEO, Chriss highlighted how he wants to bring down expenses. “Simply put, our cost base remains too high, and it’s actually slowing us down,” he said. Furthermore, he will refocus PayPal on its best growth opportunities.

What’s encouraging is that this is a successful company. Perhaps its new leader will be exactly what it needs to drum up renewed interest and optimism from investors.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Block, Intuit, and PayPal. The Motley Fool recommends the following options: short December 2023 $67.50 puts on PayPal. The Motley Fool has a disclosure policy.

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