ZACKSยท2025-07-16 13:06Core Insights - The fintech landscape is evolving, with PayPal and Upstart Holdings emerging as significant players in different sectors [1][2][3] PayPal Overview - PayPal is transitioning from a transactional payment provider to a comprehensive commerce platform, focusing on user experience and international expansion [4][6] - Despite a nearly 14% decline in stock year-to-date, core operating metrics show resilience, with transaction margin dollars up 7% year-over-year and Venmo revenues increasing by 20% [5][3] - The Buy Now, Pay Later (BNPL) segment is performing well, with volumes rising over 20% and monthly active accounts increasing by 18% year-over-year [5] - PayPal is expanding internationally, with initiatives in Germany and the U.K., and partnerships with Coinbase, Amazon, and Shopify enhancing growth prospects [6][4] - Short-term pressures on margins are anticipated due to investments in modernization and competition from major players like Visa and Mastercard [7] Upstart Overview - Upstart is leveraging AI to disrupt traditional credit underwriting, automating 92% of loans in Q1 2025 and increasing conversion rates from 14% to 19% year-over-year [8][10] - The company is diversifying its offerings beyond personal loans into auto refinancing and HELOCs, with auto originations up 42% and HELOCs up 52% sequentially [10] - Upstart's marketplace model has diversified funding sources, with over 50% of volume backed by committed capital, and credit quality is improving with 32% of originations from super-prime borrowers [10][8] - Challenges include lower take rates due to competition and initial modest margins in newer products, alongside macroeconomic uncertainties [11] Financial Estimates - PayPal's 2025 sales and EPS are expected to rise by 2.9% and 9.5% respectively, with EPS estimates trending upward [12] - Upstart's 2025 sales are projected to increase by 59.46%, with EPS estimates also showing positive trends [13] Valuation Comparison - PayPal shares are considered undervalued with a Value Score of B, trading at a forward Price/Sales ratio of 2.1X [15] - Upstart shares are viewed as overvalued with a Value Score of F, trading at a forward Price/Sales ratio of 6.03X [15] Performance Insights - Over the past month, Upstart has outperformed PayPal and the S&P 500 composite [16] Conclusion - Both companies have unique strengths, with Upstart's rapid growth driven by AI innovation, while PayPal offers stability and a mature global payment infrastructure [19][20] - PayPal's diversified growth drivers and strategic evolution position it as a more reliable choice for investors seeking resilient growth [20][21]