PYPL Shares Fall 7% Despite Impressive Earnings: Is the Stock a Buy?

Core Insights - PayPal Holdings (PYPL) reported strong Q3 2025 results, with both earnings per share (EPS) and revenues exceeding expectations, yet the stock price fell by 7% post-announcement [1][2] Financial Performance - PayPal's Q3 net revenues reached $8.42 billion, a 7.3% increase year over year, surpassing the consensus estimate of $8.26 billion [3] - Non-GAAP EPS was $1.34, reflecting an 11.7% year-over-year increase and exceeding the Zacks Consensus Estimate of $1.19 [3] - Total Payment Volume (TPV) grew by 8.4% to $458.09 billion, while transaction margin dollars increased by 6% to $3.87 billion [3] - Active accounts rose by 1% year over year to 438 million [3] Guidance and Share Repurchases - The company raised its full-year guidance for non-GAAP EPS to $5.35-$5.39, up from $5.15-$5.30, and reaffirmed free cash flow guidance at $6-$7 billion [4] - PayPal completed $1.5 billion in share repurchases during Q3, totaling $5.7 billion over the past four quarters, with projections of approximately $6 billion in share repurchases for 2025 [4] Market Reaction and Concerns - Despite strong earnings, the market expressed skepticism regarding the sustainability of growth drivers, particularly due to softer consumer discretionary spending in Europe and the U.S. [5][6] - Payment transactions decreased by 5% to 6.3 billion, influenced by changes in product and merchant mix, as well as foreign exchange hedges [6] - Transaction losses increased by 50% year over year, primarily due to a rise in fraud incidents [7] Growth Drivers - Venmo's TPV grew by 14%, with revenues increasing by 20%, indicating strong momentum in digital payments [10][11] - Venmo's user base is expanding, with nearly 100 million active accounts and a significant increase in debit card usage [12] - Branded checkout TPV grew by 5% on a currency-neutral basis, despite global macroeconomic challenges [13] Strategic Initiatives - PayPal signed a two-year agreement with Blue Owl Capital for $7 billion in "Pay in 4" loans and partnered with Google for enhanced digital commerce experiences [14] - The company is exploring AI-powered commerce experiences and has integrated its stablecoin PYUSD across platforms [15] Valuation and Market Position - PYPL shares have declined 19.9% year to date, attributed to increased competition in the fintech sector and broader macroeconomic pressures [16] - PayPal shares are currently trading at a forward P/E of 11.91X, significantly lower than the industry average of 20.70X and competitors like Visa and Mastercard [18] Estimate Revisions - The Zacks Consensus Estimate for 2025 earnings is $5.29 per share, indicating a 13.8% growth over 2024, with a projected increase to $5.81 per share in 2026 [19]