PayPal's Strong Free Cash Flow and Margins Could Push PYPL +17% Stock Higher

Core Viewpoint - PayPal Holdings, Inc. is initiating the establishment of an industrial bank to enhance its lending capabilities, which is expected to improve its free cash flow and adjusted free cash flow margins, potentially increasing its stock value by over 17% in the next year [1]. Financial Performance - PayPal reported a Q3 revenue increase of 7.26% year-over-year to $8.417 billion, with operating income rising by 9.3% year-over-year [4]. - The company's free cash flow (FCF) rose by 18.9% year-over-year in Q3 to $1.718 billion, while adjusted FCF increased by 47.9% to $2.278 billion [4]. - Adjusted FCF represented 27.1% of Q3 revenue, up from 19.6% a year ago, indicating effective operational optimization [5]. Future Projections - Over the past year, PayPal generated over $6.414 billion in adjusted FCF, which is 19.5% of its trailing 12-month revenue of $32.862 billion [6][7]. - Analysts project that PayPal will achieve $35.28 billion in revenue next year, leading to an expected adjusted FCF of approximately $6.88 billion, reflecting a 7.3% increase from the previous period [7]. - Using a 10% FCF yield metric, PayPal's stock could be valued at $68.8 billion, based on a conservative 10x FCF multiple [8].