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I have posted this elsewhere(in case you’ve already read it).
Mr. Market is pricing permanent impairment while the business is setting up a reacceleration.
PayPal has become the textbook “dead money/value trap” large cap fintech. On a spreadsheet, the value proposition looks obvious, but that’s been the case for nearly 4 years now. A former pandemic darling down >80% from its ATH; Paypal is now widely treated as an ex-growth payment rail that’s being slowly disinter-mediated due to have zero moat.
I really don’t like using Paypal, so I have avoided it up until the share price dropped back down to \~$52 when I first opened a position. My basis is $45 now.
The stock chart is telling us the business is broken, while the business metrics are telling us Paypal is compounding nicely. The issue is that most users, who are also investors, prefer Apple pay/Google pay. So, they’ve made their bet and aren’t looking under the hood.
We all know why the value nerds loved it in March 2022: PayPal had grown revenue \~31%, earnings \~17%, free cash flow >20%, and reduced share count steadily... but the stock traded \~70% below its highs. At this point though, many of the value nerds hate it. It’s been 4 years and they can’t stand to wait any longer for the chart to change directions.
I am not going to spreadsheet anyone to death here. It’s obvious, from a DCF perspective, that PYPL looks like a smoking good deal. That doesn’t mean that it is.
Either way, here’s an easy way to see how cheap it really is:
$37bn market cap. $6bn/yr in buy backs expected.
Buy backIRR(assuming share price does not go up):
\- year 1 - 16.2%
\- year 2 - 19.4%
\- year 3 - 24.0%
\- year 4 - 31.6%
\- year 5 - 46.2%
\- year 6 - 85.7%
\- Year 6.17 - 100%
This assumes cashflow turns flat with zero growth and buybacks stay flat.
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Success in its transformation pilot in the UK that the market is mostly treating as “regional marketing.” lmao.
The market has completely misunderstood the potential upside of their UK pilot and it’s also ignoring the early success of said program. Further to that, the market has not priced in the upside if that program fails and Paypal scraps it. There is only downside if that program fails and they decide to roll it out globally anyway.
Their UK program is far from unknown. Seemingly every investor paying attention to Paypal knows about it, but I really don’t think it’s being properly appreciated.
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Before I get into that, I want to quickly cover an additional reason why the chart keeps going down, regardless of most metrics improving.
The “slowing growth” narrative was an intentional move by management.
Prior management leaned into low/negative‑profit volume in Braintree (the enterprise PSP sitting behind large platforms). Alex Chriss made the strategically correct call to fire unprofitable customers. This move was viewed negatively by myself, and the market. It caused a 6% revenue drag that further fueled the slowdown narrative.
Yet, this was a huge reason why so many algorithm driven hedge funds dumped/shorted/avoided the stock.
However, the headwind of firing customers has been lapped, and Braintree TPV inflected to +6% last quarter with way better profitability…. And that still isn’t even why I’m bullish on Paypal for 2026.
I’m sure you’ve heard the phrase “In the short term the market is a voting machine based on emotion, in the long term it is a weighing machine based on fundamentals.” I like to play both market sentiment AND fundamentals. Sometimes both at the same time if I can. In this instance, I am forecasting that sentiment is going to change this year, due to the UK pilot, and fundamentals are going to re-accelerate in Q4 of 2026.
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What is Paypal doing in the UK? Why does it matter?
Paypal wants to steal market share from physical debit users. (Not credit card users) There are many pieces to this but, in my view, the crux is the simplicity + rewards program.
Paypal’s physical debit offering in the UK matches, or beats, basically every credit card rewards program on a $value received per $ spent. Personally, I don’t use my debit for almost anything. I just always use my CC because of the rewards program but, roughly 50% of day to day transactions in most countries are done via debit. That is the market this program is targeting.
Some people may use their CC to build their credit, some use it because they don’t have the cash, but most people use their cc for every day spending because they want the rewards. Having to pay off their card every month/day/week is annoying, but not a big deal. Even though PYPL claims it wants to steal market share from debit users, I am confident they will steal a reasonable chunk from both debit and credit users.
a debit card that can offer a superior/equal rewards program to a credit card? I’d imagine it would be pretty enticing.
Additionally, your physical in-store paypal debit card is directly tied to your online account.
The UK was chosen as the testing grounds for this pilot for these reasons:
It will be one of the hardest markets to win over.
Most people already use Apple Pay/Google Pay
Consumers are very comfortable with mobile wallets
Contactless payments are everywhere, so Paypal’s moat is weakest in the UK. Plus it is a relatively cheap testing ground. The most expensive aspect to the endeavour is the time it will take.
If the UK program works, then it proves:
People will actively choose to switch to Paypal despite already having a comfortable payment rail in place. If that succeeds, then ads, merchant-funded rewards, and loyalty economics in general will carry the boat to the promised land across the globe. If PayPal can win incremental habit share in one of the world’s most wallet saturated environments, it’s a strong sign that the product stack (loyalty + in‑store + cards + rewards + BNPL + more) is viable globally.
So, how is it going in the UK?
PayPal says \~1 million people signed up for PayPal+ within weeks of launch and has secured access to Live Nation UK festivals and benefits with Liverpool F.C. A drop in the bucket for Paypal overall, but that success spread globally would be pretty meaningful.
They’ve also secured deals to offer rotating bonus rewards with major retailers in Grocery & Food, Retail & Fashion, and Travel. And it’s still very early days.
/ Which?/ Be Clever With Your Cash/ TechRadar/ The Times / have all provided solid coverage of Paypal’s UK endeavor, so feel free to read up on it.
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Additionally, here are all the other levers/growth engines:
1) Venmo monetization: under-monetized asset with visible runway
Venmo is tracking to \~$1.7B of revenue in 2025 with >20% growth, while monetization is still only \~20%–25% of long‑term potential.
2) BNPL scale + frequency lift:
BNPL volume is set to grow well over 20%, and (critically) BNPL users transact about 5× more often than standard checkout customers.
3) Ads: PayPal is turning its transaction graph into a high-margin monetization layer
PayPal is explicitly building an advertising business. In October 2025, PayPal announced PayPal Ads Manager, positioning it as a way for tens of millions of small businesses on PayPal to create new ad inventory and participate in retail media economics. It also launched “Storefront Ads” earlier (turning ads into shoppable units), explicitly fueled by PayPal’s transaction graph and payment rails.
4) Fastlane and checkout UX:
Fastlane is PayPal’s product response to guest checkout abandonment. This way they recognize users via email, then enabling one‑click completion with saved credentials.
5) ai/agentic commerce:
In my view, PayPal is emerging as the default wallet for agentic commerce. It is the first digital wallet integrated into ChatGPT and Perplexity. PayPal is integrating payments/consumer protection into ChatGPT for in‑chat shopping.
Separately, Perplexity’s shopping feature also integrated PayPal for checkout (“Instant Buy”).
PayPal and Google also announced collaboration on agentic shopping experiences, broader embedding of PayPal solutions across Google ai platforms.
6) Stablecoins… this is out of my wheelhouse, so I am not factoring it in.
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Brief Management Eval:
Alex Chriss is the Intuit veteran who led the SMB division (creating massive shareholder value), and, in my view, is a great choice to build PayPal’s next growth engine. The Sunday Times profiled him and described his operating style: efficiency-obsessed, customer-centric, and willing to push an internal cultural reset. I don’t think firing him was necessary but it may prove a true gift that allowed me to buy low. If I were a criminal running the board of this company, and I saw greenshoots everywhere, I might fire the CEO in order to get one last 20% dip for buy backs.
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Lastly, the commonly cited bear cases (and why they miss the forest for the trees)
Bears usually argue PayPal is losing share to Apple Pay/Google Pay and modern PSPs (Stripe/Adyen), take rates are compressing, and Braintree is low-margin “volume for volume’s sake.” They also cite trust/reputation issues and consumer protection complexity, and point to data that PayPal’s ecommerce processing share has fallen since 2021. Those critiques are weak AF imo. They just focus on mix, share, and margin noise, while ignoring the fact that PayPal has already lapped the profitability reset and is now stacking new monetization layers (Venmo, BNPL frequency lift, ads, AI/agentic commerce) while using the UK as a proving ground for global habit change. The market is still pricing all this like it’s fucking imaginary.