On Tuesday, $PayPal(PYPL)$ fell as much as 9% and closed down 8.66%, its biggest single-day drop since February, wiping out approximately $6 billion in market value overnight.
I. What Happened?
After the market closed on July 29th, $PayPal(PYPL)$ announced its Q2 2025 results: revenue of $8.30 billion (up 5% YoY) and EPS of $1.40, both exceeding Wall Street expectations of $8.08 billion and $1.30.
However, guidance was mixed: full-year EPS was raised from $4.95–5.10 to $5.15–5.30, while management lowered its full-year revenue growth forecast to 5–6% (previously 8–9%).
CEO Alex Chriss emphasized that new businesses like AI, advertising, and crypto wallets are still accelerating, but macroeconomic and interest rate uncertainties may continue to suppress short-term valuations.
The market voted with its feet—it plunged as much as 9% overnight and closed down 8.2%, its largest single-day drop since February, wiping out approximately $6 billion in market capitalization overnight.
$PayPal(PYPL)$ 's year-to-date decline has widened to approximately 10%, significantly lagging behind the $NASDAQ(.IXIC)$ 's +10% performance over the same period.
II. Financial Report Data Analysis: Growth, Profitability, and Cash Flow
Transaction Volume: Total Payment Volume (TPV) reached $443.5 billion, up 6% year-over-year and only +1% quarter-over-quarter, marking the third consecutive quarter of slowing growth. – Total transaction volume reached 6.2 billion, down 5% year-over-year. Excluding PSP (aggregator) transactions, the number of transactions was only +6%, indicating that the increase in average order value was primarily driven by high-value cross-border transactions.
Profit Structure: Trading profit was $3.84 billion (+7%), with margin up 3.7%, flat quarter-over-quarter. Trading profit excluding interest was +8%, primarily driven by a slight increase in fees and cost optimization. Adjusted operating margin was 19.8%, up 132 basis points year-over-year, with significant expense compression (marketing and HR costs both increased by low single digits year-over-year).
Cash Flow and Returns: Free cash flow was $3.4 billion in the first half of the year, with full-year guidance of $6-7 billion. The Board of Directors added $15 billion in repurchase authorization, representing approximately 20% of the current market capitalization and fully offsetting dilution by 2025-2027.
III. Latest Developments in Cryptocurrency: Timeline, Fees, and Potential Contributions
PayPal recently announced that it will accept cryptocurrencies such as $Bitcoin(BTC.USD.CC)$ , $Ethereum(ETH.USD.CC)$ , USD, and USDC.
Functionality: "Pay with Crypto" 2.0 will launch in the US in the coming weeks, allowing merchants to accept over 100 crypto assets (such as Bitcoin (BTC.USD.CC)$, Ethereum (ETH.USD.CC)$, USDT, and USDC) at once, with funds converted to fiat or the PYUSD stablecoin in real time.
Fees: PayPal charges merchants 0.99%, significantly lower than the average 3–4% charged by international card schemes. Merchants who choose to retain PYUSD can earn an additional ~4% interest on their balances.
Scale Estimation: The company revealed that crypto-related TPV currently accounts for less than 0.5%. Assuming it reaches 3% by 2026, this would correspond to approximately $15 billion in new transaction volume. Based on a 1.5% take rate, this could contribute $230 million in revenue—only around 1% of total revenue in 2026E, making it unlikely to become a "second growth curve."
IV. Diverging Institutional Views: Who's Selling? Who's Buying?
• Downgrades:
$Goldman Sachs(GS)$ Target price: $79 → $65, citing "TPV growth below the broader e-commerce market and limited trading margin elasticity."
$Morgan Stanley(MS)$ : Reiterates Underweight, believing "the valuation already reflects the buyback bonus, but lacks a revenue inflection point."
• Neutral:
$Barclays PLC(BCS)$ : Lowers target price from $90 to $80, maintains Overweight, and is optimistic about an 11-14% compound EPS growth rate driven by "cost control + buybacks."
Barron's: The earnings numbers aren't bad, but the "slowing growth" has touched a sensitive nerve in the market regarding the sustainability of PayPal's recovery.
InvestingPro: Despite the stock price decline, the company's financial health score remains "good." The current valuation is below fair value, with management's $15 billion annual buyback plan providing downside support.
• Long-term Funds:
According to Nasdaq holdings data, Vanguard and $BlackRock(BLK)$ have slightly increased their holdings since July, bringing their combined holdings to 18.7%, reflecting continued "dips" in passive funds.
V. Valuation and Scenario Analysis
The current share price of $71.45 (as of July 29th) corresponds to a 2025E P/E ratio of 11.5x and an EV/FCF ratio of 10.2x, both lower than $Visa(V)$ (18x) and $MasterCard(MA)$ (25x).
Scenario Assumptions:
• Baseline: Revenue CAGR of 5%, EPS CAGR of 10% (buybacks + cost control), with a reasonable valuation range of 12-13x → $80-85.
• Optimistic: With a 5% crypto TPV penetration rate and $5 billion in PYUSD balance, EPS could reach $5.9 in 2026, resulting in a 15x multiple, $88–90.
• Pessimistic: TPV growth slows to 3%, the take rate declines another 10bp, and EPS's 5-year CAGR is <5%, compressing the valuation to 9x, $60.
VI. Conclusion: PayPal (PYPL) has a grand story, but "growth stall" is the core of its pricing.
Cryptocurrency payments have indeed reduced cross-border fees and expanded the potential customer base, but short-term revenue elasticity is limited. This is more of a defensive innovation, preventing merchants from migrating to lower-fee solutions like Stripe and Adyen.
The real determinant of the stock price is whether TPV can return to 8%+. Amidst slowing macroeconomic consumption and intensifying competition from $Apple(AAPL)$ Pay Later and $Shopify(SHOP)$ Pay, $PayPal(PYPL)$ needs more than just crypto hype; it needs new scenarios that can leverage incremental wallet share.
For investors:
Short-term: Amidst a performance vacuum and compressed valuations, the stock price may continue to test the $65-68 range (corresponding to 10x 2025E earnings).
Medium-term: If Q3 operating expenses fall another 50-100 basis points, or if the repurchase pace exceeds expectations, a 10-15% technical rebound could be bet on.
Long-term: Only when diverse scenarios, including crypto, offline QR codes, and emerging markets, contribute a combined TPV growth rate exceeding 3ppts can PayPal (PYPL) return from a "mature cash cow" to a "growth track," and only then will there be room for a systematic valuation recovery.
Summary in Two Sentences:
$PayPal(PYPL)$ earnings report itself was a disappointment, but the combination of slowing growth and declining cash flow spooked the market. In the medium to long term, the company's earnings quality remains solid, its buybacks are strong, and its valuation has returned to its recent lows. If subsequent data confirms a bottoming out in growth, it could provide a window for contrarian investment.
PayPal's latest earnings report once again proves that profitability can be achieved through cost reduction, but ultimately, stock price growth depends on revenue growth. Cryptocurrency features are cool, but they're far from a lifesaver. Until revenue reaccelerates, the market will view it as a low-growth, high-dividend "payment utility."
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