Nothing like the expansion rates of the past, to be sure, but the performance remains remarkable in a now-mature sector that is largely saturated and, above all, brutally competitive.
It will no doubt take more to dispel the concerns of those who see PayPal as a Western Union of digital payments. The service's users are aging, while younger generations swear by Apple Pay, Google Pay, or Shopify's Shop Pay alternative.
Arriving at the helm in 2023, CEO Alex Chriss set a primary goal of reenergizing the in-house PayPal and Venmo brands. It is still too early to judge his success on this front, even if there are some early encouraging signs.
As it stands, it is still third-party payment processing that drives growth. This segment accounts for more than two thirds of volumes, but profitability there is unfortunately far lower.
This is what explains the spectacular drop in PayPal's gross margin, cut to a third in just a few years, a second major setback after the epic destruction of value caused by massive and ill-conceived share buybacks over the previous cycle.
PayPal has slashed costs - notably in its stock-based compensation - to keep consolidated profitability up, not without some merit.
Moreover, share buybacks have not decreased. On the contrary: the group should return $6 billion to its shareholders this year, as it did last year.
This time, the choice makes perfect sense since the valuation is at historic lows, with enterprise value still equal to a single-digit multiple of operating profit before investments, or EBITDA.
In parallel, and notwithstanding margin compression, it is hard to ignore that the fundamentals remain sound, as the group's net income should reach a record in 2025, and its earnings per share are expected to be around $5, versus $3.5 five years ago.
PayPal recently applied for a banking license to develop its lending activities to small and medium-sized businesses. While this diversification is welcome, the group will there too have to contend with fierce competition.
