We came across a bullish thesis on PayPal Holdings, Inc. (PYPL) on Substack by Sergey. In this article, we will summarize the bulls’ thesis on PYPL. PayPal Holdings, Inc. (PYPL)’s share was trading at $66.32 as of April 29th. PYPL’s trailing and forward P/E were 16.62 and 13.26 respectively according to Yahoo Finance.
PayPal’s first-quarter 2025 earnings reveal a company in the midst of a multifaceted transformation, marked by disciplined execution, high-margin growth initiatives, and strategic innovation in payments and commerce infrastructure. Non-GAAP EPS rose 23% year-over-year to $1.33, surpassing guidance and reflecting the fifth consecutive quarter of profitable growth. Transaction margin dollars increased 8% year-over-year, supported by an expanding non-GAAP operating margin of 20.7% and a 270-basis-point gain in transaction margin rate. While the transaction take rate slightly declined to 1.68% due to a mix shift toward lower-rate products like debit and peer-to-peer, the broader financial picture remains strong. Free cash flow was $1 billion, or $1.4 billion when adjusted for Buy Now, Pay Later (BNPL) receivable timing, bringing the trailing twelve-month figure to $6.2 billion.
The company’s Braintree segment experienced moderated volume growth of 2% year-over-year, down from 6% in Q4, as PayPal exited low-margin contracts. However, this refocusing on value-added services significantly improved economics, with one major enterprise client achieving a 20-point improvement in transaction margin by adopting bundled solutions like fraud protection and optimized debit routing. These Braintree initiatives are expected to contribute more than one point of transaction margin expansion in FY25, positioning the platform for more durable profitability.
A major strategic thrust is PayPal’s integration of artificial intelligence. The launch of the industry’s first remote MCP server enables AI agents to process payments, invoicing, and fulfillment. These technologies were demonstrated during Developer Days in San Jose, highlighting the early adoption of AI-driven commerce. AI also plays a key role in personalization, advertising, and checkout optimization—cornerstones of PayPal’s evolving smart wallet and digital experience strategy. According to CEO Alex Chriss, these innovations will empower consumers to make the smartest, most rewarding payment choices across platforms.
Venmo delivered a breakout performance with 20% revenue growth, its highest in years. Monthly active accounts grew 30%, fueled by increased merchant acceptance and the expansion of features such as Pay with Venmo, which saw a 50% increase in TPV. Partnerships with brands like JetBlue, Domino’s, TikTok Shop, and Instacart signaled broadening use cases, while debit card penetration reached 6% of the Venmo base, up from 4% a year prior. Users of the Venmo debit card were significantly more engaged, transacting six times more and producing twice the ARPU compared to online-only users. While international expansion remains a challenge, domestic success underscores a strong product-market fit.
BNPL continued its momentum, with TPV up 20% year-over-year and monthly active users rising 18%. Users transacting with BNPL spent 33% more and made 17% more transactions than non-BNPL users. PayPal’s newly redesigned pay sheet has enhanced visibility and usability, aiding adoption in international markets like Germany, France, and Australia. In markets where credit is less prevalent, such as Germany, PayPal’s bank-linked system is a differentiator, offering seamless, trusted financing options.
Fastlane, part of PayPal Complete Payments, is gaining traction among SMBs, now powering nearly half of SMB volume. This streamlined checkout solution, bundled with branded experiences and authentication, has boosted attachment rates by 33% quarter-over-quarter. Still, onboarding and tech resource constraints pose scale challenges for smaller merchants.
Offline commerce continues to be a priority, with PayPal debit card TPV rising 64% year-over-year. Two million new users—a 90% increase—have embraced PayPal Everywhere, with significant traction in everyday categories like gas and groceries. This momentum is set to expand in Germany and the UK throughout 2025.
Value-added services (VAS) grew 17% to $775 million, anchored by fraud tools, merchant credit, and API-based optimization. Enterprise and SMB clients both contributed meaningfully to this growth, demonstrating the increasing appeal of PayPal’s integrated stack. Omnichannel commerce is also accelerating, with branded checkout and tap-to-pay volume up 8% and higher engagement from users leveraging PayPal’s debit card.
Product enhancements like a redesigned checkout interface now handle 45%+ of U.S. checkout traffic and have lifted conversion by 100 basis points. European rollout of this streamlined flow begins in Q2/Q3, starting in Germany and the UK. In those regions, PayPal is reinforcing its leadership with NFC, biometric security, and bank-linked systems.
With FY25 EPS guidance reaffirmed at $4.95–$5.10 and continued growth in transaction margin dollars, PayPal remains on track to hit its 8–10% branded checkout CAGR through 2027. A planned $6 billion in buybacks underscores confidence in its strategy. Despite global macro volatility and shifting payment trends, PayPal is executing well across its segments, laying the groundwork for a re-rating as the market absorbs the long-term potential of its platform.
PayPal Holdings, Inc. (PYPL) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 94 hedge fund portfolios held PYPL at the end of the fourth quarter which was 90 in the previous quarter. While we acknowledge the risk and potential of PYPL as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PYPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.