PayPal’s shares dropped sharply after the company delivered a mixed holiday-quarter print and a downbeat outlook for 2026 that undercut hopes for a near-term profit reacceleration.
The headline numbers (Q4 FY2025)
- Revenue: ~$8.7B, up low single digits Y/Y, a touch below consensus.
- Non-GAAP EPS: $1.23, up modestly Y/Y but short of expectations.
- Total Payment Volume (TPV): $475.1B, +6% FX-neutral.
- Branded checkout: ~+1% FX-neutral—the sore spot.
- GAAP EPS: $1.53 (boosted by investment gains).
Guidance that rattled investors
Management guided 2026 to flat to slightly down non-GAAP EPS growth (GAAP down mid-single digits), with adjusted free cash flow of $6B+ and a planned $6B buyback. The key message: PayPal will invest against core checkout to fix experience and regain share, which means less near-term margin expansion than the Street hoped.
Leadership reset
The board appointed Enrique Lores as the next President & CEO (effective March 1), with interim leadership highlighting execution gaps in branded checkout. A fresh operator with large-scale turnaround chops could be a positive over time, but timing + weak guide amplified uncertainty, pressuring the multiple today.
What went wrong in the quarter
- Branded checkout lost momentum. Growth slowed to roughly 1% FXN, reflecting softer U.S. e-commerce, international headwinds, and tougher funnels where wallets compete with native options from Apple and Google.
- Mix and investment headwinds. Transaction margin dollars grew, but reinvestment in presentment, rewards, and risk tools weighed on near-term operating leverage.
- Expectations gap. After a year of product announcements, investors wanted a clean beat-and-raise. Instead they got a repair-and-invest message.
What’s still working
- Scale and breadth: TPV north of $475B in Q4 and $1.79T for FY25 keeps the network effects intact.
- Venmo & BNPL: Venmo revenue grew ~20% to ~$1.7B; BNPL TPV exceeded $40B, showing healthy consumer uptake. (Both reinforce cross-sell potential even as branded checkout wobbles.)
- Platform leverage beyond the button: PayPal is leaning into issuer/PSP relationships and next-gen initiatives—ads/personalization and “agentic” commerce—with partnerships across Microsoft, Google, and OpenAI to widen its surface area with merchants and consumers.
How the thesis changes
- Short term (next 1–2 quarters): Expect choppy results as the company prioritizes experience and share recovery over margins. The guide implies a Q1 EPS decline and flat TM$ ex-interest, consistent with a reset phase.
- Medium term (2–4 quarters): Watch branded checkout growth—every point of acceleration should drop through meaningfully given the scale. Also track presentment wins (button visibility), biometric adoption, and merchant pricing discipline.
- Long term: A credible turnaround hinges on restoring checkout growth while compounding Venmo monetization and high-attach services. If execution sticks and macro steadies, buybacks plus margin repair can re-rate the stock; if checkout stagnates, the multiple likely stays capped.
Key metrics snapshot
- Revenue: ~$8.7B
- Non-GAAP EPS: $1.23
- GAAP EPS: $1.53
- TPV: $475.1B (+6% FXN)
- Branded checkout growth: ~+1% FXN
- FY2026 non-GAAP EPS growth: low-single-digit decline to slightly positive
- Adjusted FCF (FY2026): $6B+; Share repurchase: $6B
Bottom line
This is a show-me phase. The stock sold off because the quarter underwhelmed and the 2026 playbook trades margin expansion today for share gains tomorrow. If branded checkout reaccelerates and new leadership executes, there’s upside to earnings power and the multiple. Until then, volatility is the base case.
FAQ
Why did the stock drop so much?
Because the company missed expectations on revenue/EPS, guided 2026 profits flat to slightly down, and disclosed only ~1% growth in branded checkout—raising concerns about competitive intensity and near-term margin pressure.
What’s the single most important KPI to watch?
Branded checkout growth. A move from ~1% toward mid-single digits would signal healthier share and better monetization runway.
Did anything actually improve?
Yes. TPV scaled to record levels, Venmo revenue grew ~20%, and BNPL surpassed $40B in TPV—proof of durable engagement beyond the core button.
What does the CEO change mean for strategy?
Expect tighter execution and prioritization. The new CEO’s big-company operating background suggests focus on checkout experience, presentment, and profitability—but investors will want evidence within a couple of quarters.
Disclaimer
This article is for information purposes only and does not constitute investment advice, an offer, or a solicitation to buy/sell any security. Markets involve risk, including loss of principal. Consider your objectives and consult a licensed financial advisor before making investment decisions.
