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PayPal Delivers Strong Earnings and Raised Outlook—but Investors Look Past the Beat

PayPal Holdings (PYPL) delivered a stronger-than-expected second quarter, raising its full-year earnings guidance and reporting healthy profit gains.

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But despite the upbeat numbers, shares fell sharply as investors turned their focus to sluggish transaction growth and competitive pressure in PayPal’s core branded checkout business.

Solid Q2 Results Undermined by Branded Business Slowdown
PayPal’s Q2 FY25 earnings report exceeded Wall Street expectations on both revenue and profits. Adjusted earnings per share rose to $1.40, an 18% increase year over year, handily beating the $1.30 consensus. Revenue climbed to $8.3 billion, up 5% from the prior year and above the expected $8.08 billion.

The company also raised its full-year EPS forecast to a range of $5.15 to $5.30, up from previous guidance of $4.95 to $5.10—marking a confident step forward in its profitability campaign.

Operating metrics were solid across the board: GAAP operating income rose 14% to $1.5 billion, while non-GAAP operating income increased 13% to $1.6 billion. Margins improved meaningfully, with GAAP and non-GAAP operating margins expanding by 134 and 132 basis points, respectively.

Yet PayPal shares dropped more than 7% in Tuesday trading. The sharp decline reflects investor unease with a key part of the business: total payment volume (TPV) growth in the company’s flagship branded products slowed to 5%, down from 6% the previous quarter. This modest deceleration raised concerns about PayPal’s ability to keep pace in a fiercely competitive digital payments environment dominated by Apple Pay and other emerging platforms.
 
Venmo Shines, While Strategic Shift Pressures Overall Transactions
While branded TPV growth disappointed, other parts of the business showed resilience. Venmo once again stood out, delivering over 20% revenue growth for the second straight quarter. Its payment volume growth hit a three-year high, driven by wider merchant adoption and strong traction from co-branded debit cards. Active Venmo debit card users surged by over 40%, fueled by integrations with major brands like Starbucks, DoorDash, and Ticketmaster.

Meanwhile, total payment volume increased 6% to $443.5 billion, while total payment transactions declined by 5%—a continuation of a trend that began last quarter. The drop in transaction volume is largely attributed to PayPal’s deliberate shift away from low-margin unbranded processing, especially through Braintree. The goal is to emphasize higher-margin segments such as branded transactions, credit offerings, and value-added services.

Transaction margin dollars, a key measure of profitability, rose 7% to $3.8 billion, and even more—8%—when excluding interest on customer balances. PayPal lifted its full-year forecast for this metric as well, to a range of $15.35 billion to $15.50 billion, signaling optimism about margin expansion in the second half of the year.
 
Outlook Brightens, but Market Eyes Long-Term Growth Trajectory
CEO Alex Chriss, who took over PayPal’s top job in late 2023, emphasized the company’s continued focus on innovation and long-term growth. Among the new initiatives is expanded use of PayPal’s USD-backed stablecoin, PYUSD, and a crypto integration allowing U.S. merchants to accept payments in digital assets like Bitcoin and Ethereum. These moves support Chriss’s vision of broadening PayPal’s reach beyond its legacy checkout system.

Despite the earnings beat, raised guidance, and emerging digital offerings, investor sentiment remained lukewarm. The market reaction suggests high expectations for a sharper reacceleration in branded payment volumes and deeper engagement across PayPal’s ecosystem.

Notably, PayPal returned $1.5 billion to shareholders in Q2 and repurchased 22 million shares, continuing its aggressive capital return strategy. The company’s share count is now down more than 13% from three years ago.

Conclusion
PayPal’s second quarter was, by most measures, a success: double-digit earnings growth, expanding margins, and a raised full-year outlook all paint a picture of a company making steady strategic progress. Yet concerns over the core branded business’s growth trajectory and broader competitive threats continue to weigh on investor confidence. For long-term investors, the challenge will be separating short-term volatility from the structural shifts that CEO Alex Chriss is putting in motion—ones that could reshape PayPal’s future in payments, crypto, and beyond.


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