Could Buying PayPal Stock Today Set You Up for Life?

Key Points

• PayPal’s stock underperformed the S&P 500 over the past decade.

• It struggled with the loss of eBay, macro headwinds, and competitive challenges.

• Its stock looks cheap, but it probably won’t deliver life-changing gains.

• 10 stocks we like better than PayPal ›

PayPal (NASDAQ: PYPL), one of the world's largest digital payment platforms, was spun off from eBay 10 years ago. If you had invested $1,000 in PayPal's stock on that first day's opening trade, your investment would have grown to $7,411 when it closed at its all-time high in July 2021.

But at its current price of $70, that investment would have shrunk back down to about $1,680. That $1,000 invested in an S&P 500 index fund would have grown to around $3,220 during the same period. Let's see why PayPal's stock underperformed the market and if it might eventually deliver life-changing gains.

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PayPal's offices in Dublin, Ireland. Image source: PayPal.

What happened to PayPal over the past few years?

In 2018, eBay announced it would replace PayPal with Adyen, its smaller Dutch competitor, as its preferred payment platform over the following five years. That loss was shocking, but PayPal's rapid growth during the pandemic -- which was driven by surging online orders and peer-to-peer payments -- temporarily offset that pressure.

During an investor day in early 2021, then-CEO Dan Schulman boldly claimed that from 2020 to 2025, the company could nearly double its number of year-end active accounts from 377 million to 750 million, more than double its annual revenue to over $50 billion, and more than double its annual free cash flow (FCF) from $5 billion to over $10 billion. But as the pandemic passed, its growth in active accounts, total payment volume (TPV), and revenue slowed down.

Data source: PayPal.

That's why it was surprising when Schulman abandoned those ambitious targets in 2022 and vacated the CEO position in late 2023. At the end of 2024, PayPal had only 434 million active accounts. For the full year, it generated only $31.8 billion in revenue with FCF of $6.6 billion.

That slowdown was caused by inflationary headwinds for consumer spending, competition from other digital payment platforms, and its gradual loss of eBay's revenue. Its take rate, or the percentage of each transaction it retains as revenue, has also dropped every year since its split from eBay.

That decline was exacerbated by its growing dependence on its peer-to-peer payments app Venmo and back-end software platform Braintree -- which both have lower take rates than its main platform -- for its TPV and revenue growth.

However, PayPal still expanded its core platform with more buy now, pay later (BNPL) services, cryptocurrency trading tools, and deeper partnerships with credit card companies like Visa and Mastercard. It also launched more services to deepen its penetration of brick-and-mortar stores, more perks for its cards, and its own PayPal USD (CRYPTO: PYUSD) stablecoin for cross-border transfers and high-yield savings accounts.

As PayPal expanded, it streamlined its spending to boost its operating margins, which rose from 15.3% in 2020 to 16.7% in 2024 on the basis of generally accepted accounting principles (GAAP). Its earnings per share under GAAP grew at a steady compound annual rate of 3% during those four years.

What will happen to PayPal over the next few years?

The current CEO, Alex Chriss, is trying to balance that expansion with more disciplined spending. He also plans to plow a lot of its FCF into big buybacks to boost earnings per share (EPS).

The company's near-term growth should be driven by new tools like PayPal Open, which bundles its payments, financial services, and risk management tools in a unified platform; PayPal World, which is cross-compatible with other popular overseas payment platforms; Pay With Venmo, which is integrated into more physical and online stores, and its streamlined Fastlane checkout service. The expanded use of its own stablecoins and fresh AI features could also lock in more users.

From 2024 to 2027, analysts expect PayPal's revenue and EPS to have a compound annual growth rate of 6% and 16%, respectively. So while its high-growth days might be over, its tighter spending and buybacks should drive its EPS higher. Based on those expectations, its stock looks cheap at just 14 times this year's earnings.

Is PayPal a stock that will set you up for life?

PayPal survived its loss of eBay, continues to gain new accounts, and is trading at low valuations. It's still a reliable long-term play on the secular expansion of the digital payments market, but its business is maturing and probably won't set you up for life on its own.

Should you invest $1,000 in PayPal right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adyen, Mastercard, PayPal, Visa, and eBay. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short September 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.