PYPL's Transaction Revenues: Will it Pave the Way or Hinder Growth?

PayPal Holdings' PYPL transaction revenues form the backbone of PayPal's business model. In the fourth quarter of 2025, PayPal reported another quarter of transaction revenue growth. In this quarter, PayPal reported transaction revenues of $7.82 billion, up 3% year over year. Transaction revenues accounted for approximately 90.1% of its net revenues in the fourth quarter of 2025. The continued rise in online shopping and mobile payments helped to boost transaction revenues, which led to solid fourth-quarter 2025 results.

Transaction revenues come primarily from fees charged to merchants and consumers on payments processed through PayPal's platforms. PayPal calculates these fees primarily as a combination of a percentage of the transaction amount plus a fixed fee per transaction. Transaction margin dollars ("TM$") are the profit PayPal makes from its transactions after deducting the direct costs associated with processing them.

For the fourth quarter of 2025, management had expected TM$ to be between $4.02 billion and $4.12 billion, suggesting growth in the 2-5% range and 4-6% excluding interest on customer balances. PayPal delivered within its guidance range for the metric in the quarter. TM$ came in at $4.03 billion, which grew 3% on a reported basis. Excluding interest on customer balances, TM$ increased 3.8% to $3.74 billion. TM$ growth was led by contributions from its credit and omni initiatives, improvements in Payment Service Provider (PSP) profitability and Venmo monetization efforts. For 2026, the company expects TM$ to decline slightly or remain roughly flat, excluding interest on customer balances.

Transaction take rate declined by 9 basis points (bps) to 1.65% in the quarter. Excluding the impact of foreign exchange hedges, the transaction take rate declined about 7 bps. This was attributed to higher growth in Enterprise Payments, Venmo and debit card adoption as well as branded co-marketing investments.

How Did Peers Perform?

Block's XYZ transaction revenues in the third quarter of 2025 were $1.87 billion, up 9.4% YoY and representing 30.6% of its net revenues. XYZ earns most of its transaction revenue from Square by charging merchant fees for payment processing. Cash App also plays a significant role, earning from peer-to-peer payments, Bitcoin trading and other financial services.

Payoneer Global's PAYO Q3 2025 total revenues were $270.9 million, up 9% YoY, with revenues excluding interest income growing 15% YoY. The increase in transaction volume and improved SMB customer take rates were important for this growth. PAYO generates transaction revenue by charging fees on cross-border payments, currency conversions and fund withdrawals.

PYPL’s Price Performance, Valuation & Estimates

Shares of PayPal have declined 31% year to date, underperforming both the broader industry and the S&P 500 Index.

From a valuation standpoint, PayPal shares are trading cheaply, as suggested by the Value Score of A. In terms of forward 12-month P/E, PYPL stock is trading at 7.40X, which is at a significant discount to the Zacks Financial Transaction Services industry’s 18.15X.

PayPal’s estimate revisions reflect a negative trend. The Zacks Consensus Estimate for full-year 2026 EPS has been revised downward over the past week. The Zacks Consensus Estimate for 2026 EPS suggests 1.3% growth year over year.

PayPal currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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