Haverhill Financial Research · October 12, 2026
Summary: Haverhill price target $65 (12 months)
PayPal makes most of its profit from its own checkout button, and that business has slowed to 2% growth, which is why the stock trades at about 10 times this year's guided earnings. At $55.53 the company is buying back about $6 billion of stock a year, roughly an eighth of its market value, while new CEO Enrique Lores cuts costs and pushes Venmo and debit. Flat profits spread over about 10% fewer shares get us most of the way to our value without a checkout recovery. Our 12-month price target of $65 (through October 2027) sits about 17% above the current price, so we rate the shares Buy.
PayPal filings through the Q2 2026 Form 10-Q; Haverhill Financial Research model; price as of Nasdaq close Oct 9, 2026
Checkout has stopped falling. Branded checkout volume grew 2% in both Q1 and Q2 2026 after slowing to 1% in Q4 2025, and PayPal raised its full-year view to low-single-digit growth.
The buyback does the heavy lifting. PayPal plans $6 billion of repurchases in 2026, about 12.6% of its market value, and its average share count fell 10% in a year.
Our view: at about 10 times guided earnings the stock is priced for decline. The main risks are checkout slipping back and lower interest income on customer balances.
Investment thesis in brief
Our thesis: PayPal is a slow-growing but very cash-generative payments network, and at about 10 times earnings the buyback can carry the stock while new management works on growth.
What we like. PayPal expects more than $6 billion of adjusted free cash flow in 2026 and plans to spend $6 billion on buybacks. At $55.53 that is about 12.6% of the company's market value in a single year (Haverhill calculation). Buybacks cut the share count 10% in a year, so earnings per share can grow when profits do not.
What the market may be missing. The weak spot, branded checkout, has stopped getting worse. Its volume growth fell from 6% in Q4 2024 to 1% in Q4 2025, then held at 2% in both Q1 and Q2 2026, and management raised its full-year view to low-single-digit growth. Venmo volume grew 14% in Q2.
What holds us back. Gross profit is barely growing. Transaction margin dollars, PayPal's main profit measure, rose 1% in Q2 and are guided to about $15.6 billion for 2026, close to 2025's $15.5 billion.
How does the business actually make money?
PayPal takes a small cut of each payment it handles. In Q2 2026 it processed $486.4 billion of total payment volume (TPV) and kept $8.7 billion as revenue, about 1.8% (Haverhill calculation). After card network and bank fees and losses, it kept $3.9 billion of transaction margin dollars, the number that pays for operating costs and the buyback.
Where the profit comes from. The PayPal button at online checkout is the most profitable product, because many shoppers pay from balances, bank accounts or PayPal credit, which cost less than cards. Braintree, the unbranded card processing service sold to large merchants, brings volume at much thinner margins. Venmo, the US peer-to-peer app, is earlier in charging for things: PayPal said Venmo revenue reached about $1.7 billion in 2025, up about 20%, helped by its debit card and Pay with Venmo at checkout. PayPal also earns interest on customer balances, $281 million in Q2.
The new organization. PayPal now runs three groups: Checkout Solutions & PayPal, Consumer Financial Services & Venmo, and Payment Services & Crypto. It does not yet report revenue or profit for each. Management is focusing on high-value users, less than a third of accounts but more than half of TPV.
What do the numbers say?
In Q2 2026 TPV rose 10% and revenue 5%, but transaction margin dollars rose only 1%, or 3% excluding interest on customer balances. Non-GAAP earnings per share (which exclude items such as stock pay and restructuring) fell 1% to $1.38, even though the average share count was 10% lower.
Exhibit 1: transaction margin dollars, PayPal's main profit measure, rose just 1% year over year in Q2 2026
Three things investors should know.
The mix is diluting margins. Transaction margin was 44.9% of revenue in Q2, down from 46.4% a year earlier. Transaction expense rose 11% as processing volume for large merchants (mainly Braintree) grew 13% currency neutral. Losses fell to $397 million from $476 million.
Interest income is shrinking. Interest on customer balances fell to $281 million from $318 million a year earlier. Without it, transaction margin dollars grew 3%, the better read on the underlying business.
Cash flow is the strength. Adjusted free cash flow was $1.8 billion in Q2 and $3.6 billion in the first half. PayPal bought back $1.5 billion of stock in the quarter and held $15.3 billion of cash and investments against $13.4 billion of debt at June 30.
Guidance. PayPal raised its 2026 outlook in July to non-GAAP EPS of about $5.38, against $5.31 in 2025. For Q3 it expects transaction margin dollars slightly positive and EPS down by a low single digit. Guidance excludes possible second-half transformation charges.
Competition and moat
PayPal's edge is its two-sided network, with 439 million active accounts and millions of merchants. Its problem is that the checkout page has become crowded.
Who it competes with. Apple Pay and Google Pay are built into the phone, and Shop Pay owns checkout on Shopify stores. Stripe and Adyen compete with Braintree for large merchants, often on price. Klarna and Affirm compete in buy now, pay later, and Cash App and Zelle with Venmo.
Where the moat is real. Consumers have stored payment details with PayPal for years, and Venmo is a daily habit for many US users. Debit card and tap-to-pay volume grew more than 60% in Q2, which gives PayPal a role in physical stores.
Where it is thin. Active accounts grew 0.3% in a year and monthly active accounts 1%, a mature user base. Branded checkout grew 2% while total volume grew 10%, so more of the growth is coming from lower-margin products.
Management. Enrique Lores became CEO on March 1, 2026, after more than six years running HP Inc. and nearly five years on PayPal's board. The board said the previous team's pace of change was not in line with its expectations. His plan rebuilds the consumer side in 2026 and 2027, then expands financial services to more countries. He targets at least $1.5 billion of gross annual cost savings over two to three years, about $400 million of it by the end of 2026.
What is it worth?
We value PayPal at $65 per share over the next 12 months (to October 2027), a probability-weighted blend of three scenarios. That is about 17% above the current price, which supports a Buy. We value the company on its own reported figures.
Our method. PayPal is profitable and its earnings are steady, so we value it on earnings:
Estimate 2027 adjusted net income. The starting point is 2026 guidance of about $5.38 per share, which on roughly 872 million average shares is about $4.7 billion (Haverhill calculation).
Divide by the share count we expect after buybacks. At $6 billion a year, our base case has average 2027 diluted shares near 790 million, against 882 million in Q2 2026.
Apply the price-to-earnings multiple we expect in October 2027, and weight the cases 25% bear, 50% base and 25% bull.
Why these numbers. Our base case holds adjusted net income flat at about $4.7 billion in 2027. Savings are partly reinvested, and interest income falls as cash goes to buybacks. Fewer shares lift EPS to about $5.95, roughly 11% above 2026 guidance (our estimate). We use 11 times, close to today's multiple, because transaction margin growth is still near zero.
What the price implies. At $55.53 and 11 times earnings, the market is pricing about $5.05 of 2027 EPS, below this year's guided $5.38. Each turn of the multiple is worth about $6 a share on our base-case earnings.
Today's valuation, for reference. With 855 million shares outstanding in July, PayPal's equity is worth about $47.5 billion, or 10.3 times 2026 guided non-GAAP EPS. The $0.14 quarterly dividend yields about 1%.
What are the real risks?
Ranked by how much they would move our value per share.
Branded checkout turns negative. It is the highest-margin product. If growth slips from 2% to below zero, transaction margin dollars fall and our bear case of about $5.40 EPS comes into play.
Lower interest rates. Interest on customer balances was $281 million in Q2, about 7% of transaction margin dollars, and it shrinks as rates fall.
The turnaround costs more than it saves. Operating costs are guided up 7% to 8% in 2026, and second-half transformation charges are not in guidance.
Credit losses rise. PayPal held $6.8 billion of loans and interest receivable, plus $1.9 billion held for sale, at June 30. Buy now, pay later volume is growing 26%.
Buybacks slow. Most of our EPS growth comes from a falling share count. A smaller program would remove most of the base-case upside.
What would change our mind?
Our Buy rests on steady profits and a shrinking share count. These signals would test that.
Signals that would move us to Hold or Sell
Branded checkout growth at 0% or below in any quarter.
2027 guidance for lower transaction margin dollars than the roughly $15.6 billion guided for 2026.
Adjusted free cash flow below $5 billion for a year, or a buyback plan under $4 billion.
The price runs past about $75 with no change in our earnings view.
Signals that would make us more bullish
Branded checkout growth of 4% or more, currency neutral, for two quarters in a row.
Transaction margin dollars excluding interest growing 5% or more year over year.
Non-GAAP operating margin back near 19.9%, the Q2 2025 level, against 17.4% in Q2 2026.
Catalysts to watch
October 27, 2026: Q3 2026 results. Branded checkout growth and transaction margin dollars against guidance.
Early February 2027 (Haverhill estimate): Q4 results and 2027 outlook.
Year-end 2026: cost savings. PayPal targets about $400 million of run-rate savings by then.
Segment figures. Revenue and profit for the three new groups would show what Venmo earns. PayPal has not said when it will report them.
Sources and disclosures
Every company figure in this report comes from PayPal's own filings and releases, linked below. The analysis, model and price target are Haverhill Financial Research's own work.
Disclosures. Haverhill Financial Research is a publisher of general financial commentary. This report is not personalized investment advice and does not consider any reader's financial situation; readers should do their own research. Price targets are estimates of value, not guarantees. Haverhill ratings follow our published bands: Buy when our 12-month target is at least 15% above the price, Sell when it is at least 15% below, Hold in between. The author of this post does not hold a position in PYPL. Data as of October 9, 2026.
