Key Morningstar metrics for PayPal holdings

  • Fair Value Estimate: $94.00
  • Morningstar Rating: ★★★★★
  • Morningstar Economic Moat Rating: Narrow
  • Morningstar Uncertainty Rating: High

What we thought of PayPal holdings’ earnings

PayPal Holdings PYPL had a weak end to the year, and the lack of progress in accelerating growth has prompted a CEO change, with current HP CEO Enrique Lores set to take over. The market has responded negatively, taking the shares down almost 20% in Feb. 3 trading.

Why it matters: PayPal saw growth slow in the fourth quarter, with net revenue up only 3% year over year on a constant-currency basis.

  • Branded checkout was the main culprit, with payment volume up only 4% (1% online). This marks a significant deceleration from recent results. The company did show some progress in accelerating unbranded volume growth, but this wasn’t enough to be a material offset.
  • We see transaction margin dollars (essentially gross profit) as the key metric for the company. Growth here weakened as well, with only 3% year-over-year growth (4% excluding interest rate impacts).

The bottom line: We expect to lower our $94 fair value estimate by about 15% after digesting these results, but we still see the shares as materially undervalued.

  • The near term will be more difficult than we expected, but we continue to think that PayPal’s scale puts a narrow moat around the business.
  • The current stock price represents about a 15% free cash flow yield using management’s expected 2026 free cash flow level. We think this creates significant upside if the company can maintain modest growth long-term.

Big picture: Lores, who had been PayPal’s chair, will take over as CEO on March 1. Board member David Dorman has taken over as chair.

  • We appreciate the board’s willingness to quickly step in and view this move positively. While we think Alex Chriss’ tenure had its positives, we believe a change is warranted.
  • Lores has had a long career at HP and has been CEO there since 2019. We think his experience in managing a tech company and his familiarity with PayPal could be positives in accelerating PayPal’s growth as quickly as possible, although 2026 looks set to be a transition year.

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