Global E-commerce Surge Will Ignite Digital Payments And Venmo

Key Takeaways

• Expanding integration with global wallets, BNPL, and new demographics is set to accelerate PayPal's branded checkout adoption, user growth, and profit margins.
  
• AI-driven commerce, advertising, and cross-border features like PYUSD will boost merchant demand, operating efficiency, and recurring fee revenue.
  
• Intensifying competition, regulatory pressures, and rising costs threaten PayPal's growth, profitability, and position in both domestic and international digital payments markets.

Catalysts

Operates a technology platform that enables digital payments for merchants and consumers worldwide.

• Analyst consensus expects PayPal's transformation into a commerce platform to drive future growth, but this likely underestimates the network effects of PayPal World: by seamlessly linking with the world's largest wallets, PayPal could unlock exponential branded checkout adoption and active user growth on a global scale, which would drive sustained, double-digit revenue acceleration and meaningful long-term margin expansion.
  
• While analysts broadly recognize the potential of Buy Now, Pay Later (BNPL) and omnichannel adoption, they are undervaluing the magnitude of TPV and user engagement increases as Venmo, debit, and BNPL become deeply embedded in everyday commerce workflows-supported by new demographic penetration (college campuses, global retail), this is likely to deliver far greater frequency of use, higher average revenue per account, and growing net margins over the next several years.
  
• The pace and breadth of PayPal's AI, agentic commerce, and advertising innovations are uniquely positioned to capitalize on the accelerating migration to digital payments and e-commerce; these initiatives will not only boost conversion and merchant demand but also unlock new multi-billion dollar ad revenue streams and operating leverage, supporting both top-line and bottom-line growth.
  
• PayPal World and PYUSD stablecoin position the company as a central node for cross-border and multi-currency commerce at a time when global e-commerce and digital remittances are poised for sustained high growth; this global interoperability will drive material share gains and a step-change in transaction and value-added services revenue.
  
• As the gig economy and remote work continue to expand, PayPal's advanced payouts and Hyperwallet capabilities-already critical to leading platforms-are increasingly unmatched; further penetration here will create high-quality, recurring fee revenues and significant operating efficiency, structurally improving earnings power in the medium
• and long-term.

PayPal Holdings Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on PayPal Holdings compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming PayPal Holdings's revenue will grow by 8.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 14.5% today to 15.4% in 3 years time.
• The bullish analysts expect earnings to reach $6.3 billion (and earnings per share of $7.56) by about September 2028, up from $4.7 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.4x on those 2028 earnings, up from 13.8x today. This future PE is greater than the current PE for the US Diversified Financial industry at 16.5x.
• Analysts expect the number of shares outstanding to decline by 4.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.83%, as per the Simply Wall St company report.

PayPal Holdings Future Earnings Per Share Growth

Risks

• Rapid proliferation of digital wallets from Big Tech players such as Apple Pay and Google Pay, combined with merchants' adoption of embedded finance and proprietary payment solutions, may contribute to user churn, heightened competition, and the disintermediation of PayPal's platforms, putting downward pressure on transaction volume and future revenue growth.
  
• Persistent competitive pricing pressures and increased merchant bargaining power have caused ongoing erosion of PayPal's take rate, which management acknowledged during the call as a continuing trend, suggesting potential stagnation or decline in net revenue and long-term earnings.
  
• The company's ongoing investments in platform consolidation, technology modernization, and AI-driven innovation-while necessary-may increase operating complexity and costs in the near to medium term, limiting gains in operating leverage and compressing net margins.
  
• Regulatory tightening in digital payments, data privacy, and anti-money laundering is anticipated to increase compliance costs and operational friction over time, which is likely to impact net margins and reduce overall profitability.
  
• Geopolitical fragmentation, macroeconomic volatility, and the emergence of central bank digital currencies could suppress cross-border transaction opportunities, resulting in diminished international revenue streams and slower global growth for PayPal in the long run.

Valuation

• The assumed bullish price target for PayPal Holdings is $105.86, which represents two standard deviations above the consensus price target of $82.52. This valuation is based on what can be assumed as the expectations of PayPal Holdings's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $120.0, and the most bearish reporting a price target of just $62.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $41.0 billion, earnings will come to $6.3 billion, and it would be trading on a PE ratio of 17.4x, assuming you use a discount rate of 7.8%.
• Given the current share price of $67.68, the bullish analyst price target of $105.86 is 36.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.