PayPal(NASDAQ: PYPL) stock has been crushed this year. Accelerating revenue growth hasn’t been enough to help shares climb out of a multiyear slump. Adding to the stock’s carnage, shares slipped earlier this week when management raised new concerns about growth in the company’s core checkout business.
The digital payments specialist’s revenue recently returned to mid-single-digit growth — and earnings are climbing at an even faster rate. Yet, recent remarks from PayPal’s chief financial officer are a good reminder that the company still faces some challenges it needs to work through before it’s firing on all cylinders again.
This begs the question: Is the stock’s cheap valuation a reason to buy, or an accurate reflection of deeper problems underneath the surface?
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It’s worth emphasizing that PayPal’s business fundamentals have seen dramatic improvement recently. In the third quarter of 2025, PayPal’s revenue rose 7% year over year — an acceleration from 5% growth in Q2. Additionally, the company’s adjusted earnings per share increased 12% year over year to $1.34.
Engagement, however, remains a weaker spot for PayPal. Active accounts stayed near 438 million at the end of the third quarter, up only 1% year over year and in line with Q2. Additionally, total payment transactions in Q3 declined 5% year over year. And transactions per active account on a trailing-12-month basis dipped 6% to 57.6, suggesting that many users are transacting less frequently than before.
Speaking at the UBS (NYSE: UBS) Global Tech & AI Conference, CFO Jamie Miller said that growth in PayPal’s branded checkout business would be “at least a couple of points slower” in the fourth quarter than it was in the third quarter. Branded checkout volume grew in the mid-single digits in the third quarter, so Miller’s comment implies growth near 3% or worse during the current period, even though overall guidance for the quarter did not change.
Branded checkout remains one of PayPal’s most important franchises. It is one of the primary ways many online shoppers encounter PayPal on merchant sites and inside apps — and it likely boasts a healthier margin than some of the company’s lower-fee processing work, such as payment service provider transactions. A slowdown during the holiday season points to persistent competitive pressure from card networks and major technology platforms that are expanding their own checkout offerings.
Importantly, Miller did say that the company is on track to meet its fourth-quarter guidance despite this headwind. In its third-quarter update, management forecast Non-generally accepted accounting principles (GAAP) earnings per share of $1.27 to $1.31 — up from $1.19 in the fourth quarter of 2024. Still, with PayPal already posting poor performance on some engagement metrics and now with decelerating growth in its branded checkout, there’s good reason to be concerned.
But PayPal bulls might argue that the bad news is already priced in. The stock’s current valuation is extremely cheap. Trading at about 12 times earnings, quality tech stocks don’t get much cheaper than this. However, investors who buy the stock today must believe PayPal can stabilize branded checkout growth, or at least make up for some of its weakening engagement trends with its newer AI (artificial intelligence)-related initiatives like its agentic commerce services.
I personally will stay on the sidelines for now. Given the intense competition in the payments space, I worry that some of the weaknesses in certain PayPal engagement metrics may be signs of shifting trends and competition taking market share. But I’m open to changing my mind if PayPal can show consistent improvement in transactions and engagement.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short December 2025 $75 calls on PayPal. The Motley Fool has a disclosure policy.
