Why PayPal and Block Are Fintech's Safest Bets Amid Economic Uncertainty

In a world of economic uncertainty—where inflation, trade wars, and market volatility dominate headlines—investors are increasingly seeking defensive assets. Fintech giants PayPal and Block stand out as rare exceptions: their robust ecosystems, razor-sharp profitability, and undervalued stock prices make them the ultimate safe havens for capital preservation and growth. Here’s why these two companies are must-hold positions in your portfolio today.

The Power of Network Effects: PayPal’s Unassailable Moat

PayPal’s dominance in digital payments is underpinned by a network effect that rivals few industries. With 436 million active accounts and $417 billion in total payment volume (TPV) in Q1 2025, its ecosystem includes Venmo, Braintree, and PayPal Credit—a closed-loop system that keeps users transacting within its walls. This scale isn’t just about size; it’s about stickiness.

Profitability is soaring, even as revenue growth moderates. PayPal’s non-GAAP operating margin hit 20.7% in Q1 2025, up from 18.2% in 2024, thanks to aggressive cost-cutting and a focus on high-margin services. Automation and AI integration have slashed operating expenses by 4% YoY, while transaction margin dollars rose 7.4% to $3.7 billion. This isn’t just efficiency—it’s a profit machine engineered for stability.

Block: The Dual-Engine Growth Machine

Block (formerly Square) operates in two high-growth markets: cashless payments (Square) and consumer finance (Cash App). Its dual-engine strategy has created a rare hybrid model:

1. Square: Serves 6 million merchants globally, with mid-market sellers (processing >$500k annually) now accounting for 41% of its GPV (up from 39% in 2024). International expansion is fueling 15% GPV growth, outpacing the U.S. market.
2. Cash App: A $1.39 billion gross profit engine with 25 million active users on its Cash App Card. Features like Cash App Borrow (now FDIC-insured) and Afterpay integration are unlocking new revenue streams.

Despite a 3.1% revenue dip in Q1, Block’s adjusted operating margin hit 20%, up from 17% in 2024. This operational turnaround—driven by cost discipline and high-margin services—proves its model can thrive even in softening macro conditions.

Undervalued at 14x and 16x P/E: A Buying Opportunity

Both companies trade at historically low valuations, offering a margin of safety for investors.

• PayPal’s P/E ratio (14.8x as of May 2025) is 40% below its 10-year average, despite its fortress balance sheet ($7.8 billion in cash) and recurring revenue streams.
• Block’s P/E of 14x is 97% lower than its six-year average, reflecting market skepticism about its top-line growth. Yet its adjusted EBITDA margin hit 35% in Q1—a record—suggests earnings are stabilizing.

This undervaluation is a mispricing. For context, fintech peers like Stripe (private) and Afterpay (now part of Square) command far higher multiples. PayPal and Block are underappreciated for their cash flow resilience.

Why Now? The Perfect Storm for Defensive Plays

In volatile markets, investors prioritize predictable cash flows and low sensitivity to macro downturns. Both companies check these boxes:

1. Durable Cash Flows:
2. PayPal’s free cash flow guidance of $6–7 billion for 2025 is backed by recurring subscription revenue and cross-border payment fees.

3. Block’s $1.53 billion in trailing free cash flow (LTM) grows as its Cash App and Square segments scale.

4. Strategic Resilience:

5. PayPal is divesting non-core assets (e.g., crypto partnerships) to focus on high-margin segments.

6. Block is doubling down on AI-driven productivity tools (like its “Goose” platform) and high ROI initiatives like Cash App’s BNPL offerings.

7. Risk-Adjusted Returns:

8. Both stocks have outperformed the S&P 500 by 20% year-to-date, with lower volatility due to their defensive moats.

Call to Action: Allocate $1,000 to Each—Now

The math is clear:

• PayPal at $14.8x P/E offers 20% upside to its long-term average. Its 20.7% operating margin is a fortress in a cost-conscious world.
• Block at $14x P/E is a deep-value play; its Q1 margin of 20% and mid-teens 2025 gross profit growth suggest a rebound is coming.

Risk? Both companies face headwinds—PayPal’s revenue stagnation, Block’s Cash App growth slowdown—but their margins and ecosystems provide cushion against setbacks.

Final Verdict: The Safest Bets in Fintech

In an uncertain economy, PayPal and Block are the ultimate defensive plays. Their network effects, profit margins, and undervalued stocks make them must-own holdings for investors seeking stability and growth. Allocate $1,000 to each today, and let these fintech titans work their magic.