PayPal's Hidden Value: Why $97.67 Intrinsic Worth Justifies a Buy

PayPal (PYPL) trades at a steep discount to its intrinsic value of $97.67, according to discounted cash flow (DCF) models. Despite a recent stock price of $70.83—a 28% discount to its estimated fair value—the company's robust free cash flow, margin expansion, and underappreciated growth catalysts position it as a compelling buy. This analysis combines DCF and relative valuation metrics to argue that PayPal's network effects, Venmo monetization, and strategic partnerships justify a long position, even as near-term risks loom.

DCF Analysis: The Math Behind $97.67

PayPal's DCF valuation hinges on its ability to grow free cash flow (FCF) through margin improvements and strategic investments. Using 2024's $6.8 billion FCF as a baseline, we apply the following assumptions:- Revenue Growth: 4% in 2025 (matching Q4 2024's pace) and 6% in 2026, driven by Venmo's TPV expansion and omnichannel initiatives.- Margin Expansion: Non-GAAP operating margins rising to 22% by 2027, supported by AI-driven cost efficiencies and Venmo's high-margin debit card fees.- Terminal Growth: 3% perpetuity growth, reflecting PayPal's entrenched network effects.- Discount Rate: 8.5%, consistent with its weighted average cost of capital (WACC).

These inputs yield a $97.67 intrinsic value, implying a 38% upside from current levels. Even conservative scenarios—such as 2% revenue growth and 11% WACC—still support a $75–80 range, well above today's price. reveals a persistent undervaluation, with the stock trading below its DCF-derived fair value for much of the past two years.

Relative Valuation: A Bargain at 13.8x P/E

PayPal's trailing P/E of 13.8x contrasts sharply with peers like Visa (V) at 29x and Mastercard (MA) at 27x. This discount reflects skepticism about PayPal's ability to grow revenue amid macroeconomic headwinds. However, a price-to-free cash flow (P/FCF) comparison tells a different story. PayPal trades at 10.4x FCF, versus Visa's 15.7x and Mastercard's 16.2x, underscoring its superior cash flow generation.

Venmo's rising contribution to profits further justifies a re-rating. Analysts project Venmo's operating income to hit $1.5 billion annually by 2026, or 20% of PayPal's total, compared to just 5% in 2020. With Venmo's TPV growing at 10% annually and its debit card user base surging 40% year-over-year, its value creation potential remains underappreciated.

Growth Catalysts: Margin Expansion and Strategic Leverage

1. Margin Expansion: PayPal's Q1 2025 non-GAAP operating margin hit 20.7%, up 260 basis points from 2023. AI-driven initiatives like dynamic routing and agentic commerce are reducing transaction costs by optimizing payment pathways. By 2027, management aims for high single-digit transaction margin growth, fueling EPS growth beyond revenue gains.
2. Venmo Monetization: Venmo's 62 million monthly active users are now generating revenue through debit card fees, crypto, and its "Pay with Venmo" feature. Its TPV of $75.9 billion in 2024 is expected to grow to $95 billion by 2026, with margins rising as Venmo shifts from a cost-heavy platform to a revenue engine.
3. Strategic Partnerships: PayPal's omnichannel push—evidenced by its PayPal Open platform, Verifone integration, and J.P. Morgan checkout deals—is reducing merchant acquisition costs by 15–20%. These partnerships also open new revenue streams, such as B2B payments and cross-border transactions.

Risks: Regulatory and Competitive Pressures

• Regulatory Scrutiny: PayPal faces risks from antitrust probes and fintech regulations, particularly in the EU. A worst-case scenario could entail fines or operational constraints, though PayPal's diversified global footprint (only 2% of TPV tied to China) mitigates geopolitical risks.
• Competitive Erosion: Apple Pay and Google Pay are encroaching on PayPal's B2B and B2C markets. However, PayPal's $15 billion share buyback program (with $6 billion allocated for 2025) offsets margin pressure by boosting EPS growth to 12% annually through share count reduction.

Investment Thesis: Buy with a Stop-Loss

PayPal's valuation discount is an anomaly given its cash flow resilience and growth trajectory. The stock's $90+ price target from analysts like JR Research—derived from a 16x 2026 P/E—validates the DCF case. Initiating a position at $70.83 offers a 28% upside to $90, with $65 as a prudent stop-loss to protect against macro downturns.

Conclusion

PayPal's $97.67 intrinsic value is backed by hard math: margin expansion, Venmo's monetization, and strategic scale. While risks exist, the company's financial fortitude—$15.8 billion in cash, $6–7 billion annual FCF, and a $15 billion buyback—creates a solid moat. For investors willing to overlook near-term revenue headwinds, PayPal represents a rare opportunity to buy a fintech leader at a 38% discount to its fair value. The path to $90 is clear; the question is whether the market will catch up soon.

This chart highlights how buybacks have amplified EPS growth, a trend set to accelerate as margins expand.