PayPal: Overlooked Revenue Growth and Dividend Potential

PayPal's revenue has grown, but its stock price has fallen 14.39% this week due to a negative market perception. Bears have long predicted the company's demise, but its revenue continues to increase, reaching $8.3 billion. The author sees potential for PayPal to become a dividend machine, making it a contrarian investment idea.

PayPal (NASDAQ: PYPL) has experienced a significant decline in its stock price this week, falling by 14.39% despite reporting a robust revenue growth. Bears have long predicted the company's demise, but its revenue has consistently trended higher, reaching $8.3 billion in the second quarter of 2025, which was $220 million ahead of consensus estimates [1]. This discrepancy between financial performance and stock price movement highlights a broken stock narrative rather than a broken company.

The company's revenue growth has been steady, with a 21.78% increase since Q2 2022, and its non-GAAP EPS came in at $1.40, $0.10 higher than expectations. Despite a decline in payment transactions by 5% year-over-year and transactions per account by 4%, the company's revenue and profitability continue to expand. PayPal's management expects to generate between $6 - $7 billion in free cash flow (FCF) in 2025, indicating strong financial health [1].

The author suggests that PayPal could transition into a dividend machine, which would make it more attractive to a broader range of investors. By implementing a large dividend program, PayPal could open up new segments of the investor community and provide monthly checks to long-term shareholders. This strategy could also increase the company's accessibility to ETFs and provide a more compelling narrative for investors [1].

PayPal's strategic initiatives, such as scaling its omni-channel presence and growing its Venmo platform, have driven significant growth. The company's branded experiences TPV grew by 8% in Q2, and its buy now pay later (BNBL) services experienced 20% volume growth. Additionally, PayPal's partnership with Wix to expand merchant relationships and the introduction of PayPal World, a global payment platform, position the company for future growth [1].

However, the company's reliance on buybacks has not rewarded shareholders. Since 2014, PayPal has repurchased approximately 241 million shares for $34.21 billion, which has not translated into share price appreciation. The author recommends a shift in focus towards dividends, which could provide a better return for shareholders and align with the company's strong financial performance [1].

In conclusion, PayPal's revenue growth and profitability suggest a robust financial position, but the stock price decline indicates a market perception that is not aligned with the company's performance. By transitioning into a dividend-paying company, PayPal could attract a broader range of investors and potentially unlock more capital appreciation. However, investors should conduct their own due diligence and consider the operational risks associated with PayPal's business model.

References:
[1] https://seekingalpha.com/article/4808113-paypal-one-of-my-largest-contrarian-ideas-needs-to-become-dividend-machine