PayPal Stock Drops Despite Earnings Beat: What’s Driving the Selloff?

PayPal delivered a strong fourth-quarter earnings report, surpassing Wall Street estimates on both earnings per share and revenue. The company reported adjusted EPS of $1.19, beating the consensus estimate of $1.12, while revenue grew 4.2 percent year-over-year to $8.37 billion, exceeding expectations of $8.26 billion. Despite these positive results, shares of PayPal tumbled 6.8 percent in premarket trading, with investors questioning whether the company’s growth trajectory is as strong as it appears on the surface.

Key Metrics and Performance Overview

While PayPal’s headline numbers were solid, certain underlying metrics raised concerns. Total payment volume, a critical indicator of transaction growth, came in at $437.8 billion, missing the consensus estimate of $438.64 billion. Transaction margin dollars, which reflect the profitability of PayPal’s core business, rose 7.2 percent to $3.94 billion, beating expectations of $3.78 billion. However, the number of payment transactions declined 2.6 percent year-over-year to 6.62 billion, falling short of projections.

Operating margins were another area of concern, as adjusted operating margin declined 34 basis points year-over-year to 18 percent, below the 18.3 percent estimate. Additionally, total operating expenses increased 10 percent year-over-year to $6.93 billion, suggesting that cost pressures remain an issue.

Guidance and Future Outlook

Despite concerns over certain metrics, PayPal provided an upbeat guidance for 2025. The company expects full-year adjusted EPS of $4.95 to $5.10, exceeding the $4.90 consensus estimate. It also guided for transaction margin dollars between $15.2 billion and $15.4 billion, above expectations of $15.07 billion.

For the first quarter, PayPal forecasts adjusted EPS of $1.15 to $1.17, ahead of the $1.13 consensus, with transaction margin dollars projected between $3.6 billion and $3.65 billion, slightly above estimates. Free cash flow for the year is expected to be in the range of $6 billion to $7 billion, reinforcing the company’s financial strength.

PayPal also announced a $15 billion share buyback program, which could provide some support for the stock in the long term.

Why Is the Stock Selling Off?

The selloff in PayPal’s stock, despite the earnings beat and strong guidance, appears to stem from several investor concerns.

1. Margin contraction – The 34-basis-point decline in operating margin overshadowed the earnings beat, signaling that rising costs and competitive pressures are weighing on profitability.

2. Branded checkout growth concerns – PayPal’s branded total payment volume grew just 6 percent, below investor expectations of 7 to 8 percent. Analysts see this as a warning sign that PayPal may be losing market share in its core business.

3. Competitive pressure from Apple and Google – The growing presence of Apple Pay and Google Pay in digital payments continues to challenge PayPal’s dominance, especially in checkout solutions.

4. Braintree uncertainty – Changes to pricing at PayPal’s Braintree unit have helped improve transaction margins, but some analysts worry that renegotiated contracts may lead to volume losses as merchants consider alternative payment processors.

5. Stock already rallied into earnings – PayPal shares had gained 12 percent since its last earnings report, far outpacing the 3 percent gain in the S&P 500 over the same period. This suggests that some investors may have been taking profits after the earnings release.

Price Action and Market Reaction

PayPal initially rose 2.4 percent in premarket trading after reporting its results but quickly reversed course, dropping 6.8 percent before the market opened and extending losses to 9.5 percent during regular trading hours. The selloff marked PayPal’s largest single-day decline in nearly a year, pushing the stock below its 50-day moving average and nearing the bottom of a flat base.

Analyst reactions were mixed. JPMorgan analysts noted that while the quarter was solid, margin pressures remain a concern. Mizuho analyst Dan Dolev, who rates PayPal at outperform with a $100 price target, highlighted that branded checkout growth remains a major debate around the company’s future.

Looking Ahead: Can PayPal Regain Investor Confidence?

PayPal remains a leader in digital payments, and its strategic initiatives—including pricing optimization, checkout enhancements, and cost-cutting efforts—are beginning to take effect. CEO Alex Chriss emphasized that the company has laid a strong foundation for long-term growth, pointing to improvements in branded checkout, Venmo, and peer-to-peer transactions.

However, to regain investor confidence, PayPal will need to demonstrate:

- Sustained margin expansion and cost discipline

- Stronger growth in branded payment volumes to fend off competition

- Successful execution of its pricing and product initiatives, particularly at Braintree

The company also hosts an investor day on February 25, which could provide more clarity on its strategic roadmap.

Conclusion

PayPal’s fourth-quarter earnings were strong on the surface, but concerns over margin contraction, competition, and branded checkout growth weighed on investor sentiment. While the company’s 2025 guidance exceeded expectations, the stock’s recent rally into earnings and concerns about market share loss contributed to the post-earnings decline.

With shares now trading at a discount, PayPal will need to prove that its turnaround efforts and cost efficiencies can translate into sustained profitability and market share stability. The upcoming investor day will be a key event to watch as management outlines its vision for the future.