StoneCo vs. PayPal: Evaluating Short-to-Midterm Upside Potential in a Shifting Fintech Landscape

The fintech sector in 2025 is marked by divergent strategies and execution trajectories, with StoneCo (STNE) and PayPal (PYPL) representing two distinct approaches to growth. While PayPal navigates global expansion amid margin pressures, StoneCo has leveraged its hyper-localized focus on Brazil's micro, small, and medium-sized business (MSMB) segment to drive robust financial performance. This analysis evaluates the short-to-midterm upside potential of both firms through the lenses of market focus, valuation, and execution momentum, arguing that StoneCo's disciplined capital allocation and MSMB-centric innovation position it as a stronger near-term bet.

Market Focus: Localized Execution vs. Global Ambition

StoneCo's strategic concentration on Brazil's MSMB sector has yielded outsized results. According to a report by Finviz, the company added 17% year-over-year in active clients, reaching 4.5 million by Q2 2025, driven by a 59% surge in PIX QR code transactions. This focus aligns with Brazil's digital transformation, where MSMBs account for over 90% of businesses but historically faced limited access to financial tools. StoneCo's shift toward financial services-such as time deposits (now 83% of its banking deposits) and a 25% sequential growth in credit portfolios-has further diversified its revenue streams as reported by Yahoo Finance.

PayPal, by contrast, is pursuing a broader but more fragmented global strategy. While its Venmo platform saw a 45% increase in "Pay with Venmo" TPV and 40% growth in monthly active accounts according to Yahoo Finance, the company faces challenges in sustaining transaction volumes. PayPal's 5% decline in payment transactions and 4% drop in user engagement according to Yahoo Finance highlight the difficulty of scaling in saturated markets. Its PayPal World initiative, partnering with UPI, Mercado Pago, and Tenpay Global, aims to reach 2 billion consumers but remains unproven in execution.

Valuation: StoneCo's Affordability vs. PayPal's Premium

StoneCo's valuation metrics underscore its appeal as a value play. As of Q2 2025, the stock trades at a forward P/E of 10.06X, below both its three-year median of 10.98X and the fintech industry average of 38.98X. This affordability is further supported by strong price momentum: StoneCo shares rose 48.6% over three months, outpacing PayPal's 3.1% gain according to Finviz. Analysts have upgraded StoneCo to a Zacks Rank #1 (Strong Buy), citing its disciplined capital returns, including R$2.4 billion in buybacks over 12 months.

PayPal, while still undervalued relative to historical benchmarks, trades at a higher forward P/E of 13.46X according to Nasdaq. Its 12.47% projected EPS growth for 2025 is commendable but lags behind StoneCo's 14.07% forecast according to Yahoo Finance. The disparity reflects PayPal's margin pressures, including rising costs from global expansion and regulatory compliance, which weigh on profitability compared to StoneCo's Brazil-centric efficiency.

Execution Momentum: Disciplined Growth vs. Fragmented Innovation

StoneCo's execution has been marked by strategic clarity and operational discipline. Its MSMB TPV grew 12% year-over-year to R$122 billion in Q2 2025, with a projected 14% CAGR to R$670 billion by 2027 according to PESTEL analysis. The company's ROE of 30% in financial services according to Yahoo Finance and 27% year-over-year increase in adjusted net income according to Nasdaq demonstrate its ability to convert market focus into profitability. StoneCo's divestitures of non-core assets like Linx and SimplesVet have also sharpened its focus, enhancing returns for shareholders.

PayPal's innovation efforts, while ambitious, face execution headwinds. Its 5% decline in payment transactions signals challenges in retaining user engagement. While PayPal's global partnerships offer long-term potential, the company's short-to-midterm momentum is constrained by macroeconomic volatility and competition from regional players like Mercado Pago.

Conclusion: A Clearer Path for StoneCo

In a fintech landscape defined by fragmentation and margin pressures, StoneCo's localized innovation and disciplined capital allocation provide a clearer path to short-to-midterm growth. Its MSMB-centric strategy not only taps into Brazil's underserved market but also leverages regulatory tailwinds and digital adoption trends. PayPal, while a global leader, faces structural challenges in sustaining transaction growth and profitability without overextending its resources. For investors seeking near-term upside, StoneCo's valuation, execution momentum, and strategic focus make it the more compelling choice.