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While everyone was selling PayPal as the price fell from $300 to $40, legendary investors like Michael Bury and David Einhorn started buying the stock. Bury even publicly claimed that PayPal's true intrinsic value was between $75 and $115 per share. Additionally, news emerged that Stripe and Advant International have made a massive buyout offer worth $33 billion, or $60.50 per share, even as PayPal management considers spinning off Venmo.
What do these investors see that others don't? I am very interested. So let's find out. PayPal originally separated from eBay back in 2015. I actually owned the shares back then, but sold them in 2020. Looking at PayPal today, it looks like a completely different company. Of course, PayPal still makes money from facilitating digital transactions, charging merchants a fee every time a buyer places an order, and from peer-to-peer payments through services like Venmo.
First, I wanted to understand: With digital spending breaking records every year, how could PayPal stock have fallen so much? I found several troubling issues, but also two main reasons that were completely beyond the control of management. In 2015 and the following years, fintech companies were in the same hype cycle that we are now seeing with AI stocks.
Investors sincerely believed that these platforms would displace traditional banks and lending giants because their services were faster and cheaper. This was presented as the future, and the numbers seemed to confirm it. It was about annual revenue growth from 20% to over 100% for leading players, along with explosive growth in the number of users.
And this makes sense: when you are very small, it is easy to double the number of users, as well as revenue and profit. Additionally, people transferred money to and from crypto exchanges during the crypto booms of 2017 and 2020-2021 . A wave of new companies rushed to Wall Street, such as Adyen, StoneCo, Klarna, and in addition, these fintech companies gained an advantage in 2020 during global lockdowns .
Online ordering has, of course, exploded, and digital payments have become mandatory. This pushed the valuation of these companies to crazy levels. PayPal itself traded at a multiple of around 90, driving its share price to an extreme peak of $300. But then the hype ended , and instead of relying on stories, Wall Street began demanding real returns.
Multipliers have decreased, and therefore so have company prices. It was something that was beyond the company's control. In addition to market conditions, PayPal has created five huge problems for itself. eBay's loss in 2020 as their agreement for PayPal to be eBay's primary payment processor ended.
These were some of their most profitable transactions. The second is fake accounts. In 2020, PayPal created 4.5 million fake accounts to use cash promotions, which it initially counted in its user growth metrics. The third is competition. Apple Pay and credit card networks have supplanted them in the retail space .
When lockdowns ended , consumers wanted to pay contactlessly, and it took PayPal almost 2 years to catch up. And here is the fourth. I remember this well, because in late 2020, the updated policy included a $2,500 fine for misinformation in personal posts. This decision alienated millions of users. I also stopped using PayPal.
And finally, the fifth problem they created is a security breach. In mid- 2025, a critical payment processing failure in Germany allowed unauthorized chargebacks, forcing European banks to freeze transactions and pushing merchants to regional alternatives. All of these problems led to such a significant drop in shares.
Currently, Wall Street analysts advise to “hold” the stock with a target price of around $50–55 at a low P/E ratio of 11. Before we get to the numbers, a quick disclaimer: this is, of course, not financial advice. Always do your own research and remember that you can lose all your money or even more in investing.
The company's ticker is PYPL. In 2015, PayPal's total payment volume was 282 billion. By 2025, these numbers had grown to 1.79 trillion. As seen in the green graph, TPV grew by 20% annually , peaking at 33% in 2021. And then it started to slow down to 6.6 . 7% in 2025. This is the red line. So how does PayPal actually make money?
They take a small commission on each seller payment before settling the rest. In 2015, PayPal charged $2.88 for every $100 processed. By 2025, they were only taking $1.66 out of $100. So, they earn significantly less on every dollar that passes through their system. In the chart here, the blue line represents transaction revenue.
In 2025, transaction revenue grew by 3.5% to $29.7 billion, with transaction fees accounting for approximately 90% of PayPal's total revenue. And the remaining 10% comes from interest, loan revenue share, merchant lending, and Honey, which is growing at an average of 7% per year. The number of active accounts increased from 305 million in 2019 to 439 million in 2025, but there was a decline in 2023.
As you can see, this indicates minimal growth recently. We know that investor Michael Bury loves huge free cash flow and low debt. So, here's the fun part. PayPal's free cash flow increased from $5.3 billion in 2020 to $5.5 billion in 2025. But these figures include large stock payouts, averaging $ 1.3 billion per year and $1 billion in 2025.
Every time I see such huge stock payouts, I realize I chose the wrong career path. If we deduct these payments, the adjusted cash flow would be about 4.5 billion. The most important question : what does PayPal spend its cash on besides paying out compensation? They are actively buying back their own shares.
Since 2018, they have spent over 16 billion to withdraw 23% of the outstanding shares . They still have $13.9 billion authorized for redemption, and another $3 billion is planned for this half-year. So by the end of the year, the number of shares outstanding should drop to about 820 million. This is great because the debt is minimal.
That's about 13.3 billion, and the annual interest expense is $450 million. With a stock price of $60 and 2026 cash flow of $5.5 billion on 820 million shares, you get $6.70 in cash flow per share. That's a price-to-free cash flow ratio of just 8.9 or 11.3%. profitability by profitability. Now let's consider the potential for Venmo to be spun off.
Venmo's transaction volume is growing at 12-40%, compared to the rest of PayPal, which is growing at 2-5% per year, generating $2 billion in revenue and, by my estimate, $400 million in free cash flow. At a price- to-sales multiple of 5 to 7, Venmo alone is worth $9 billion to $14 billion, or $11 to $17 per PayPal share.
If you pay $60 per share today and subtract the cost of Venmo ($11-17), you get the remaining PayPal for only $43-49 per share. The rest of PayPal's business still generates $6.20 of free cash flow per share. I understand why Michael Bury and David Einhorn invested in this company, seeing the sum of the parts, annual free cash flow, and buybacks.
As far as I understand, Michael Bury was buying for $44, but $60 is still a reasonable price. Michael Bury himself stated that its cost is between $75 and $115. And that makes sense. Before I express my opinion , I want to share this . While researching the company, I read the CEO's letters to shareholders, and it was extremely interesting.
If you only read these letters, you wouldn't even guess that the stock had dropped from $300 to $40 something. Everything looked great, and every problem was blamed on macroeconomic factors. They even write about donating shareholder money to charity, but there is no real self-reflection. And when you review the annual report, notice how as soon as the numbers slow down, management changes the key performance indicators they use.
It really looks like there is more value within the company. But there is also a flip side to the coin. What if commission rates continue to decline? This is their main business, accounting for approximately 90% of their income. If unbranded payment processing, where they earn significantly less per transaction, around 0.3%, continues to grow faster than PayPal's core payment button, where they have around 2.25 %.
As a result, they simply continue to make less money on each transaction. And imagine what would happen if the volume stopped growing. Regarding share buybacks, PayPal can buy back almost all of its shares in 10 years. But buybacks only work when the core business survives. Think of Sears: they invested billions in share buybacks while their core retail business completely collapsed.
Personally, I would prefer the company to buy back fewer shares and pay higher dividends to shareholders. Ultimately, it all depends on your own risk tolerance and portfolio structure. I'll definitely continue to monitor PayPal, especially to see if that Venmo spin-off actually happens. If this video was helpful to you , just let me know in the comments.
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