PayPal Just Flipped the Profit Switch
PayPal (PYPL) is in a margin-led turnaround, so I focus less on raw volume and more on the dollars that reach the bottom line. Second quarter 2025 supports that view. Transaction margin dollars rose 7 percent to about $3.8 billion, or 8 percent if you exclude interest on customer balances. GAAP operating income rose 14 percent to roughly $1.5 billion. Non-GAAP operating margin reached 19.8 percent. Adjusted EPS increased 18 percent to $1.40. Management raised full-year guidance for EPS and for transaction margin dollars to $15.35–$15.50 billion. These are concrete gains backed by published materials, not vibes.
Volume looks steady rather than exciting. Total payment volume reached $443.5 billion, up 6 percent. Branded checkout grew 5 percent, which disappointed investors even as profitability improved. The market wants proof that the core branded franchise can accelerate.
The take-rate picture is stabilizing. Management pointed to a 1.68 percent transaction take rate, down a few basis points sequentially on FX hedges and mix, while the transaction expense rate held near 0.9 percent. The spread between those two funds transaction margin dollars, so I track it closely.
Under the hood, Braintree repricing and mix discipline are doing the heavy lifting. Enterprise processing grew quickly in prior years but at thin economics. Management raised prices where it had leverage and slowed lower-return growth. You can see the impact when transaction margin dollars grow faster than revenue. That signals the model is healing even before volume re-accelerates.
Credit risk looks contained. PayPal is keeping a balance-sheet-light model and pushing more exposure to partners. Stable delinquencies help, but the bigger benefit is capital efficiency. Less balance sheet risk gives the company more room to return cash or fund product work without credit volatility.
Near-term headwinds still matter. Branded checkout needs to outgrow TPV to quiet the bear case. Competitive wallets continue to raise the bar on conversion and convenience. Rate cuts also reduce interest on customer balances, which management flagged as a second-half headwind of roughly $125 million. That flows through transaction margin dollars, so it is a real drag to watch.
There are offsets. Venmo revenue grew at a healthy clip, cross-border trends improved with travel, and new distribution helps. A new multiyear Google partnership brings deeper integration of PayPal services across Google products and adds AI tools that should improve risk, checkout and payouts. That should support branded volumes over time and improve data quality.
What to watch next is simple. Sustained growth in transaction margin dollars at or above guidance while the take rate steadies. Branded checkout growth that outpaces total TPV for several quarters. Braintree growth that holds its higher pricing. If those show up together, the multiple has room to rerate. If branded growth stays stuck near mid-single digits, the stock likely remains range-bound.