Why PayPal's Steep Valuation Discount Could Signal a Hidden Opportunity for Shrewd Investors

PayPal Holdings (PYPL) is currently standing out as one of the most undervalued players in the financial services sector, with a Value Score of A that signals genuine bargain pricing. The company’s forward 12-month price-to-earnings multiple sits at just 10.24X, a stark contrast to the Financial Transaction Services industry benchmark of 21.12X. Even more striking is the comparison to direct competitors: Visa commands a P/E of 26.84X while Mastercard trades at 30.47X. This valuation canyon reflects investor skepticism, but it also raises a critical question—is the market missing PayPal’s genuine transformation and recovery trajectory?

The Disconnect Between Price and Fundamentals

Recent market performance tells a cautionary tale. Over the past three months, PYPL shares retreated 10.6%, significantly underperforming both the broader industry (down just 1%) and the S&P 500 (up 4.7%). Even Visa and Mastercard managed better price action during this window. Yet beneath the surface, earnings momentum tells an entirely different story.

PayPal’s consensus earnings estimate for 2025 projects $5.34 per share, representing 14.8% growth compared to 2024. Looking further ahead, the 2026 consensus estimate stands at $5.86 per share, implying another 9.7% year-over-year increase. These upward revisions suggest PayPal’s operational fundamentals are strengthening faster than the market’s current valuation reflects—a classic setup for potential re-rating when investor sentiment shifts.

PayPal’s Aggressive Push Into Agentic Commerce and AI-Powered Payments

The company is making bold strategic moves to position itself at the forefront of next-generation commerce. PayPal has partnered with Logicbroker to enable thousands of merchants to deploy agentic commerce services, marking an entry into AI-driven retail. The Perplexity partnership represents a watershed moment—merchants can now become discoverable within the AI search interface, with in-chat checkout powered by PayPal’s innovative agentic commerce infrastructure.

Taking this further, PayPal adopted the Agentic Commerce Protocol alongside OpenAI, bringing seamless payment experiences directly into ChatGPT. Venmo and PayPal customers gained early access to Perplexity’s Comet browser through a separate partnership announced in September 2025, bundled with a complimentary 12-month Perplexity Pro subscription. These aren’t peripheral experiments—they represent PayPal’s fundamental repositioning as a foundational commerce layer for an AI-native digital economy.

Beyond partnerships, PayPal rolled out “PayPal links,” enabling frictionless money transfers through shareable one-time links embedded in any chat platform. The company also launched “Pay in 4,” a fee-free buy-now-pay-later offering for the Canadian market, expanding its installment payment footprint.

From Payment Processor to Comprehensive Financial Platform

PayPal is undergoing a structural transformation that justifies closer investor attention. The company filed applications with the Utah Department of Financial Institutions and the Federal Deposit Insurance Corporation to charter PayPal Bank, signaling intent to compete directly in banking services. Beyond small business lending, PayPal Bank will offer interest-bearing savings accounts, representing a direct assault on traditional retail banking margins.

The “PayPal World” initiative is equally significant—it consolidates PayPal, Venmo, Mercado Pago, Tenpay Global, and NPCI’s UPI onto a unified platform. This creates a borderless digital wallet ecosystem where merchants gain instant access to billions of new customers while consumers enjoy universal payment acceptance across geographies. It’s a fundamental expansion of PayPal’s addressable market.

On the cryptocurrency front, PayPal continues strengthening its position through the PYUSD stablecoin and its “Pay with Crypto” functionality. These moves aren’t defensive—they’re strategic positioning in an emerging digital asset ecosystem that’s gaining institutional legitimacy.

Venmo: The Quiet Growth Engine Nobody’s Talking About

Venmo deserves particular focus because it’s become PayPal’s highest-velocity growth vector among younger, affluent, digitally-native consumers. The platform is projected to generate $1.7 billion in 2025 revenues (excluding interest income), representing over 20% growth—notably, this represents a 10-point acceleration versus two years prior.

The Venmo debit card has emerged as a powerful acquisition and engagement tool. In Q3 2025 alone, the card attracted 1 million first-time users, with monthly active accounts climbing over 40%. “Pay with Venmo” monthly active accounts surged approximately 25%. Revenue from both the debit card and “Pay with Venmo” have doubled year-over-year across the last two years.

Strategic partnerships like the Bilt collaboration amplify this momentum. Starting in early 2026, Bilt members can use Venmo to pay rent and mortgages while earning rewards, fundamentally expanding use cases beyond peer-to-peer transfers into everyday household expenses.

Navigating Headwinds While Building Tomorrow’s Commerce Infrastructure

It’s important to maintain perspective on the challenges PayPal faces. Macroeconomic uncertainty continues to weigh on consumer spending and business investment. Fintech competitors are escalating competitive intensity. The payment landscape itself is evolving faster than any individual company can easily adapt. These aren’t trivial obstacles.

However, PayPal’s improving earnings trajectory, deepening strategic partnerships with industry titans like Anthropic and Salesforce, diversified revenue streams, and Venmo’s accelerating growth provide genuine reasons for optimism. The company isn’t just defending its legacy payment processing business—it’s building a comprehensive commerce platform for an AI-driven, crypto-aware, globally-connected future.

The Investment Case: Timing Matters

For long-term investors, PayPal’s current valuation presents an asymmetric opportunity. The stock trades at a historic discount to peers while the company executes against a transformation narrative that could justify significantly higher multiples once fully recognized by the market. The earnings estimates already reflect improving momentum—the question becomes whether the stock price will follow.

However, radical acceptance of current market conditions may be the wisest approach at this juncture. While the valuation gap is compelling, conviction requires confidence in PayPal’s execution on its strategic roadmap. The company currently carries a Zacks Rank #3 (Hold) rating—suggesting a “watch and verify” stance rather than an immediate accumulation signal.

Smart investors would be wise to monitor the company’s quarterly execution against guidance, partnerships’ real revenue contribution, and Venmo’s continued acceleration. Once these prove out more decisively, the current discount may represent one of the more attractive entry points into a global payments leader in the midst of meaningful structural transformation.