This summer, PayPal’s board received a cash acquisition offer. After reviewing it, they felt the price was too low and sent it back. The buyer didn’t walk away right away—negotiations dragged on for more than a month. In the end, they decided not to raise the price and simply ended the talks. The news broke on Thursday night, and by the next session the stock opened and immediately plunged.
$PYPLB is trading on Binance’s spot market at $51.97 right now, down 15.63% over the past 24 hours. At one point it was smashed down to $50.07—an 8:08 reading.
The consortium of Advent and Stripe offered $60.50 per share, implying a valuation of more than $53 billion. The board thought this number undervalued the company. Today’s trading price landed even lower than that figure.
The first half of August shows the expectations even more clearly. On August 15, PYPLB touched $64.54, trading above the bid. People who entered back then were betting that the consortium would add more. That bet has been cleared today.
So the remaining question is: apart from the M&A premium, what is this company worth by itself? The board said it’s above $60.50; today’s price says $51.97. That gap of about 16% has to be found in the financial statements.
I went through the July 28 earnings report from top to bottom.
Revenue was up 5% year over year, while total payment volume was up 10%. The money flowing through PayPal’s pipe is still growing at double-digit rates, but the portion the company keeps for itself is only growing at single digits.
Go one layer deeper and it becomes clearer. Divide transaction revenue by total payment volume: in Q2, the transaction fee rate was 1.61%, versus 1.68% in the same quarter last year. Seven basis points doesn’t sound like much—until you spread it over a quarterly flow approaching $500 billion, and it’s not pocket change. In the same quarter, transaction profit in dollars was up only 1%. After stripping out interest on customer balances, it was up 3%. When volume grew 10%, the gross margin the company actually pocketed rose by only 1%.
PayPal handles more money year after year, yet each dollar leaves less behind as time goes on. Operating profit margin keeps sliding, and non-GAAP EPS fell back slightly year over year. On the same day, management raised its full-year guidance, pointing non-GAAP EPS to $5.38—up a little from $5.31 last year.
That “little bit” can be traced directly on the books. Over the past twelve months, the company repurchased about 111 million shares, reducing the float by nearly 6% over the first half of the year. The numerator barely moved, the denominator shrank quickly—so EPS barely held steady.
Buying back your own stock with free cash flow is a reasonable move at this price. In the first half, free cash flow was $2.678 billion—this business is still making money. Based on today’s price, the market capitalization corresponds to fewer than 10 times this year’s earnings guidance.
Buybacks can solve for per-share numbers, but they can’t fix every “payment.”
The company’s own answer is hidden in the restructuring on April 29. Lores took over as CEO from Alex Chriss on March 1, and the board’s reason for the management change was that execution was too slow. In his first month, he split the company into three parts. One of them is called Payment Services & Crypto, housing Braintree, merchant processing for SMBs, and PYUSD. Digital assets got an independent slot for the first time within #PayPal .
When the cut on the button becomes harder to defend, you go toward the pipe and the settlement layer—where you can earn from clearing, float, and cross-border money. Stablecoins serve as settlement tools on this route.
Where that path goes can be seen on-chain. Today I directly pulled up the contract: total PYUSD on Ethereum is about 1.8 billion coins; on Solana it’s about 680 million. On a whole-chain basis, it’s more than 2.7 billion dollars. The peak on March 5 was 4.2 billion—down about 35% from this year’s high.
If you stretch the timeline, the shape matters more than the drawdown. Last September, PYUSD across all chains was still only a little over 1.1 billion. By December it reached 3.8 billion. A stablecoin that surged more than threefold in three months doesn’t come from merchant settlement demand behind the scenes. That period corresponds to a round of high-interest reward programs. Once rewards were reduced, the money left.
So this year’s supply dropped by one-third. You can’t directly read it as PayPal’s payments business shrinking. A lot of what rose earlier was rented. What I care about more is whether it can keep climbing on its own when there are no rewards.
After the news broke, Thomas Hayes of Great Hill Capital publicly applauded the board, saying you can’t let the buyer take away upside from existing shareholders. His rationale was that the $60.50 offer is still less than nine times free cash flow. The company should continue executing independently, including buybacks.
By his math, the offer really isn’t expensive. My disagreement is in the premise. Nine times free cash flow might be cheap for a payments company with stable gross margins, but for a company whose fee rate declines by seven basis points every year, it may not be. Put a “cheap” multiple onto gradually thinning gross margin, and the outcome might only be that it falls more slowly. The consortium is essentially saying the same thing. After reading the financials, they decided not to raise the price—suggesting that in their model, the company can’t support a higher number.
I’m not on the “value trap” side either. The buyback intensity and the cash flow are real. Venmo was singled out as an independent business unit. Reading it, I felt like they were paving the way for a spin-off or sale. If that route works, it’s the second way to make up the discount.
What the board is betting on is that its transformation can outperform the decline in the fee rate—and the money for that bet comes from shareholders. Today’s share price is the market’s price for that bet.
I’ll watch three things. In the Q3 report in late October, whether the decline in that seven-basis-point transaction fee rate narrows. Whether the growth rate of transaction profit in dollars can rise above 3% once interest is stripped out—showing the new money starts moving faster than the payment flow. And finally, the PYUSD supply curve when there’s no reward campaign; anyone can check the on-chain data themselves.
Of the three, two have turned. The board scrapping that offer is the right call. All three are still mostly the same; the $60.50 that was pushed away might end up being the best price this company will see in the coming years.
If you have a position—or you just want to see whether this transformation can work—you can note down the single line about the transaction fee rate from the Q3 report. You can also save a copy of the PYUSD on-chain supply curve; it updates faster than research notes.
$PYPLB is trading on Binance’s spot market at $51.97 right now, down 15.63% over the past 24 hours. At one point it was smashed down to $50.07—an 8:08 reading.
The consortium of Advent and Stripe offered $60.50 per share, implying a valuation of more than $53 billion. The board thought this number undervalued the company. Today’s trading price landed even lower than that figure.
The first half of August shows the expectations even more clearly. On August 15, PYPLB touched $64.54, trading above the bid. People who entered back then were betting that the consortium would add more. That bet has been cleared today.
So the remaining question is: apart from the M&A premium, what is this company worth by itself? The board said it’s above $60.50; today’s price says $51.97. That gap of about 16% has to be found in the financial statements.
I went through the July 28 earnings report from top to bottom.
Revenue was up 5% year over year, while total payment volume was up 10%. The money flowing through PayPal’s pipe is still growing at double-digit rates, but the portion the company keeps for itself is only growing at single digits.
Go one layer deeper and it becomes clearer. Divide transaction revenue by total payment volume: in Q2, the transaction fee rate was 1.61%, versus 1.68% in the same quarter last year. Seven basis points doesn’t sound like much—until you spread it over a quarterly flow approaching $500 billion, and it’s not pocket change. In the same quarter, transaction profit in dollars was up only 1%. After stripping out interest on customer balances, it was up 3%. When volume grew 10%, the gross margin the company actually pocketed rose by only 1%.
PayPal handles more money year after year, yet each dollar leaves less behind as time goes on. Operating profit margin keeps sliding, and non-GAAP EPS fell back slightly year over year. On the same day, management raised its full-year guidance, pointing non-GAAP EPS to $5.38—up a little from $5.31 last year.
That “little bit” can be traced directly on the books. Over the past twelve months, the company repurchased about 111 million shares, reducing the float by nearly 6% over the first half of the year. The numerator barely moved, the denominator shrank quickly—so EPS barely held steady.
Buying back your own stock with free cash flow is a reasonable move at this price. In the first half, free cash flow was $2.678 billion—this business is still making money. Based on today’s price, the market capitalization corresponds to fewer than 10 times this year’s earnings guidance.
Buybacks can solve for per-share numbers, but they can’t fix every “payment.”
The company’s own answer is hidden in the restructuring on April 29. Lores took over as CEO from Alex Chriss on March 1, and the board’s reason for the management change was that execution was too slow. In his first month, he split the company into three parts. One of them is called Payment Services & Crypto, housing Braintree, merchant processing for SMBs, and PYUSD. Digital assets got an independent slot for the first time within #PayPal .
When the cut on the button becomes harder to defend, you go toward the pipe and the settlement layer—where you can earn from clearing, float, and cross-border money. Stablecoins serve as settlement tools on this route.
Where that path goes can be seen on-chain. Today I directly pulled up the contract: total PYUSD on Ethereum is about 1.8 billion coins; on Solana it’s about 680 million. On a whole-chain basis, it’s more than 2.7 billion dollars. The peak on March 5 was 4.2 billion—down about 35% from this year’s high.
If you stretch the timeline, the shape matters more than the drawdown. Last September, PYUSD across all chains was still only a little over 1.1 billion. By December it reached 3.8 billion. A stablecoin that surged more than threefold in three months doesn’t come from merchant settlement demand behind the scenes. That period corresponds to a round of high-interest reward programs. Once rewards were reduced, the money left.
So this year’s supply dropped by one-third. You can’t directly read it as PayPal’s payments business shrinking. A lot of what rose earlier was rented. What I care about more is whether it can keep climbing on its own when there are no rewards.
After the news broke, Thomas Hayes of Great Hill Capital publicly applauded the board, saying you can’t let the buyer take away upside from existing shareholders. His rationale was that the $60.50 offer is still less than nine times free cash flow. The company should continue executing independently, including buybacks.
By his math, the offer really isn’t expensive. My disagreement is in the premise. Nine times free cash flow might be cheap for a payments company with stable gross margins, but for a company whose fee rate declines by seven basis points every year, it may not be. Put a “cheap” multiple onto gradually thinning gross margin, and the outcome might only be that it falls more slowly. The consortium is essentially saying the same thing. After reading the financials, they decided not to raise the price—suggesting that in their model, the company can’t support a higher number.
I’m not on the “value trap” side either. The buyback intensity and the cash flow are real. Venmo was singled out as an independent business unit. Reading it, I felt like they were paving the way for a spin-off or sale. If that route works, it’s the second way to make up the discount.
What the board is betting on is that its transformation can outperform the decline in the fee rate—and the money for that bet comes from shareholders. Today’s share price is the market’s price for that bet.
I’ll watch three things. In the Q3 report in late October, whether the decline in that seven-basis-point transaction fee rate narrows. Whether the growth rate of transaction profit in dollars can rise above 3% once interest is stripped out—showing the new money starts moving faster than the payment flow. And finally, the PYUSD supply curve when there’s no reward campaign; anyone can check the on-chain data themselves.
Of the three, two have turned. The board scrapping that offer is the right call. All three are still mostly the same; the $60.50 that was pushed away might end up being the best price this company will see in the coming years.
If you have a position—or you just want to see whether this transformation can work—you can note down the single line about the transaction fee rate from the Q3 report. You can also save a copy of the PYUSD on-chain supply curve; it updates faster than research notes.