Shares of online payment giant PayPal (NASDAQ:PYPL) have struggled over the last year, losing about 15 percent of their value as the S&P 500 and especially the large tech firms have marched steadily higher. Thanks to a new partnership with OpenAI and its existing fundamentals as a business, though, PYPL may finally be ready to turn around. Is PayPal stock finally a buy, or do the shares still have more downside ahead of them?
PayPal’s Opportunity With OpenAI
One of the most important developments for PayPal’s business of late has been a new partnership with OpenAI that will integrate PayPal directly into ChatGPT. Under this new partnership, ChatGPT users will be able to use PayPal to buy products directly within ChatGPT, eliminating the need for them to leave the application after finding a product to check out.
PayPal will also be able to connect its merchants to ChatGPT, allowing small, medium and large businesses alike to sell their goods through the AI chatbot. Though it’s not yet clear how much this will impact PayPal’s revenues, the opportunity is far from small. Over three-quarters of ChatGPT users treat the chatbot more or less like a search engine, and online shopping is the fourth-most common use for it.
Up to now, PayPal is the only consumer-facing payment system that is being integrated directly into ChatGPT. As such, PayPal could capture massive numbers of transactions as online shoppers make their purchases in the ChatGPT app. It’s also worth noting that ChatGPT is still growing in and of itself, potentially making this partnership progressively more valuable to PayPal as time goes on.
Unpacking PayPal’s FCF
While the collaboration with OpenAI may be making headlines at the moment, it’s also important to take PayPal’s recent performance into account. One of the biggest struggles for PayPal over the past few years has been its slowing revenue growth. While growth has remained positive, quarterly year-over-year revenue growth rates have dropped into the single-digit range. Though net income growth has been a bit lumpy, total net income has also generally trended upward for any given 12-month period.
These trends stayed consistent in Q3, when PayPal reported net revenue growth of 7 percent to $8.4 billion and net income growth of 24 percent to $1.25 billion. Free cash flow was another strong suit for PayPal in the last quarter, with FCF totaling $1.7 billion. PayPal also ended the quarter with a strong balance sheet that featured $14.4 billion in cash, cash equivalents and investments against a debt load of $11.4 billion.
On a trailing 12-month basis, PayPal has delivered a respectable net margin of 14.9 percent, mirrored closely by its 15.0 percent return on invested capital. Return on equity, however, has significantly outpaced ROIC at 24.3 percent. This has been a fairly consistent feature of PayPal, as ROE has held steadily above 20 percent since the end of 2023.
How Does PayPal’s Valuation Look?
Although PayPal is gaining exposure to the AI marketplace, it certainly isn’t priced like an AI stock. PYPL now trades at just 13.3 times earnings and 11.7 times operating cash flow. With earnings per share projected to grow at a CAGR of a little over 12 percent through the next few years, this could put PayPal at an attractive discount relative to its growth potential.
This potential value is also reflected in the range of price forecasts assigned to PayPal by analysts. The price targets run from a low of $65 to a high of $120, with the average price target currently at $83.33. With shares now trading at $66.08, the lowest price target would imply only a very modest downside, while the average represents a gain of over 26 percent. PayPal’s current consensus rating is a hold, though 12 of the 38 analysts covering the stock still rate it as a buy.
So, Is Now the Time to Buy PayPal?
Although PayPal hasn’t been the best performer of late in terms of delivering outsized revenue growth or share price performance, there’s a decent argument to be made for the stock at the moment. In addition to its attractive valuation, PayPal retains a strong moat by virtue of its 45 percent share of the online payment processing market. With over 400 million active users and a presence across more than 10 million websites and 200 international markets, PayPal’s competitive advantages remain quite solid.
The partnership with OpenAI could also create substantial new growth opportunities for PayPal. ChatGPT is still a relatively young technology, with only about 34 percent of US adults reporting having used it as of mid-2025. As ChatGPT becomes more ubiquitous and more people adjust to using it as an online shopping tool, it’s very likely that the value of PayPal’s status as the default in-app payment processor will increase as well.
It’s also worth noting that PayPal is returning cash as a means of building shareholder value. Over the last 12 reported months, PayPal has bought back about $5.7 billion worth of its shares. Furthermore, PayPal announced with its Q3 earnings report that it would be paying a dividend for the first time. Though the initial quarterly distribution of $0.14 per share is fairly small, PayPal’s significant cash flows could enable it to deliver strong future dividend growth.
With all of that said, PayPal could face some near-term macroeconomic headwinds. Due to rising costs and persistent pressure from tariffs, consumers may pull back on holiday spending and trigger weaker-than-ideal Q4 results for PayPal and other businesses heavily exposed to online shopping when compared to last year. Even so, PayPal still expects its Q4 EPS to fall between $1.23 and $1.27, up from $1.11 in the year-ago period.
Overall, PayPal may be a good stock for buy-and-hold investors to buy at today’s prices. Between a reasonable price, new growth opportunities, a strong competitive moat and an increasingly pronounced habit of returning cash to shareholders, PayPal could be a decent business to own for its long-term value.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.