Last week wasn't so great for PayPal (PYPL -1.47%). The fintech giant had previously grown at phenomenal rates throughout the pandemic, but the second-quarter results it reported on July 28 came up short as it missed analysts' revenue expectations and offered underwhelming third-quarter guidance.  

In the wake of that report, the stock price has dropped by almost 12% as of this writing. But investors should view this as an opportunity to grab shares on the dip -- last quarter was only a slight setback for a company that still has huge growth potential.

A woman wearing a hijab sitting with a man and a woman at a restaurant and paying with a credit card/

Image source: Getty Images.

Was it really a less-than-stellar quarter?

By many metrics, the second quarter demonstrated the business's continued strength. Total payment volume (TPV) of $311 billion was up 40% year over year, and it added 11.4 million net new active accounts, bringing its total to more than 400 million. That's more than all of the people in the U.S. and Canada.

Non-GAAP earnings per share increased by only 8% to $1.15, but that still beat internal guidance of $1.12. And revenue increased 17% on a currency-neutral basis to $6.24 billion. That missed guidance of $6.25 billion, but as top-line growth goes, it's not too shabby. Venmo was a star during the quarter, growing TPV by 58% and revenue by almost 70%.

PayPal's results were impacted by eBay's migration off of its platform. The TPV on the platform connected to eBay transactions decreased by 37% and accounted for less than 4% of total volume, and management expects it to end the year at near 2.5% of total volume. But factoring out eBay, volume increased by 48%, and revenue increased by 32%. Merchant services growth is substantially outpacing eBay growth, with a compound annual growth rate of 29% over the past three years, compared to a 1.5% CAGR for eBay. As the e-commerce site's transition away from PayPal continues, PayPal is expecting stronger results, and despite its worse than expected second-quarter revenue, it's maintaining its full-year guidance. It's expected that eBay will be off the platform by the end of the third quarter, and fourth-quarter revenue should reflect that, with higher growth anticipated. Results should even out in 2022 after the migration is complete.

A solid business with an outsize opportunity 

PayPal certainly got a boost from the pandemic, but the underlying growth trends in e-commerce and digital payments remain strong too, and as PayPal and its peers expand their range of products and services, there's good reason to believe they will keep gaining ground.

"PayPal serves as an essential and trusted platform for both consumers and merchants, across all forms of commerce, payments and basic financial services," CEO Dan Schulman said. That's a broad hint at the company's strategy to evolve itself into a one-stop shop for financial services. It's launching its super app, which is meant to provide these services, and adding features over the next few months as it rolls out. The app is artificial intelligence-powered to offer each user a customized experience, and it could be a game-changer for PayPal as well as financial services in general. Investing in the super app has been adding to expenses and taking a chunk out of profits, which contributed to the low increase in net income.

While investors might prefer to see high growth and revenue beats every quarter, it's necessary to recognize that even the best companies underperform every so often. That can occur when they're investing heavily in growth, and PayPal is a  perfect example of that.

There is little cause to be concerned about PayPal based on its second-quarter results, even though the market is behaving otherwise. But its now-lower stock price opens a great opportunity for investors who are looking to open a position in the company or add to one.