PayPal (PYPL 2.90%) recently reported its second-quarter 2023 financial results. Revenue totaled $7.3 billion (up 7% year over year), with adjusted diluted earnings per share coming in at $1.16 (up 24%). These figures beat Wall Street estimates.

Besides these key headline figures, which show a business that is still expanding, there are other reasons that PayPal is a good company. But that doesn't mean investors should rush to buy the stock just yet. 

Here's why. 

PayPal is a great business 

During the recent quarter, PayPal processed $377 billion in total payment volume (TPV), up 11% year over year. That demonstrates the growing activity happening across the network. Moreover, the business had 431 million active accounts on the platform as of June 30, another sign of PayPal's impressive scale. 

PayPal is by far the most widely accepted digital wallet, as customers can use it to check out at 79% of the top 1,500 merchants in North America and Europe. Apple Pay is second at 28%. This huge lead is only possible because the company has been at the forefront of digital payments for over two decades. PayPal has become a trusted name in online transactions. 

As a two-sided payments platform, PayPal benefits from network effects. Consumers choose to have a PayPal account because it's widely accepted. And on the other side, merchants want to plug into the PayPal network because of the huge global consumer base. It would be next to impossible for someone to build something like this from scratch. 

Another reason that PayPal is a solid enterprise is its attractive financial position. After producing $5.1 billion of free cash flow (FCF) in 2022, the company plans to generate $5 billion this year. This cash is used to constantly reduce the outstanding share count. And as of June 30, PayPal had a net cash position of $3.9 billion on its balance sheet. 

Competition is fierce 

PayPal's shares haven't done too well in 2023, and they are currently 79% below their all-time high from 2021. Zooming out, since the spinoff from eBay in 2015, PayPal has been a below-average investment, returning just 74% (as of Aug. 7). That pales in comparison to the 177% gain of the Nasdaq Composite index during that time. The stock now trades at a cheap forward price-to-earnings ratio of 12.9. 

However, there's one obvious reason to avoid the stock altogether: intense competition. Because PayPal serves both individuals and merchants, it faces stiff competition from a seemingly endless number of companies. 

On the consumer side, PayPal generally, and Venmo specifically, has to compete with Block's Cash App. Cash App is a formidable opponent, now with 54 million monthly active users. PayPal also goes up against services offered by traditional banks, such as JPMorgan Chase and Bank of America. And because PayPal offers brokerage services, it also competes with the likes of Robinhood Markets and Charles Schwab. 

We can't forget about Apple and Alphabet, which own the two most prevalent mobile operating systems in the world that also run digital wallets. Apple Pay and Google Pay are quickly rising as popular checkout tools for customers. 

It doesn't get any easier on the merchant side. PayPal's merchant offering, known as Braintree, is growing rapidly in terms of TPV. But it must go up against Adyen, Shopify, and Stripe. 

A valid argument can be made that PayPal doesn't deserve its current depressed valuation. But with the competition in the payments landscape being so cutthroat, and a wide range of businesses trying to capture a piece of transactions, it's unclear how things will play out. So, it could be a good idea to think twice before buying PayPal stock right now.