PayPal (PYPL 1.66%) reported fourth-quarter 2023 revenue of $8 billion (up 9% year over year) and adjusted earnings per share (EPS) of $1.48 (up 19%), both headline figures that beat Wall Street estimates. So, it makes you scratch your head to see that shares are down 11% the day following the news (as of Feb. 8).

Investors are forward-looking market participants, and they weren't happy with the company's guidance. PayPal's executives expect revenue to rise by just 6.5% to 7% in the current quarter, with adjusted EPS up mid-single digits.

This situation makes matters worse for the fintech stock, which is currently 82% below its all-time high. However, I view this as a phenomenal buying opportunity. Here are three reasons why.

Growing payment volume

Despite the pessimism surrounding this business, PayPal continues to grow. The company processed over $1.5 trillion of total payment volume (TPV) in 2023, up 13% year over year. This is a scaled payment platform that handled a whopping 25 billion transactions in the last 12 months.

I'd be very worried if PayPal wasn't growing its TPV, because it would be a clear indication that the company's services aren't being used as much. But this just isn't the case. On the contrary, it's encouraging to see TPV rise during an uncertain economic time. Even better, transactions per active account jumped 14%.

PayPal's branded checkout solution has broad acceptance in North America and Europe, and it represented about 29% of TPV. But Braintree, PayPal's unbranded payment processing service for merchants, registered much faster TPV growth of 30% in 2023. It now makes up the bulk of TPV, at 35% share.

Powerful network effects

Shareholders are probably also concerned that PayPal's user base isn't growing at all. Active accounts totaled 426 million as of Dec. 31, 2023, down 2% compared to the end of 2022. This flatlining trend has been the case for the past couple of years. And it's a far cry from the depths of the pandemic, when the business added a combined 121 million active accounts in 2020 and 2021.

Nonetheless, PayPal is still a platform with huge scale. It has millions of consumer accounts on one side, and millions of merchants on the other. This creates powerful network effects, which make up PayPal's economic moat.

The fact that so many people around the globe have PayPal accounts makes it almost a no-brainer for merchants to accept these payments. The opposite is also true. Because so many online retailers are plugged into the PayPal network, customers are incentivized to use it as a checkout solution. This advantage becomes stronger over time.

It's certainly true that the payments landscape is extremely competitive these days, with the likes of Block, Apple, Adyen, and Stripe, among many others, all vying for a piece of the growing pie. PayPal's network effects provide a level of protection against these threats.

Compelling valuation

Since the start of 2023, the Nasdaq Composite Index has returned 51% (including dividends), thanks to the resurgence of many growth tech stocks. Unfortunately, PayPal missed the wave.

In fact, PayPal's stock is dirt cheap right now. It trades at a price-to-earnings ratio of just 16.8. This looks like an absolute bargain. That depressed valuation might suggest that this is a terrible business, but that's just not true.

PayPal not only continues to grow TPV, but it has a clear competitive advantage. Maybe even more importantly, this is a financially sound enterprise. It generated $4.2 billion of free cash flow in 2023, a typical occurrence. PayPal also has a superb balance sheet, with a net cash position of $6 billion.

Investors should be taking a closer look at buying this digital payments giant today.