PayPal (PYPL +0.77%) shares climbed after the company turned in strong third-quarter results and announced a new partnership with OpenAI. This follows an earlier partnership announcement with Alphabet, in which the two companies would team up on "agentic commerce," including artificial intelligence (AI) shopping agents to help consumers make purchases and discover new products. Despite the jump in price, the stock is still down about 14% on the year.
Let's take a closer look a PayPal's results and OpenAI partnership to see if the stock still has more upside from here.
NASDAQ: PYPL
Key Data Points
Going all in on AI
While PayPal turned in good results, the big news was its partnership with OpenAI. PayPal will adopt OpenAI's Agentic Commerce Protocol, which will let ChatGPT users instantly check out with PayPal when shopping on the chatbot. As part of the partnership, PayPal will also do the payment processing for merchants that use OpenAI's Instant Checkout. PayPal will also expand its use of OpenAI's API to help with product development.
With the deal, PayPal will become the first payments wallet embedded into ChatGPT. The deal will also let PayPal merchants sell on ChatGPT with their inventories listed on the platform, while current PayPal wallet holders will be able to buy items directly from ChatGPT.
Turning to its results, PayPal's revenue climbed 7% to $8.42 billion, while adjusted earnings per share (EPS) rose 12% to $1.34. That came in ahead of the adjusted EPS of $1.20 on revenue of $8.24 billion analysts had expected.
Transaction margin dollars, which are the profits it makes from each payment it processes (similar to gross profits), rose by 6% to $3.87 billion. This is one of the most closely watched metrics for PayPal, since before its new CEO took over, much of its revenue growth had been coming from low gross margin revenue streams.
Total payment volumes (TPV) grew 8% to $458.1 billion. PayPal branded checkout TPV jumped 8% on a constant currency basis, while Venmo climbed 14%. Its unbranded Braintree TPV rose 6%.
Payment transactions dropped by 5% to 6.3 billion, while payment transactions per active account dipped 6% to 57.6 on a trailing-12-month basis. This is largely due to the loss of low-margin Braintree transactions. Excluding third-party platforms that primarily use Braintree, such as Shopify, the number of payment transactions climbed 7% and 5% per active account.
Active accounts edged up by 1% year over year to 438 million. Monthly active accounts increased by 2% to 227 million.
Looking ahead, the company forecast Q4 adjusted EPS to be between $1.27 and $1.31. It is looking for transaction margin dollars growth of 2% to 5% to a range of $4.02 billion to $4.12 billion. It did note it is seeing a decrease in consumer spending in both the U.S. and Europe.
For the full year, it increased its adjusted EPS forecast to a range of $5.35 to $5.39, up from an earlier estimate of between $5.15 to $5.30. The new estimate represents 15% to 16% growth. It is looking for an increase in transaction margin dollars of 5% to 6%, to between $15.45 billion and $15.55 billion, up from $15.35 billion and $15.5 billion.
Image source: Getty Images.
Is it too late to buy the stock?
PayPal is looking to grow both in a decidedly old-school way and with cutting-edge AI innovation. It continues to see strong adoption of physical credit and debit cards, as well as buy now, pay later. That's decidedly low tech. At the same time, its recent partnerships with Alphabet and OpenAI set it up well for the next big trend in AI-powered e-commerce.
Turning to valuation, the stock trades at a forward price-to-earnings (P/E) ratio of about 13 times 2026 analyst estimates and a 1.1 price/earnings-to-growth (PEG) ratio. That's a very attractive valuation for a company that looks like it could be on the verge of an inflection point after its OpenAI and Alphabet deals.
As such, I think investors can continue to buy the stock at current levels.
