At a high level, PayPal (PYPL -1.11%) has the characteristics of a successful business. Its 228 million monthly active users consist of merchants and individuals, supporting a global network effect. Analysts expect it will generate $6 billion in free cash flow in 2026 on $34.7 billion in revenue. And the company is a leading force in digital payments, having been in business for more than two decades.
Perhaps no metric demonstrates its success more than total payment volume (TPV), which rose 10% year over year in Q2 (ended June 30) to $486 billion. This key figure keeps rising every year.
But the fintech stock remains a wildly disappointing investment. It's trading down 81% from its 2021 peak (as of Aug. 12). Here's what might be causing this losing streak.
Image source: PayPal.
Branded checkout weakness
During the second quarter, TPV at Venmo surged 14% year over year. The payment service provider line, with contribution from Braintree, saw TPV grow 13%. However, PayPal's overall revenue was only up 5%.
Investor attention should turn to the company's online branded checkout solution. This includes PayPal-branded checkout, Pay with Venmo, and eBay. It has been the most lucrative segment in the past.
Its performance has been subpar, particularly after the 2018-2021 period, when it registered 26% annualized TPV growth. TPV rose by just 5% in 2022. That weakness hasn't improved, as branded checkout TPV climbed 2% in the second quarter, accounting for 28% of PayPal's entire TPV.
Branded online checkout is PayPal's crown jewel. When consumers are ready to pay at an online merchant, a dedicated PayPal button allows them to pay seamlessly without entering payment details or a shipping address.
It's the most profitable part of the business. Therefore, its performance impacts PayPal's financials. Transaction margin dollars increased by just 1% last quarter, a rate that should be higher if branded checkout were doing better.
NASDAQ: PYPL
Key Data Points
Competition is playing a part
Management is striking an upbeat tone. "We're also raising our expectation for online branded checkout to the low-single-digit range for the year," CEO Enrique Lores said on the Q2 2026 earnings call. I don't believe this still muted pace of growth will propel the share price.
PayPal's stock has traded at a beaten-down valuation for some time. The market isn't bullish, though. Competition in the digital payments landscape is intense, especially from the likes of Apple Pay, which has an estimated 900 million global users.
It's impossible to know whether or when PayPal's branded checkout solution can return to robust growth. For the stock to be a winner, however, this segment needs to perform significantly better.
