PayPal Shares Under Pressure as Holiday Season Growth Falters

PayPal US70450Y1038

PayPal Holdings Inc. is confronting a significant slowdown in its core business, with growth weakening during the critical holiday shopping period. The company's Chief Financial Officer, Jamie Miller, delivered a sobering update at a recent investor conference, prompting a swift downgrade from JPMorgan. The stock has already shed close to 30% of its value since the start of the year.

Citing a slower-than-anticipated turnaround under CEO Alex Chriss, analysts at JPMorgan moved their rating on PayPal shares from "Overweight" to "Neutral" on December 4. The bank's assessment points to the challenging dual mandate the company faces: stabilizing its mature core checkout business while simultaneously investing in new growth initiatives—a balancing act that has yet to yield convincing results.

Consumer Spending Pullback Hits Core Metrics

The underlying data presented by CFO Miller at the UBS Global Tech & AI Conference reveals a clear trend of consumer caution. PayPal's core checkout business is now projected to grow "at least a few percentage points slower" in the fourth quarter compared to the third, implying a growth rate of approximately 3% or less during what is typically its highest-revenue period.

This deceleration is driven by consumers, particularly those with mid-to-low-range incomes, purchasing less. Average basket sizes are declining. Key performance indicators illustrate the trend:

• The count of active accounts has stagnated at 438 million, representing only a 1% year-over-year increase.
• The total number of payment transactions fell by 5% in the third quarter.
• Transactions per active account dropped by 6% to 57.6.

Adding to the headwinds, PayPal has revised its cost outlook, now anticipating higher operating expenses for 2026. This shift is expected to constrain profit growth, as the prior expectation that costs would rise at half the rate of transaction margins has been abandoned.

Financial Resilience Amid Operational Challenges

Despite these operational hurdles, PayPal's financial foundation remains solid. The company reported a 7% increase in revenue for Q3, with earnings per share climbing 12% to $1.34. Its return on equity stands at 24.36%, more than double the industry average.

The company is also returning capital to shareholders. It repurchased $1.5 billion worth of its own stock in the third quarter and initiated its first-ever quarterly dividend of $0.14 per share. Strategically, PayPal is betting on AI-enhanced shopping experiences and has formed partnerships with tech leaders including OpenAI, Google, and Perplexity.

Valuation metrics remain depressed. Trading at a forward price-to-earnings ratio of roughly 11-12, the stock sits well below its historical average. For the full fiscal year 2025, management is targeting adjusted earnings per share in the range of $5.35 to $5.39, which would represent growth of about 15%. However, competitive pressure from credit card networks, Apple Pay, and other fintech rivals continues to intensify. The company's upcoming quarterly results will be closely watched for signs of whether the growth slowdown is persisting.