PayPal Holdings
Analytical review · Report for the quarter ended June 30, 2026 (Q2 2026)
Bakshi Finance — Family Office | Research Depth: Comprehensive
What this review is based on. PayPal's quarterly report on Form 10-Q for the quarter ended June 30, 2026, filed July 28, 2026; the earnings releases of the last four quarters (October 2025 to July 2026); the annual report on Form 10-K for 2025; and Form 8-K filings on the CEO change and changes to management and the board. Market data: closing price on October 9, 2026; Bank of Israel representative USD/ILS rate of October 9, 2026. This review replaces an earlier review based on the 2025 annual report.
Company Profile
PayPal Holdings operates a two-sided digital payments platform: consumers on one side, merchants on the other. The company was separated from eBay in 2015, is headquartered in San Jose, California, and employed about 23,800 people at the end of 2025.
The group runs several well-known brands. The PayPal wallet is the branded payment button on e-commerce sites ("branded checkout"). Venmo is a U.S. peer-to-peer payments app that is gradually becoming a payment method as well. Braintree provides unbranded card processing for large merchants — the shopper does not see the PayPal name. Alongside these are Xoom (cross-border transfers), Honey (coupons), Hyperwallet (payouts), and credit products: buy now, pay later for consumers and loans for small businesses.
In Q2 2026 the platform processed $486 billion of payments across 6.75 billion transactions, with 439 million active accounts. On March 1, 2026, Enrique Lores — former CEO of HP and previously PayPal's board chair — took over as CEO from Alex Chriss.
Financial Performance
Reading PayPal's reports requires separating net revenues from transaction margin dollars (TM$). Revenues include all fees the company charges. From them PayPal deducts "transaction expense" — the fees it pays banks and card networks when it draws money from a customer's card — and fraud and credit losses. What remains is TM$, which the company itself uses as its main measure of the value the platform generates.
Revenues grow, margins do not
In the April–June 2026 quarter revenues rose 4.8% to $8,682 million. Transaction expense rose 10.5% to $4,385 million. As a result TM$ rose only 1.5%, to $3,900 million. Excluding interest on customer balances (which depends on prevailing interest rates) the increase was 2.6%. TM$ growth over recent quarters: +6%, +3%, +3%, +1%.
Non-transaction expenses (technology, support, marketing and G&A) rose about 9%, so non-GAAP operating income fell 8.3% to $1,507 million and GAAP operating income fell 5.1% to $1,427 million. GAAP net income fell 12% to $1,104 million, partly due to a $74 million loss on strategic investments.
Earnings per share and buybacks
Non-GAAP EPS fell only 1.4%, to $1.38, although non-GAAP net income fell 11%. The difference is the share count: 882 million diluted shares on average versus 977 million a year earlier (−9.7%). According to company management, non-GAAP EPS for 2026 will be about $5.38 ($5.31 in 2025), and for Q3 the company guides to a low-single-digit decline in EPS. The guidance excludes $120–140 million of transformation charges the company cites for the second half.
| $ millions | Q2-25 | Q3-25 | Q4-25 | Q1-26 | Q2-26 |
|---|---|---|---|---|---|
| Net revenues | 8,288 | 8,417 | 8,676 | 8,353 | 8,682 |
| Transaction margin dollars (TM$) | 3,844 | 3,871 | 4,034 | 3,810 | 3,900 |
| Interest on customer balances | 318 | 321 | 293 | 274 | 281 |
| Operating income (GAAP) | 1,504 | 1,520 | 1,511 | 1,488 | 1,427 |
| Non-GAAP operating income | 1,644 | 1,568 | 1,550 | 1,541 | 1,507 |
| Free cash flow | 692 | 1,718 | 2,190 | 903 | 1,775 |
Balance Sheet & Capital
Customer funds: PayPal's balance sheet is large ($82.7 billion), but most of it is customer money. Against a $41.7 billion liability to customers stand $39.7 billion of dedicated assets. The gap, exactly $2.0 billion, is the amount of European customer balances the company designated, with the approval of its Luxembourg regulator, to fund credit activity in Europe and the U.K. A further $500 million was designated in July 2026. According to the filing, the company holds qualifying liquid assets equal to at least 100% of customer balances and pays no interest on them.
Corporate cash and debt: In addition to customer funds, the company holds $13.5 billion in cash and investments (excluding $1.7 billion of strategic investments). 51% of that is held by subsidiaries outside the U.S., and according to the filing "not all of our cash is available for general corporate purposes" because of regulatory requirements. Debt stood at $13.4 billion versus $11.6 billion at the end of 2025: in May 2026 the company issued $2.0 billion of notes (maturing 2028, 2031 and 2036). A $1.25 billion note matured on October 1, 2026. The company is rated investment grade by all three rating agencies. Shareholders' equity was $19.8 billion, of which goodwill was $10.9 billion.
Capital return: In the first half of 2026 the company repurchased 67 million of its shares for $3.0 billion ($44.99 on average) and paid a quarterly dividend of $0.14 ($252 million). Total capital returned, $3.30 billion, exceeded first-half free cash flow of $2.68 billion. Shares outstanding fell from 920 million at the end of 2025 to 855 million on July 22, 2026. Remaining buyback authorization: $10.9 billion.
Cash flow: Free cash flow for the trailing 12 months was $6,586 million. According to the filing, the first-half increase in operating cash flow included about $450 million from the timing of receivables and taxes, and about $240 million from lower bonus payments. Quarterly cash flow is also volatile because of the time between originating buy now, pay later loans and selling them to investors — which is why the company also reports "adjusted free cash flow" ($7,926 million over 12 months).
Segments
PayPal reports a single operating segment. The breakdown available in the filing is geographic, together with a narrative explanation of the sources of revenue change. Branded checkout growth figures and a product-level breakdown of transaction margin do not appear in the filings reviewed.
| Revenue by region, $ millions | Q2-25 | Q2-26 | Change | Currency-neutral |
|---|---|---|---|---|
| U.S. | 4,709 | 5,048 | +7% | — |
| International | 3,579 | 3,634 | +2% | −3% |
Where the change in transaction revenues came from
According to the filing, transaction revenues rose $391 million. Of this, about $400 million came from Braintree, about $80 million from FX hedging (gains this year versus losses a year earlier) and about $60 million from Venmo. Against that, revenue from branded PayPal products fell by about $130 million. The company attributes the decline to co-marketing campaigns with large merchants — recorded as a reduction of revenue — and lower foreign-exchange fee revenue. In the same quarter sales and marketing expense fell $37 million. For the first half as a whole, branded PayPal revenue rose $130 million and was offset by $120 million of co-marketing campaigns.
Transaction expense rose $417 million, more than Braintree's revenue increase. According to the filing, the reasons are a higher share of volume from Braintree, which carries a higher expense rate, and "unfavorable changes in funding mix" — more payments funded by card and fewer by balance or bank account. TM$ per dollar of payment volume fell from 0.87% to 0.80%.
Credit
Consumer loans stood at $5.5 billion (−6%) and merchant loans at $1.9 billion (+14%). The net charge-off rate rose to 4.8% for consumer loans (3.6% a year earlier) and to 7.6% for merchant loans (6.1%). Credit losses in the quarter fell to $74 million because, alongside $101 million of net charge-offs, $27 million of reserves were released. Most buy now, pay later loans are sold to investors: in the first half, loans were sold for net proceeds of $15.8 billion. Losses on sales and remeasurement of loans held for sale totaled $126 million in the half ($52 million a year earlier). In certain cases, such as breaches of loan warranties, the company may have to indemnify the buyers; the theoretical maximum stated in the filing is $3.9 billion.
Competitive Position
The advantage PayPal presents is its two-sided network: hundreds of millions of consumers who have stored a payment method with it, and millions of merchants who display its button. The more consumers use the wallet, the more reason merchants have to offer it, and vice versa. Alongside that the company has well-known brands, fraud-risk systems, and payment licences in about 200 markets.
What the filings show on the other side: active accounts have been flat for four consecutive quarters (438–439 million). Volume growth comes mainly from Braintree, where the shopper does not see the brand and margins are low. In branded checkout the company records co-marketing campaigns with large merchants as a reduction of revenue. In its February 2026 earnings release the company wrote that "our execution has not been where it needs to be, particularly in branded checkout." Wallets from phone and operating-system makers, and other processors, operate in the same market. This review does not include market-share data from a primary source.
Regulation and competition: In March 2026 the U.K. Financial Conduct Authority (FCA) opened Competition Act investigations into provisions in PayPal's agreements with Visa and Mastercard relating to funding and use of the PayPal wallet. Germany's Federal Cartel Office is reviewing merchant contract terms that prohibit surcharging and require parity presentation of PayPal.
How to Think About This Company
At PayPal, revenues measure volume. Transaction margin measures the business. When Braintree adds $400 million of revenue and transaction expense rises $417 million, revenues grow and gross profit does not. Reading only the revenue line (+4.8%) gives a different picture from reading TM$ (+1.5%) and non-GAAP operating income (−8.3%).
Three businesses under one brand. Branded checkout, Venmo and Braintree have different economics. Branded checkout earns more per transaction, but it is also the part where the company reports difficulty. Braintree adds volume at low margins. The filings combine all three into a single line, so a shift in mix can move margins even with no change in pricing.
Part of the quarter's change is accounting. FX hedging added about $80 million to revenues compared with a year earlier; in credit losses a $27 million reserve was released, against an $18 million build a year earlier. Excluding those two items, TM$ excluding interest on customer balances was close to the prior year and slightly below it. Anyone tracking "stabilization" needs to look at the figures excluding these items.
Earnings per share and net income tell two stories. Non-GAAP net income fell 11%; non-GAAP EPS fell 1.4%. The difference is the buyback, which reduced the share count by about 10% in a year. A buyback of this size is a significant return of capital to shareholders. It can also mask a trend in the underlying business, so the two figures should be read together.
Buybacks and debt. In the first half the company returned $3.30 billion to shareholders against free cash flow of $2.68 billion, and debt rose $1.8 billion. The ratio between the pace of capital return and cash flow changes from quarter to quarter and is a figure to track.
Credit leaves the balance sheet, but not entirely. PayPal originates buy now, pay later loans and sells most of them to investors. That way it does not hold the portfolio, but losses on sales and remeasurement rose to $126 million in the half, and the company may have to indemnify buyers in certain cases. At the same time, charge-off rates in the portfolios it does hold have risen.
Interest rates are a side wind. PayPal earns interest on the money customers hold with it — $1.17 billion over the last 12 months, nearly all of it profit. When rates fall, this line falls: $281 million in the quarter versus $318 million a year earlier. The company also presents TM$ excluding this line, to separate payments activity from the effect of rates.
New management and an efficiency program. In April 2026 the new CEO announced a reorganization which, according to company management, is intended to generate at least $1.5 billion of gross annualized savings within two to three years, with a significant portion to be reinvested. Two senior executives left in June. How much of the savings reaches profit and how much is reinvested has not yet been detailed.
The legal and regulatory front is open. A consolidated shareholder class action alleges that the company failed to disclose obstacles in its branded checkout strategy between February 2024 and February 2026. Civil investigative demands from the U.S. Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are also open, as are investigations in the U.K. and Germany. The company has not accrued a material amount and cannot estimate the range of loss in the lawsuits.
This framework is intended to structure analysis, not to produce an investment conclusion. It takes no part in the decision — the decision belongs to the reader.
Risks & Monitoring
Risks arising from the filings
- Mix and margins: growth in Braintree and in card funding raises transaction expense faster than revenues.
- Branded checkout: a decline in branded PayPal revenue in the quarter, flat active accounts, and co-marketing campaigns with merchants recorded as a reduction of revenue.
- Interest rates: lower rates reduce interest income on customer balances.
- Credit: rising charge-off rates, losses on loan sales, and possible indemnification of loan buyers.
- Regulation and litigation: FTC, CFPB, the U.K. FCA, Germany's Federal Cartel Office, securities class actions and derivative suits.
- FX: about 42% of revenues come from outside the U.S.; FX hedging moves revenues from quarter to quarter.
- Execution: new management, a reorganization and senior departures in the same year.
Items to monitor in the Q3 report (late October 2026)
| # | Item | Latest reading |
|---|---|---|
| 1 | TM$ excluding interest on customer balances, before and after hedging effects | $3,619 million (+2.6%) |
| 2 | TM$ per dollar of payment volume | 0.80% (0.87% a year earlier) |
| 3 | Non-GAAP operating income | $1,507 million (−8.3%) |
| 4 | Branded PayPal revenue and co-marketing (in MD&A) | −$130 million in Q2 |
| 5 | Active accounts | 439 million |
| 6 | Net charge-offs and reserve movements | Charge-offs $101 million; release $27 million |
| 7 | Buybacks and dividends vs free cash flow; debt balance | $3.30B vs $2.68B in the half; debt $13.4B |
| 8 | Transformation charges and detail of savings | $44 million in Q2; $120–140 million per the company in H2 |
| 9 | Developments in investigations and lawsuits | No material accrual |
Scenario Framework
The scenarios below are descriptive, not predictive. They include no prices, no probabilities, and do not rank outcomes. Their only purpose is to organize the conditions that would need to hold for each state to materialize, so that they can be checked against the next filings.
Scenarios are descriptive, not predictive.
- If TM$ excluding interest grows even after removing hedging effects, and TM$ per dollar of volume stops declining
- If branded PayPal revenue returns to growth without an increase in co-marketing campaigns
- If savings from the reorganization appear in non-GAAP operating income
- If charge-off rates in the loan portfolios stabilize
- If volume keeps growing mainly through Braintree and Venmo, and TM$ grows at a low single-digit rate
- If non-GAAP operating income stays near its current level and buybacks keep reducing the share count
- If active accounts remain around 439 million
- If the investigations and lawsuits continue without resolution
- If TM$ excluding interest declines after removing hedging effects, and the decline in branded PayPal revenue continues
- If interest rates keep falling and reduce income on customer balances
- If a regulator requires changes to wallet-funding terms or to merchant presentation terms
- If charge-off rates keep rising and losses on loan sales grow
Analytical Lens
The six questions below are identical in every company review we publish. They are deliberately open and do not lead to a single conclusion. Their role is to let the reader examine the company along the same six dimensions as every other company.
Key Observations
1. In the April–June 2026 quarter PayPal reported net revenues of $8,682 million (+4.8%) and transaction margin dollars of $3,900 million (+1.5%). Transaction expense rose 10.5%. Non-GAAP operating income fell 8.3% to $1,507 million.
2. Transaction revenues rose about $400 million from Braintree and about $60 million from Venmo, and fell about $130 million in branded PayPal products. FX hedging contributed about $80 million compared with a year earlier. Active accounts stood at 439 million.
3. Non-GAAP EPS fell 1.4% to $1.38 while the diluted share count fell 9.7%. In the first half the company repurchased $3.0 billion of shares and paid $252 million of dividends, and debt rose to $13.4 billion. According to company management, non-GAAP EPS for 2026 will be about $5.38.
4. In March 2026 Enrique Lores replaced Alex Chriss as CEO, and in April the company announced a reorganization with at least $1.5 billion of gross annualized savings according to company management. Charge-off rates rose to 4.8% for consumer loans and 7.6% for merchant loans. The company faces a consolidated class action and investigations in the U.S., the U.K. and Germany.
Bakshi Finance operates as a Family Office for qualified clients only. Mr. Yaron Bakshi held a licensed investment adviser qualification in Israel during 2008–2023. As of the publication date of this document, the firm does not hold an investment advice, investment marketing or portfolio management licence.
This document is intended for research and professional study purposes only. Nothing herein constitutes a recommendation to buy, sell, hold or carry out any transaction in securities. Nothing herein substitutes for advice that takes into account the data and needs of each person. Every decision is the sole responsibility of the investor.
Past performance is not indicative of future results. Data were drawn from official sources: the quarterly report on Form 10-Q for the quarter ended June 30, 2026 (July 28, 2026), the earnings releases for Q3 and Q4 2025 and Q1 and Q2 2026, the annual report on Form 10-K for 2025 (February 3, 2026), and the company's 2026 filings with the U.S. Securities and Exchange Commission. Filings published after this date are not included.
Review for qualified clients โ Family Office
The full analytical review of PayPal (PYPL) for the quarter ended June 2026 is available to Bakshi Finance premium clients.
The review includes a 10-section analysis, "How to Think About This Company" paragraphs, a structured scenario framework, and a six-dimension Analytical Lens.
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