PayPal (PYPL) Q1 2026 Earnings Report
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On February 10th I wrote about PayPal in a deep dive laying out why I believe price had gotten significantly dislocated from value.
That was a week after their Q4 2025 earnings which prompted a 20% decline in a single day.
In this article I break down how things are moving since then, what management is saying about their future, and what it means for shareholders after their Q1 earnings report.
To read my full disclaimer click here.
Financials & Data
Q1 marked the first quarter that new CEO Enrique Lores was at the helm.
As a reminder he came from HP where he spent 36 years eventually becoming the CEO in 2019. While there, he was known for cutting costs and returning capital to shareholders aggressively.
Impressively while there he had 15 consecutive quarters of guidance meets or beats.
He is no slouch but that doesn’t mean turning around PayPal will be a walk in the park.
So here is how things looked in his first quarter.
- Total Payment Volume (TPV) came in at ~$464B up 11% YoY marking their 4th consecutive quarter of accelerating growth and the fastest since Q1 2024. Both US and international TPV grew 11% YoY. On a constant currency basis TPV was up 8% YoY led by the US up 11% with international lagging up 2%.
TTM TPV reached a record $1.84T adding $150B of payments processed since Q1 2025. Key to this growth was improvement in Venmo (6th consecutive double digit growth), branded checkout, and PSP which all accelerated growth QoQ.
Pay with Venmo TPV grew +34% and BNPL TPV grew +23%, both gaining share in their markets. Debit + tap-to-pay (PayPal & Venmo) grew +60% YoY. This is the #1 growth metric inside the "branded experiences" bucket.
- Transaction Take Rate came in at 1.62% down 0.06% or 3.6% YoY. This is not a bug of PayPal’s model but a feature of payment providers as they scale that their take rate declines.
- Transaction Revenue came in at $7.5B up 7% YoY hitting a record $30.28B in the TTM growing the fastest since Q2 2024.
- Value Added Services (OVAS) came in at $852M up 10% YoY hitting a record $3.45B in the TTM.
- Net Revenue inclusive of transaction revenue and OVAS came in at $8.35B and was up 7% YoY or 5% on a currency neutral basis. In the TTM it hit a record $33.73B up $1.84B since Q1 2025.
- Transaction Margin Dollars (TM$), which can be thought of as their gross profit, came in at $3.81B or up 3% YoY hitting a record $15.56B in the TTM.
Growth here was slowed down by increased investment and a shift in mix to lower margin Venmo and PSP.
- Operating Expenses came in at $6.8B up 10% YoY accelerating sequentially as they invest into the customer experience. Non-GAAP operating margins in the quarter were 18.4% down from 20.7% in Q1 2025.
- Adjusted FCF came in at $1.72B up 25% YoY and hit ~$6.8B in the TTM.
During Q1 $1.5B of share were repurchased reducing share count ~3% bringing total share count reduction since Q1 2025 to 8.9%.
Balance sheet remains rock solid with $13.5B of cash and investments against $11.6B of debt.
The bear case for PayPal is that they are a dying company. Record revenues, TPV, rising FCF, large buybacks, and improving branded checkout growth tell me a different story.
I am not at all saying that they are firing on all cylinders or are free and clear but that the narrative of a dying company does not hold up to scrutiny when they are hitting records left and right.
That is the disconnect I look for, sentiment diverging from reality.
And there are more signs than just these.
- Active Accounts came in at 439M up 1% YoY but flat sequentially. It was however the transactions per account (TPA) that improved 1.7% and more importantly TPA excluding PSP which isolates branded checkout and debit growth accelerated to 6% YoY.
People that have accounts are using PayPal more often. A very clear metric that people keep using PayPal and their experience is improving enough the come back more and more often.
Looking Forward
Before the Q1 call Enrique announced a restructuring of the company around 3 segments showing up in 2027.
On the call the gave more details on why this change was made saying PayPal previous setup, “resulted in organization complexity with multiple dependencies and handoffs that slowed decision making and weakened execution.”
This specifically addresses the issues that led to them firing the previous CEO, slow execution. To guide where they spend their time Enrique had this to say.
“We are going to be very rigorous, I would even say ruthless in prioritization…. we need to decide in which (initiatives) we double down…. and which ones we are going to be de-investing”.
In addition to reorganizing the company Enrique laid out the following as changes they will be making:
Balancing investments between the consumer experience and merchants. More recently Lores noted it had been focused more heavily on merchants. Specifically the goal is improving presentment, selection, and experience so people can use PYPL seamlessly.
Accelerate tech adoption of the company in cloud and AI.
Simplify operations, decision making, and more clearly define accountability for leaders.
Reduce costs and invest those savings into growth and combat competition. So far he has identified “at least” $1.5B in savings over the next 2-3 years.
Remove Duplicate Layers from Organization
Adopt AI and Automate
This was a clear message that Enrique sees the evolving industry and the need to adapt to it. PayPal is a very large company so this won’t happen over night but is a good sign that he is not just talking about executing more quickly but organizing a company in a way that facilitates that.
Now the plan needs executed on.
Moving to the specific guidance for Q2 and the full year 2026 this was what likely spooked the market.
The weakness in Q2 comes from “the most demanding YoY comparison this year". Q2 2025 had 1.5% benefit from a key partners renewal, had “very strong credit performance”, and benefited from a decline in tax expense.
In addition to those one offs that will not repeat investments are higher this year increasing into Q2 exacerbating the YoY comparison. Management notes investments alone will be a 3% transaction margin headwind on their own during the year 1H weighted.
Management gave a little more details stating in branded checkout quarter to date (Q2) they are seeing trends near the low end of their guide as softness from higher oil prices works through economies.
Investors didn’t like the sound of this and if it was unexpected and below guidance I would sympathize. Guidance however was maintained for the year despite some consumer softness.
When asked if oil prices could cause results to be worse than expected management said the following.
“As we get deeper into the second quarter, comps get easier and candidly, in the second half as well… And we’ve been prudent, I think, in how we’ve set our branded checkout guide and our expectation for lower growth”. - CFO & COO Jamie Miller
Essentially I see this as despite all the pressures they are facing they were able to maintain guidance which is impressive. It tells me that the bar was set low.
As a last note many investors had been asking if there are segments PayPal is considering divesting.
Enrique was clear that at this point he believes the businesses they operate in all have attractive futures. It is investing in them that will drive the most shareholder value.
Thoughts
In future quarters I want to see PayPal making progress on their stated goals.
We should see a more clear plan of how investments will drive topline growth, especially in OVAS, and specifically stabilize branded checkout. How progress is being made to reduce costs and grow bottom line at or near topline pace.
And importantly that they are able to continue to grow user base, and the frequency with which users pay with PayPal.
Looking at just this quarter, despite some fear and an ~8% selloff after earnings, we are ahead of my base case.
