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PayPal (PYPL) is modestly higher following its mixed Q3 report this morning, which featured better-than-expected earnings and raised guidance, although revenue fell short of expectations and branded checkout remained sluggish. Adjusted EPS increased 8% yr/yr to $1.45, ahead of the $1.31 consensus, while revenue rose 2% to $8.58 bln, below the $8.71 bln estimate. PYPL also raised its FY26 adjusted EPS outlook to approximately $5.60 from $5.38.

• Branded checkout remains sluggish. TPV growth slowed to just 1% on an FX-neutral basis from 2% in Q2. European tariff-related pressure continued weighing on results, contributing approximately 70 bps of headwind to overall branded checkout growth. PYPL highlighted improving trends in the U.S., particularly among merchants adopting its updated checkout experience and payment offerings.
• Venmo and Braintree continued performing well, helping support 2% growth in transaction margin dollars to $4.0 bln. Venmo TPV increased 14%, while Pay with Venmo volume jumped 43% and Venmo debit card adoption remained strong. Braintree TPV grew 10%, with financial services becoming an increasingly important contributor across the business.
• PayPal also made encouraging progress on expenses, with non-transaction operating costs increasing just 1% yr/yr, helping non-GAAP operating margin expand 16 bps to 18.8%. Management has reduced headcount by more than 2,000 and expects to exit FY26 with over $700 mln in gross run-rate savings, although it plans to reinvest a significant portion into growth initiatives.
• Looking further ahead, management expects 2027 to remain an investment year, targeting adjusted EPS growth similar to FY26 as it increases spending on product development, marketing, and financial services. These investments are intended to position PayPal for stronger growth in 2028 and beyond, with management targeting mid-single-digit transaction margin dollar growth and double-digit EPS growth over the medium term.

Briefing.com Analyst Insight

PayPal's Q3 results showed encouraging progress on profitability, with improving cost discipline helping offset continued sluggishness in branded checkout. Venmo and Braintree remain bright spots, while greater adoption of financial services is providing additional opportunities for growth. Management believes these businesses can eventually support mid-single-digit transaction margin dollar growth and double-digit EPS growth without branded checkout returning to its historical pace. Still, with transaction margin dollars increasing just 2% in Q3 and 2027 expected to be another investment year, a more meaningful earnings acceleration may take time.