The Business Model (How They Make Money)

PayPal Holdings, Inc. (PYPL) operates as a global digital payments company. In simple terms, PayPal acts like a secure middleman for money moving between people and businesses online, and increasingly, in stores. Their main job is to make it easy and safe to send and receive money without needing cash or even a traditional credit card in many cases.

PayPal makes most of its money by charging small fees for processing these digital payments, whether you're buying something online, sending money to a friend through Venmo, or a business is accepting payments through their Braintree service. These fees are usually a percentage of the transaction amount. For the fiscal year ending December 31, 2025, PayPal's "Transaction revenues" accounted for $29.80 billion, which was about 89.83% of their total revenue.

Beyond these core transaction fees, PayPal also generates revenue from "Other Value Added Services." These include things like fees for converting currencies when you send money internationally, charges for instant transfers from your PayPal or Venmo account to your bank, and fees for buying or selling cryptocurrencies on their platforms. They also earn money through partnerships, interest and fees from their credit products (like "Buy Now, Pay Later" options), and fees for services like fraud protection and payment gateways for businesses. For 2025, these "Other Value Added Services" brought in $3.37 billion, representing 10.17% of their total revenue.

The Metrics That Matter Most

For PayPal, understanding these metrics will give you a clear picture of how well the company is doing and how efficiently it's turning digital transactions into profit.

1. Revenue: This metric tells you the total amount of money PayPal brings in from all its services. For a company that processes payments, a growing revenue usually means more people and businesses are using their platforms (like PayPal, Venmo, and Braintree) to send and receive money. It's the starting point to see if their overall business is expanding. In 2025, PayPal reported net revenues of $33.17 billion, a 4% increase from the previous year.
2. Net Income: While revenue shows the total money coming in, net income tells you how much profit PayPal actually keeps after paying all its operating expenses, interest on debt, and taxes. It's the ultimate measure of the company's profitability. A higher net income suggests PayPal is managing its costs well and effectively converting its transaction volume into real earnings. In 2025, PayPal's net income was $5.23 billion, a significant 26% increase compared to 2024.
3. Operating Income: This metric focuses on the profit PayPal makes from its core business operations before accounting for things like interest payments on debt or taxes. It shows how efficient the company is at running its payment processing and value-added services. A strong operating income indicates that their main business is healthy and generating profits. PayPal's operating income for 2025 was $6.07 billion, marking a 14% increase from 2024.
4. Operating Cash Flow: This is arguably one of the most important metrics for a financial technology company like PayPal. It represents the actual cash generated by the company's everyday business activities, before accounting for investments in new equipment or paying off debts. Think of it as the real cash engine of the business. For a payments platform, a healthy and growing operating cash flow shows that money is consistently flowing in from transactions, which is crucial for the company's financial stability and ability to grow without relying heavily on outside funding. In 2025, PayPal reported $6.4 billion in cash flow from operations.

How to Value This Company

When looking at a company like PayPal, which generates substantial and consistent cash from its operations, the Price-to-Operating-Cash-Flow (P/OCF) ratio is an excellent way to figure out if the stock is cheap or expensive.

The P/OCF ratio compares the company's stock price to the amount of cash it generates from its core business activities, divided by the number of shares outstanding (which gives you cash flow per share).

Here's why it's great for PayPal: Earnings (Net Income) can sometimes be affected by accounting rules, but operating cash flow is harder to manipulate. For a company whose business is fundamentally about managing and moving money, seeing how much actual cash it brings in from its operations is a very direct way to assess its financial strength and value.

To use it, you'd calculate:

P/OCF = Current Share Price / Operating Cash Flow per Share

A lower P/OCF ratio compared to PayPal's historical average or to similar companies in the payment industry might suggest the stock is undervalued, meaning you're paying less for each dollar of cash flow the company generates. Conversely, a higher P/OCF might indicate the stock is relatively expensive. As of April 4, 2026, PayPal's Price-to-Operating-Cash-Flow ratio was 6.79.