PayPal's Buy Now Pay Later Grows Fast: What Drives This Surge?

PayPal's Buy Now, Pay Later (BNPL) segment is a significant growth driver, reporting over 20% volume growth and an 18% increase in monthly active accounts in Q2 2025. Strategically, PayPal entered a two-year agreement with Blue Owl Capital for the purchase of $7 billion in U.S. BNPL receivables, while retaining customer-facing operations. BNPL adoption has demonstrably boosted merchant sales, with examples like Ace Hardware seeing a 35% increase in PayPal sales and 7x higher average order values, and consumers using BNPL exhibiting over 80% higher average order values. Despite a 20.5% year-to-date stock decline, PYPL shares are currently trading at a significant discount (12.02x forward P/E) compared to the industry, with 2025 EPS estimates revised upward, projecting 12.5% growth, suggesting a favorable long-term outlook.

Analysis

PayPal's (PYPL) Buy Now, Pay Later (BNPL) segment is a significant growth engine, demonstrating robust fundamental performance that contrasts with the stock's recent price action. In Q2 2025, the BNPL business posted over 20% year-over-year volume growth and an 18% expansion in monthly active accounts. A key strategic development is the two-year agreement with Blue Owl Capital (OWL) to sell approximately $7 billion of U.S. BNPL receivables, a move that offloads credit risk from PayPal's balance sheet while allowing it to retain customer relationships and generate fee income. The product's value proposition is strong, lifting merchant sales, as seen with Ace Hardware's 35% increase in PayPal sales, and driving consumer spending, with average order values over 80% higher for BNPL transactions. Despite this operational momentum and upward revisions to its full-year 2025 EPS estimates, which now suggest 12.5% growth, PYPL shares have declined 20.5% year-to-date. This has created a notable valuation discount, with the stock trading at a forward 12-month P/E of 12.02x, significantly below the financial transaction services industry average of 21.13x.

Key Decisions for Investors

• Investors should consider the significant valuation disconnect between PayPal's lagging stock performance and the strong underlying growth of its BNPL segment, with the current 12.02x forward P/E presenting a potentially attractive entry point.
• The $7 billion receivables sale to Blue Owl Capital should be viewed as a positive de-risking event that enhances capital efficiency and supports a more scalable, lower-risk growth model for the BNPL business.
• Monitor PayPal's ability to maintain its BNPL growth trajectory and market share against competitors like Block and Affirm, as continued execution in this high-growth area is a primary catalyst for a potential stock re-rating.