PayPal Holdings, Inc.PYPLNASDAQ

Overview Intelligence Charts News Fundamentals DCF Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $119.22 per share(market-calibrated)

+187.6%

Upside to Fair Value

Current

$41.45

Pure Model

$123.04

Fair Value

$119.22

Bull Case

$154.17

Bear Case

$95.38

Market Reality Check

Model Terminal Growth

2.50%

Market-Implied Growth

0.50%

Calibrated Growth

1.80%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $123.04.

What's Driving This Ratingfor PYPL

↓

CapEx normalizing toward maintenance

Historical CapEx is 2.26% of revenue (heavy investment phase). Model fades this to 1.50% by Year 10, freeing up ~$409M in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 17.58% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $13.2B (24.59% margin).

→

Moderate revenue growth

Analyst consensus projects 2.33% revenue growth, fading to 2.50% by Year 10. Revenue reaches $53.6B (vs $33.3B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 78.36% indicates efficient cash generation. FCF reaches $11.7B by Year 10 (21.91% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.42

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)10.89%

Cost of Debt

Pre-tax Cost of Debt3.42%

Tax Rate16.83%

After-tax Cost of Debt2.84%

Equity Weight (E/V)79.92%

Debt Weight (D/V)20.08%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (79.92% × 10.89%) + (20.08% × 2.84%)

= 9.27%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$34.1B	$37.3B	$43.9B	$48.6B	$53.6B
EBIT	$6.0B	$6.6B	$7.7B	$10.4B	$13.2B
Tax	$1.0B	$1.1B	$1.3B	$1.7B	$2.2B
NOPAT	$5.0B	$5.5B	$6.4B	$8.6B	$11.0B
+ Depreciation	$1.2B	$1.3B	$1.5B	$1.6B	$1.8B
- Capex	$772M	$780M	$844M	$853M	$804M
- Δ NWC	$131M	$277M	$452M	$383M	$221M
Free Cash Flow	$5.2B	$5.7B	$6.6B	$9.0B	$11.7B
Discount Factor	0.915	0.766	0.642	0.538	0.412
Present Value	$4.8B	$4.3B	$4.2B	$4.9B	$4.8B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$11.7B

Terminal Growth Rate2.50%

WACC9.27%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$177.8B

PV of Terminal Value$73.3B

Exit Multiple Method

Year 10 EBITDA$15.0B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$179.9B

PV of Terminal Value$74.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$46.2B

PV of Terminal Value$73.3B

Enterprise Value$119.5B

(-) Net Debt$1.9B

Equity Value$117.6B

Shares Outstanding959M

Price per Share$122.60

Exit Multiple Method

PV of Projected FCFs$46.2B

PV of Terminal Value$74.1B

Enterprise Value$120.4B

(-) Net Debt$1.9B

Equity Value$118.4B

Shares Outstanding959M

Price per Share$123.48

Pure Model Fair Value

$123.04

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.50%	2.00%	2.50%	3.00%	3.50%
7.27%	$151.40	$156.75	$163.23	$171.22	$181.33
8.27%	$132.60	$136.12	$140.26	$145.19	$151.14
9.27%	$117.80	$120.24	$123.04	$126.29	$130.10
10.27%	$105.75	$107.50	$109.48	$111.73	$114.31
11.27%	$95.70	$96.99	$98.43	$100.05	$101.87

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$95.38

130.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.77

Base Case

$123.04

196.8% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 1.42

Bull Case

$154.17

272.0% vs current

• +25% vs analyst consensus
• Terminal growth: 3.0%
• Beta: 1.21

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Financial Services Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.33%

Year 3 Revenue Growth4.61%

Year 5 Revenue Growth6.50%

Year 7 Revenue Growth4.90%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin17.58%

Terminal EBIT Margin28.00%

Tax Rate16.83%

Historical Capex / Rev2.26%

Terminal Capex / Rev1.50%

NWC / Revenue16.87%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 12x EV/EBITDA (Financial Services sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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