PayPal Holdings, Inc.PYPLNASDAQ

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

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $138.52 per share(market-calibrated)

+203.6%

Upside to Fair Value

Current

$45.63

Pure Model

$142.52

Fair Value

$138.52

Bull Case

$176.79

Bear Case

$111.82

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: $142.52.

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 25.28% — below the sector mature average of 28.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $14.5B (27.11% margin).

→

Moderate revenue growth

Analyst consensus projects 2.32% 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 78.76% indicates efficient cash generation. FCF reaches $12.9B by Year 10 (24.01% 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)81.42%

Debt Weight (D/V)18.58%

WACC Calculation

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

WACC = (81.42% × 10.89%) + (18.58% × 2.84%)

= 9.39%

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	$8.6B	$9.4B	$11.1B	$12.8B	$14.5B
Tax	$1.5B	$1.6B	$1.9B	$2.1B	$2.4B
NOPAT	$7.2B	$7.8B	$9.2B	$10.6B	$12.1B
+ Depreciation	$1.2B	$1.3B	$1.5B	$1.6B	$1.8B
- Capex	$772M	$780M	$844M	$853M	$804M
- Δ NWC	$130M	$279M	$452M	$383M	$221M
Free Cash Flow	$7.4B	$8.0B	$9.4B	$11.0B	$12.9B
Discount Factor	0.914	0.764	0.638	0.534	0.408
Present Value	$6.8B	$6.1B	$6.0B	$5.9B	$5.2B

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

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$12.9B

Terminal Growth Rate2.50%

WACC9.39%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$191.4B

PV of Terminal Value$78.0B

Exit Multiple Method

Year 10 EBITDA$16.3B

Exit Multiple (EV/EBITDA)12.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$196.1B

PV of Terminal Value$79.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$59.6B

PV of Terminal Value$78.0B

Enterprise Value$137.7B

(-) Net Debt$1.9B

Equity Value$135.7B

Shares Outstanding959M

Price per Share$141.53

Exit Multiple Method

PV of Projected FCFs$59.6B

PV of Terminal Value$79.9B

Enterprise Value$139.6B

(-) Net Debt$1.9B

Equity Value$137.6B

Shares Outstanding959M

Price per Share$143.51

Pure Model Fair Value

$142.52

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%
7.39%	$173.45	$179.02	$185.71	$193.94	$204.28
8.39%	$153.14	$156.83	$161.14	$166.26	$172.42
9.39%	$137.02	$139.58	$142.52	$145.92	$149.89
10.39%	$123.81	$125.65	$127.74	$130.10	$132.81
11.39%	$112.72	$114.09	$115.61	$117.31	$119.23

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

$111.82

145.1% vs current

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

Base Case

$142.52

212.3% vs current

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

Bull Case

$176.79

287.4% 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 Growth2.32%

Year 3 Revenue Growth4.63%

Year 5 Revenue Growth6.50%

Year 7 Revenue Growth4.90%

Year 10 Revenue Growth2.50%

Terminal Growth Rate2.50%

Margin & Efficiency

Current EBIT Margin25.28%

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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