Why PayPal Shares Plunged 13% This Week

Shares of leading digital payment platform PayPal (NASDAQ: PYPL) sank 13% this week as of 1:30 p.m. ET Friday, according to data provided by S&P Global Market Intelligence.

PayPal reported its fourth-quarter earnings on Tuesday and snuck past analysts' expectations after growing sales and adjusted earnings per share by 4% and 5%.

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However, while total payment volume (TPV) rose 7%, the company's once-fast-growing unbranded unit (where it's a payment service provider) only grew 2%, spurring a drop from the market.

Too much gloom and doom for PayPal?

While I'd typically say this adverse reaction to PayPal's decelerating unbranded growth is warranted, in this particular case, it could prove to be a sign of better things to come. New CEO Alex Chriss explained, "As discussed throughout the past year, we moved rapidly within our Braintree business (unbranded) to prioritize healthy, profitable growth and intentionally let go of unprofitable volume."

Passing on lower-margin volume, PayPal aims to build deeper relationships with its customers, offering a suite of higher-margin solutions rather than just racking up TPV.

In addition to this "price-to-value" strategy that is part of the CEO's turnaround plans, PayPal saw promising results from the August launch of its Fastlane product.

Fastlane allows customers to save their card and shipping information during their first checkout at a participating merchant. After this first purchase, customers can use the prefilled data to check out anywhere Fastlane is accepted.

This new product could be a powerful growth engine for the company, since 75% of Fastlane shoppers are either new to PayPal or accounts that have been dormant for over a year. Trading at just 12 times free cash flow, PayPal could prove to be deeply discounted if it brings in new customers and reactivates existing ones through its Fastlane product.

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Josh Kohn-Lindquist has positions in PayPal. The Motley Fool has positions in and recommends PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.