Better Fintech Stock: PayPal vs. Robinhood

PayPal (NASDAQ: PYPL) and Robinhood (NASDAQ: HOOD) are both well-known fintech stocks. PayPal owns one of the world's top digital payment platforms, the peer-to-peer payments app Venmo, and the backend payments provider Braintree. Robinhood provides free stock, options, and crypto trades on its namesake app.

But over the past three years, PayPal's stock fell more than 25% as Robinhood's stock soared nearly 280%. Let's see why the smaller online brokerage outperformed the fintech leader -- and if it's still the better investment.

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PayPal's high-growth days are over

In 2018, PayPal's former parent company eBay (NASDAQ: EBAY) announced it would switch to Adyen (OTC: ADYE.Y) as its preferred payments provider by 2023. That setback initially stunned PayPal's investors, but its robust growth during the pandemic in 2020 and 2021 -- driven by more online orders and peer-to-peer payments -- cushioned that blow.

Unfortunately, PayPal's growth cooled after those temporary tailwinds dissipated. After years of double-digit growth, its annual revenue only rose 8% in both 2022 and 2023. Its number of active accounts grew 2% in 2022 but dipped 2% in 2023.

PayPal's take rate (the percentage of each transaction it retains as revenue) has also never risen annually ever since its spinoff from eBay in 2015. That key metric continued to decline as it relied more heavily on Venmo and Braintree -- which have lower take rates than its namesake platform -- to drive its top-line growth. That deceleration indicated PayPal was struggling to keep up with its competitors in the crowded digital payments market as inflation curbed consumer spending.

In 2024, PayPal's revenue and adjusted earnings per share (EPS) grew 7% and 21%, respectively, as its number of active accounts rose 2% to 434 million. Its high-growth days might be over, but it's still gaining users, expanding its ecosystem with new features, and boosting its EPS with tighter cost-cutting measures and buybacks. For 2025, analysts expect its revenue and adjusted EPS to rise 4% and 8%, respectively. Those growth rates might seem sluggish, but its stock looks historically cheap at 14 times forward earnings.

Robinhood's business is warming up again

Robinhood, which gamified stock and crypto trading with its commission-free trades, flourished during the pandemic as stimulus checks, social media buzz, and a fear of missing out (FOMO) drove millions of smaller investors to its platform.

That's why its revenue surged 245% in 2020 and 89% in 2021. But just like PayPal, its growth slowed as the pandemic-induced tailwinds dissipated. In 2022, its revenue declined 25% as rising interest rates curbed the market's appetite for meme stocks, cryptocurrencies, and other speculative investments.

But in 2023, Robinhood's revenue rose 37% as the market stabilized in the second half of the year. Robinhood also expanded its ecosystem with its own Cash Card, digital payment services, and subscription-based Gold plan -- which provides its members with higher interest rates on uninvested cash, bigger instant deposits, access to Level 2 trading data, and other perks.

In 2024, its revenue surged 58% and it turned profitable on a generally accepted accounting principles (GAAP) basis. That acceleration was largely driven by the Federal Reserve's interest rate cuts, which drove many investors back toward riskier investments, and its growing base of Gold subscribers -- which expanded 86% year over year to 2.6 million, or 10% of its total funded customers.

For 2025, analysts expect its revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to rise 26% and 41%, respectively, as it maintains that momentum. Its GAAP EPS, which is being throttled by its recent acquisitions, is expected to dip 8%. Based on those estimates, its stock still looks reasonably valued at 20 times this year's adjusted EBITDA and 30 times its GAAP EPS.

The better buy: Robinhood

PayPal is maturing from a growth stock into a value stock, but it might trade at a discount valuation for the foreseeable future. Without any significant catalysts on the horizon, PayPal could continue to underperform its higher-growth fintech peers.

Meanwhile, Robinhood still has plenty of room to grow as it attracts more investors and expands its Gold subscription tier. It might face some near-term headwinds as concerns about tariffs and elevated rates chill the markets, but it should overcome those challenges over the next few years. That brighter future makes it a more compelling investment than PayPal.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adyen, PayPal, and eBay. 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.