Better Fintech Stock: Block vs. PayPal

One of the most important trends that has shaped the economy during the past decade has happened at the intersection of financial services and technology. Two companies, Block (NYSE: XYZ) and PayPal (NASDAQ: PYPL), are among those enterprises leading the charge.

Shares of these businesses haven't quite panned out for investors. Block stock is 80% off its record high (as of April 9), while PayPal's is trading 79% below its peak. Perhaps better days are on the horizon.

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Between these two fintech stocks, which is the better one to buy right now?

The case for Block

Block operates two separate ecosystems that continue to resonate strongly with customers. Its Square segment provides merchants with hardware, software, and financial services to help them accept and make customer orders and accept payments. Cash App, which targets individuals, is a personal finance platform that is becoming a banking substitute for households making less than $150,000 per year.

The business hasn't struggled when it comes to growth. Overall, Block reported gross profit of $8.9 billion in 2024, 18% higher than the year before and double the figure of 2021. Square is doing a good job of increasing its gross payment volume. Cash App, which is growing faster than Square, is seeing robust demand for small loans.

Combined, Square and Cash App have a $205 billion total addressable market in front of them. Based on 2024 data, they have only tapped less than 5% of the leadership team's estimated opportunity.

Although growth has historically been management's top priority, Block is now starting to show that it can generate substantial earnings. Efforts to drive efficiencies are bearing fruit. Operating income was $892 million last year, with healthy growth forecasted by the Wall Street analyst community.

The shares trade significantly below their all-time high, probably because growth has slowed from a few years ago. The stock can be bought today at a forward price-to-earnings (P/E) ratio of 12.8. That's a good deal that might be too hard to ignore.

The case for PayPal

PayPal, a leader in online payments, is showing that product innovation is still a focus among executives. The business has introduced Fastlane (one-click checkout), Smart Receipts (with AI-powered purchase recommendations), and CashPass cash-back offers, for example, to create a more appealing platform. PayPal even entered the advertising sector, using the immense amount of data it has on purchasing behavior to help merchants target shoppers.

Investors shouldn't overlook PayPal's brand recognition. It's known for convenience and security that users have come to trust. The platform handled a whopping $1.7 trillion in payment volume last year. And as a two-sided ecosystem, one that has 434 million active user accounts, PayPal benefits from a powerful network effect.

From a financial perspective, PayPal is superb. For starters, it has a strong balance sheet that carries a $4.3 billion net cash position. The business is also very profitable, posting an operating margin of 16.7% in 2024. This helps drive free cash flow, which is expected to total $6.5 billion (at the midpoint of company estimates) this year alone. Management plans to spend nearly all of it just on share buybacks in 2025.

Like Block, PayPal's growth has come down dramatically compared to the pandemic days. But there are obviously still reasons to like this business. Investors are only being asked to pay a forward P/E of 12.8 to buy the stock.

Gaining fintech exposure

Both Block and PayPal have strong positions in the fintech sector broadly, with a particular emphasis on payments. They possess favorable traits that warrant investment consideration. I don't see why someone couldn't initiate a position in both stocks to gain adequate exposure to the fintech trend, especially since they trade at compelling valuations.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Block and PayPal. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short June 2025 $77.50 calls on PayPal. The Motley Fool has a disclosure policy.