PayPal's (PYPL) business mix reveals that its "branded checkout" category remains the primary engine of the company's gross profit, despite representing a smaller portion of the total payment volume, UBS Securities said in a note Monday.

As detailed during PayPal's 2025 investor day, the company said it has redefined its TPV into three core segments, including branded checkout, which includes Pay with Venmo and eBay, P2P and Other Consumer.

Although branded checkout accounts for just 30% of TPV, it generates more than 65% of PayPal's transaction gross profit. That compares with Braintree, now part of the PSP category, which contributes about 35% of TPV but only low single-digit gross profit, reflecting lower margins, UBS said.

The report also estimated a potential 2% to 4% drag on branded checkout's US TPV growth due to market share gains by Apple's (AAPL) Apple Pay and Shopify's (SHOP) Shop Pay. These platforms are expected to expand their collective US checkout share to nearly 1.4% in 2025 to 2026, up from 1.1% in 2024, the note said.

"We believe the most appropriate way to model PayPal is gross profit by category," said UBS, noting that branded checkout is estimated to contribute more than 65% of PayPal's transaction gross profit, or over 55% of the company's total gross profit.

UBS has a neutral rating on PayPal with a price target of $75.

Shares of PayPal added more than 1% in recent Monday trading.

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