PayPal (PYPL 2.81%) has had a tough start to 2025, with its shares down more than 20%. However, the company recently turned in solid Q1 results and issued upbeat guidance while laying out its growth strategy for this year.

With its stock still beaten down, let's dig into its more recent report to see if a turnaround is near.

Transforming the company

Above all else, PayPal CEO Alex Chriss is looking to transform PayPal from a payments company to a commerce platform that just doesn't facilitate transactions but helps merchants attract and retain customers. This includes helping customers discover new products based on a personalized shopping experience, suggesting the best payment options, and post-transaction engagement.

It has a number of product initiatives on this front, including a smart wallet that can automatically apply available discounts, cash back, or loyalty programs. Its Fastlane solution, meanwhile, allows customers to check out with just a single tap without having to set up individual accounts at different merchants. It also has a commerce API that gives merchants access to PayPal's consumer profiles so that merchants can personalize product recommendations and offers. All these solutions are aimed at improving conversion rates for merchants to help them improve their sales.

One of Chriss' main priorities since taking over has been to emphasize profitability rather than low-margin revenue growth. This could be seen in the company's Q1 results. Revenue rose just 1% to $7.79 billion, but adjusted earnings per share (EPS) climbed 23% to $1.33. Analysts were looking for adjusted EPS of $1.16 on revenue of $7.85 billion, as compiled by LSEG.

Transaction margin dollars, which are similar to gross profits, climbed 7% to $3.72 billion. This has been one of the most closely watched metrics for the company as it moves away from just trying to grow revenue to trying to grow profitably.

Total payment volume (TPV), which is the payment volume that runs through its system, rose 4% to $417.2 billion. PayPal branded checkout TPV continues to show solid, steady growth, rising 4% on a constant currency basis, or 6% when adjusted for Leap Day.

Payment transactions fell by 7% to 6 billion, while payment transactions per active account slid 1% to 59.4 on a trailing-12-month basis. Part of the reason behind this decline is that the company has raised prices on its unbranded BrainTree segment in order to "price to value," which has lowered the segment's number of transactions. BrainTree tends to serve high-volume, large platforms, so any customer loss hits total transaction volumes.

Excluding third-party platforms that primarily use BrainTree, such as Shopify, the number of payment transactions rose 6% and 4% per active account. However, the company said third-party platform transaction margin dollar growth increased meaningfully in the quarter.

Active accounts rose 2% year over year to 436 million. Monthly active accounts were also up 2% to 224 million.

Image source: Getty Images. 

Venmo, PayPal's popular peer-to-peer app, remains a strong growth driver. PayPal is now monetizing Venmo primarily through two channels: Venmo-branded debit cards and the "Pay with Venmo" checkout option for merchants. In Q1, total payment volume (TPV) on Venmo grew 10%, while "Pay with Venmo" TPV surged 50%. Additionally, monthly active users of the Venmo debit card increased by 40%. This helped lead to a 20% increase in Venmo revenue in the quarter.

Looking ahead, PayPal forecast Q2 adjusted EPS to be between $1.29 to $1.31, above the $1.21 analyst consensus. It is looking for transaction margin dollar growth of 4% to 5% to a range of $3.75 billion and $3.8 billion.

For the full year, it maintained its forecast for adjusted EPS of between $4.95 to $5.10, representing 8% growth at the midpoint.

The company said it did not raise its full-year guidance due to global macroeconomic uncertainty. However, it noted that it has little branded exposure to Chinese merchants, and the change to the de minimis exemption has fueled growth in companies like Temu. It also said that its guidance now includes "incremental flexibility" in the second half due to macroeconomic uncertainty

Is the stock a buy?

PayPal is showing solid signs of turning around its business. Its emphasis is on achieving profitable growth rather than merely increasing revenue, with a significant focus on innovation. Its new solutions are starting to gain nice traction in the marketplace. Meanwhile, its Venmo business continues to show strong growth, led by its Venmo-branded debit cards and "Pay with Venmo" offering.

From a valuation perspective, PayPal's stock is cheap. It trades at a forward price-to-earnings ratio (P/E) of about 13 times 2025 analyst estimates and a price-to-sales ratio (P/S) of just 2 times. It also has a 0.5 price/earnings-to-growth (PEG) ratio, with PEGs below 1 being considered undervalued.

PYPL PE Ratio (Forward) data by YCharts

Given the innovation and profitability focus that Chriss is bringing to the company along with its cheap valuation, I would be a buyer of the stock at current levels. Investors may need to be a bit patient, but the stock should become a long-term winner as PayPal transforms itself into a commerce platform.