PayPal pursuit confronts a seller's dilemma

PayPal Holdings

25/02/2026 18:05

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Sebastian  Pellejero

NEW YORK, Feb 25 (Reuters Breakingviews) - The pioneer of digital payments has attracted the attention of a younger and richer upstart. Payments processor Stripe is weighing a deal for all or parts of PayPal PYPL.O, Bloomberg reported on Tuesday, citing people familiar with the matter. Scooping up the trailblazer for making payments and moving money online would expand Stripe's reach, adding 439 million consumer accounts and creating a group handling roughly $3.4 trillion of transactions a year. But PayPal's scale, strong cash flow and beaten-down stock make any deal a tough sell.

Stripe’s interest is easy to understand. Its latest tender offer valued the privately owned firm founded by John and Patrick Collison at $159 billion. That's more than 70 times the roughly $2.2 billion of free cash flow it generated in 2024, the last year for which figures are available. By contrast, analysts expect PayPal to produce about $6 billion of free cash flow in 2026, according to Visible Alpha. Applying a standard 30% takeover premium, the deal would cost $50 billion, a roughly 8-times multiple.

That vast valuation gap reflects Stripe's superior growth. It also creates an opportunity for financial alchemy. Assuming Stripe paid in equal parts cash and stock, it would have to borrow up to $25 billion. At a 5.4% interest rate, servicing that debt would consume a manageable one-fifth of PayPal’s cash output.

The challenge would be structuring a deal. PayPal's investors would understandably be skeptical about swapping stock with an unlisted company with a sky-high valuation. Stripe could use PayPal’s listing as a backdoor route to public markets, but at the expense of private status which has so far proved no impediment to raising capital.

Buying parts of PayPal would shrink the check, but also the point. The company's appeal lies in its two-sided network, which links consumers and merchants, taking a slice of each transaction. Stripe could fold Venmo, PayPal's popular money-sending app, into its existing wallet offering, but without adding much advantage. Buying Braintree, PayPal's digital payments gateway, would add processing volume, not a new edge.

     Stripe is unlikely to be the only suitor for the company whose stock is down 85% from its 2021 high. Private equity firms would fancy the cash flow, while Elon Musk - once president of PayPal's predecessor company - might see instant financial scale for his social media and artificial intelligence venture, xAI. Big banks could gain tighter control of digital checkout, while card networks might chase deeper merchant reach.

The bigger question is why PayPal would engage. Accepting a bid would crystallize a subdued valuation, and hand any upside from incoming boss Enrique Lores' turnaround plan to other shareholders.

That tension speaks to a broader shift. Private valuations, set episodically and often more generously, can make public-market discounts look like shopping opportunities. When that gap is wide enough, it supplies both the logic and math for a deal. Even then, it does not guarantee a willing seller.

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CONTEXT NEWS

Payment processing firm PayPal has attracted takeover interest from potential buyers after a stock slide wiped out almost half its value, Bloomberg reported on Feb. 23, citing people familiar with the matter. Stripe is considering an acquisition of all or parts of the company, Bloomberg reported on Feb. 24th.

PayPal shares were trading at $46.79 in New York on the morning of Feb. 25th, up from less than $41 before the first report of takeover interest.

PayPal trades at less than a third of peers' free cash flow multiple https://www.reuters.com/graphics/BRV-BRV/egvbendwypq/chart.png

PayPal generates about $17 of cash per $100 of market value https://www.reuters.com/graphics/BRV-BRV/myvmymewjvr/chart.png

(Editing by Peter Thal Larsen; Production by Maya Nandhini)

((For previous columns by the author, Reuters customers can click on PELLEJERO/ Sebastian.Pellejero@thomsonreuters.com))