Comparing the Superior Financial Technology Stocks: PayPal vs. Robinhood
In the realm of digital finance, two titans duke it out - PayPal and Robinhood. PayPal heroes its powerful digital payment platform, the beloved Venmo app, and backend player Braintree. On the other hand, Robinhood reigns as the king of free trading for stocks, options, and cryptocurrencies.
However, over the last three years, Robinhood's stock soared nearly 280%, while PayPal's took a tumble, plummeting more than 25%. But why did Robinhood trounce the fintech leader? Let's delve deeper to find out if Robinhood still remains the smarter investment.
PayPal: The High-Flyer Hangs Up its Wings
In 2018, a blow hit PayPal when eBay, its former parent company, announced plans to switch to Adyen as its go-to payments provider by 2023. Initially, PayPal's investors reacted with shock, but the platform's stellar performance during the pandemic in 2020 and 2021 – boosted by increased online orders and peer-to-peer payments – helped smooth over the pain.
Sadly, PayPal's growth took a nose-dive after those short-term windfalls. After years of double-digit growth, its annual revenue only saw an 8% increase in both 2022 and 2023. Its active account count witnessed a 2% hike in 2022 but experienced a slight dip of 2% in 2023.
PayPal's take rate – the percentage of each transaction it retains as revenue – has also been stagnant since its breakaway from eBay in 2015. With a focus on Venmo and Braintree – which boast lower take rates than its namesake platform – to drive its growth, this ongoing decline suggests that PayPal is struggling to compete effectively in the ultra-competitive digital payments market. As inflation socked consumers, this battle seemed ever more daunting.
In 2024, however, PayPal exhibited some growth, posting a revenue and adjusted Earnings Per Share (EPS) rise of 7% and 21%, respectively. Its active account count nudged upward by 2% to 434 million. Although its high-growth days might be over, PayPal is still gaining users, developing its ecosystem with innovative features, and bolstering its EPS through strategic cost-cutting measures and buybacks. For 2025, analysts expect a 4% revenue and an 8% adjusted EPS growth. Although these figures might appear sluggish, PayPal's stock looks remarkably affordable at 14 times future earnings.
Robinhood: The Rebel Heats up its Game
Robinhood, with its game-like approach to stock and crypto trading, thrived during the pandemic due to stimulus checks, social media hype, and fear of missing out (FOMO) that drew millions of smaller investors to its platform.
Consequently, its revenue skyrocketed 245% in 2020 and 89% in 2021. However, just like PayPal, its growth tumbled as the pandemic-induced windfalls began to wane. In 2022, its revenue plummeted 25% as interest rate hikes dampened enthusiasm for meme stocks, digital currencies, and other speculative investments.
But in 2023, Robinhood warmed up again as the market stabilized in the latter half of the year. To extend its reach, Robinhood expanded its ecosystem with its Cash Card, digital payment services, and subscription-based Gold tier – providing members with higher interest on cash, larger instant deposits, access to Level 2 trading data, and more enticing goodies.
In 2024, its revenue leaped 58% and moved into the black on a Generally Accepted Accounting Principles (GAAP) basis. This growth spurt was mainly due to Fed's interest rate cuts, which motivated investors to return to riskier investments, and its growing base of Gold subscribers – which soared 86% year-over-year to 2.6 million, or 10% of its total funded customer base.
For 2025, experts predict a 26% revenue and an impressive 41% adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) rise. Despite relying on some recent acquisitions, Robinhood's GAAP EPS is projected to decline 8%. Given these estimates, its stock still seems reasonably priced at a multiple of 20 times this year's adjusted EBITDA and 30 times GAAP EPS.
The Picks: RobinhoodTakes the Crown
PayPal is transitioning from a high-flying growth stock to a more value-oriented play, but it may linger in the shadows for some time. Without significant catalysts on the horizon, PayPal may continue to lag behind its soaring fintech peers.
Robinhood, on the other hand, has plenty of room to grow with the potential of attracting more investors and expanding its Gold subscription tier. Although it may face some near-term challenges due to concerns about tariffs and elevated interest rates subduing market enthusiasm, it should navigate these obstacles in the coming years. This brighter horizon makes Robinhood a more enticing investment than PayPal.
- Robinhood's growth, largely fueled by its expansion into digital payment services and subscription-based offerings, outpaced PayPal's in 2024, with revenue increasing by 58% and moving into profit on a GAAP basis, compared to a 7% revenue growth and a 21% EPS increase for PayPal during the same period.
- Despite facing a 25% revenue decline in 2022 due to market fluctuations, Robinhood bounced back in 2023 with a stabilizing market and the introduction of new services like the Cash Card, which helped attract more users and boost revenue.
- The competition between PayPal and Robinhood in the digital finance sector remains a captivating spectacle, as Robinhood continues to gain ground with its innovative strategies such as the Cash Card and Gold subscription tier, while PayPal focuses on cost-cutting measures and buybacks to drive growth.
- Experts predict that for 2025, Robinhood will experience a 26% revenue growth and a substantial 41% adjusted EBITDA increase, making it a more attractive investment compared to PayPal, which is projected to see a 4% revenue growth and a decline in GAAP EPS.
