A week ago, I wrote about PayPal’s Q3 results and the Q4 deceleration management had signaled ($LINK). The stock had already given back its post-earnings gains, trading around 12x forward PE.
I noted the market seemed unconvinced despite solid execution across every metric.
Then CEO Alex Chriss spoke at Citi’s FinTech Conference on November 19 and provided the missing context—in painful detail.
This is what happens when you answer the “tell me about your weakness” question too honestly.
Chriss laid out PayPal’s challenges so clearly it spooked the market. Shares dropped as investors fixated on three specific concerns.
But here’s the twist: there was actually a lot of good news in that presentation. The market just chose to ignore it.
The Three Things That Spooked Investors
First, consumer spending deteriorated suddenly in mid-September and it’s persisting into Q4.
Chriss was direct: “We started to see a slowdown on consumers, particularly around discretionary spending, retail and really in middle to low income brackets, which play a significant role in PayPal.”
The weakness is concentrated in PayPal’s core customer base. “If we look at some of our cohorts of higher income spenders, they’re still spending. But we are seeing pressure for middle to lower income.”
As a result, Q4 branded checkout is expected to grow slower than Q3.
In my Q3 analysis, I had flagged the “September-October basket size declines”. In this conference, Chriss gave more colors: it started mid-September, hit PayPal’s core demographic hard, and it’s continuing.
Second, the branded checkout rollout is taking much longer than expected.
The new checkout experience has been deployed to just over 20% of merchants, with about half of those optimized. That means only mid-teens percentage of total transaction volume is currently running on the improved experience.
Chriss admitted: “That’s probably the piece I underestimated the most in terms of just how long it would take to get that experience out to customers.”
The timeline? “We’re just going to have to go through the hard work over the next few quarters and maybe even a couple of years to get through our backlog of merchants.”
Years, not quarters. That’s a meaningful delay.
The culprit is worse-than-expected technical debt. “We have 15-plus years of really bespoke integrations across our merchant base. This was something I personally didn’t appreciate when I got here of just how many different integration patterns there have been.”
Third, the 2026 outlook effectively got reduced.
Chriss on delivering previous Analyst Day targets: “If we wanted to lean in in ’26 and deliver what we talked about, that’s our choice. I would not expect that.”
Translation: they’re choosing to invest instead, which pressures margins. “Expect us to actually invest and that comes at a headwind of transaction margin dollar growth in ’26.”
The Analyst Day targets are still valid “long term” but “the timing and how we invest to win in the short term will be impacted.”
What the Market Missed
Here’s the irony: buried in that same presentation was significant progress on multiple fronts.
Venmo is finally turning the corner after years of unfulfilled promise. The company is on track to eclipse $2 billion in revenue, and they believe they’re only capturing “1/4 to 1/5 of the ARPA potential that Venmo has.”
More importantly, funds retention is improving dramatically. Previously, $18 billion flowed into Venmo monthly through peer-to-peer transactions, and almost all of it would exit the ecosystem. Now they’re seeing “a significant increase in consumers that are bringing new funds into the ecosystem outside of peer-to-peer.”
The Processing (PSP) business has flipped from negative margins to profitable growth. Chriss renegotiated contracts with the largest merchants—”difficult conversations,” but they didn’t lose any merchants. The business returned to growth in Q3 exactly as promised.
Buy Now Pay Later is scaling to $40 billion, and they’re seeing a 10% lift in conversion when positioned on product pages. Chriss sees this as “a generational shift” with younger demographics “really leaning towards debit and Buy Now Pay Later as their preferred methods and moving away from credit card.”
And agentic commerce partnerships with Google, OpenAI, and Perplexity position PayPal to capture transactions from AI-driven shopping.
So why did the market ignore all this progress?
The Transparency Conundrum
The market got spooked by sudden consumer weakness, multi-year timelines instead of quarters, and near-term margin pressure from investments.
But Chriss was being refreshingly transparent about both the challenges and the opportunities. He’s making the right long-term investments while being honest about the near-term headwinds.
Markets prefer optimism over honesty in the short term.
The market punished the honesty. But for rational investors, transparent management discussing real challenges beats false optimism every time.
Disclaimer: This research reports constitute the author’s personal views only and are for educational purposes only. It is not to be construed as financial advice in any shape or form. From time to time, the author may hold positions in the below-mentioned stocks consistent with the views and opinions expressed in this article. Disclosure – I hold a position in PayPal at the time of publishing this article (this is a disclosure and NOT A RECOMMENDATION).