PayPal (PYPL) kicked off 2025 with a solid first quarter, marked by robust profitability, significant margin expansion, and strategic capital allocation, even as top-line growth remained subdued. Net revenues rose 1% year-over-year to $7.79 billion, reflecting flat transaction revenue but a notable 17% increase in value-added services, driven by higher interest and fee income from its loan portfolio. Despite modest revenue growth, GAAP operating income surged 31% to $1.53 billion, pushing the operating margin up 447 basis points to 19.6%.

This operating leverage translated into impressive bottom-line growth, with GAAP net income jumping 45% to $1.29 billion and diluted EPS up 56% to $1.29. On a non-GAAP basis, net income rose 15% to $1.33 billion, and EPS increased 23% to $1.33. These gains reflect disciplined cost control, as total operating expenses fell 4%, helped by reduced transaction and restructuring costs. Notably, transaction expenses dropped 5%, bringing the transaction expense rate down to 0.89%, while transaction margin improved to 47.7%, up 270 basis points from last year.

User activity showed mixed trends. Total payment volume (TPV) grew 3% year-over-year to $417.2 billion, with international markets contributing 5% FX-neutral growth. Active accounts increased 2% to 436 million, and payment transactions excluding PSP rose 6%, although headline transaction volume declined 7% due to changes in merchant mix. Payment transactions per active account slipped 1%, though again, excluding PSP activity, the figure was up 4%.

Despite these operational strengths, free cash flow declined 45% to $964 million, affected by working capital changes and lower stock-based compensation. Adjusted free cash flow fell 26% to $1.38 billion, and operating cash flow was down 39%. PayPal ended the quarter with $15.8 billion in cash and investments and $12.6 billion in debt, bolstered by a recent $1.5 billion debt issuance aimed at supporting general corporate needs. The company remained aggressive in capital returns, repurchasing $1.5 billion worth of shares during the quarter, maintaining a strong pace from prior periods.

Geographically, U.S. revenue was flat at $4.46 billion, while international revenue grew 3% to $3.33 billion, contributing 43% of total sales. Within the business, growth in PayPal-branded and Venmo products helped offset declines in Braintree, aligning with management’s focus on profitable growth and margin-accretive offerings. Meanwhile, the loan portfolio expanded 21% to $5.4 billion, highlighting increased usage of installment and revolving credit products in key markets.

On the restructuring front, PayPal incurred $39 million in charges tied to workforce adjustments aligned with evolving international regulations, a significant reduction from the prior year. The company doesn’t anticipate meaningful cost savings from these changes.

Looking ahead, management reaffirmed full-year guidance, citing macroeconomic caution but expressing confidence in the company’s strategy. For Q2, PayPal expects GAAP EPS between $1.24 and $1.26, and non-GAAP EPS of $1.29 to $1.31.

Overall, PayPal’s Q1 2025 results underscore a business in transformation—leaner, more focused, and committed to sustainable, shareholder-friendly growth.