What Is PayPal Actually Worth? A Six-Step Free Cash Flow Valuation

Under my assumptions, PayPal's ten-year fair value lands at $70–75 in the conservative case, $106–124 in the middle case, and $160–200 in the optimistic case. If the middle case plays out, the annualized return from today's price is roughly 21.5%. That is why I think the $60.50 bid is a lowball.

Don't take those numbers on faith. What matters isn't the output, it's the path to it. Run the same process with your own assumptions and you'll get different numbers — and those will be more useful to you than mine. So here is every step.

Step 1: Start with market cap, not share price

The first principle: the price of a company is its market capitalization, not its share price.

Share price is just market cap divided by shares outstanding. The number $60.50 carries no information on its own. Ask instead, "would I buy this entire business for $53 billion?" and the question becomes answerable.

Make that switch and the next question follows naturally: if I pay $53 billion, what do I get back each year?

Step 2: Anchor on free cash flow, not net income

PayPal generated $5.5 billion of free cash flow last year, against a five-year average around $5.2 billion.

What I like here is that free cash flow exceeds net income. More actual cash arrives than accounting profit suggests, and businesses like that tend to look more expensive than they are when you only screen on earnings.

Current valuation is 9.3x free cash flow — and that's after the 15% pop on the takeover news. Before it, the multiple was below 8x. On earnings, roughly 10x.

Step 3: Revenue growth assumptions — 3%, 6%, 9%

Start with history. Revenue grew 6.3% annually over the last three years, 8% over five, and 13% over ten. The trend is clearly decelerating.

Analyst consensus has revenue going from $35 billion to $56 billion over the next seven years. Not glamorous, but mid-to-high single digits. Earnings per share is modeled from $5.40 this year up to $9.17.

For a ten-year run I set 3%, 6%, and 9% as low, middle, and high. That's more conservative than history and puts the analyst path near the midpoint.

Step 4: Free cash flow margin assumptions — 14%, 17%, 20%

The company has run around a 19% free cash flow margin annually over the past decade. But it has been declining.

So I used 14%, 17%, and 20% — the historical average sits near the top of that range, and the low end assumes the decline continues. For reference, net margins are 14.17% over ten years, 13.5% over five, and 15% over the last year. Since free cash flow margin runs above net margin, anchoring here is the more accurate choice.

Step 5: The exit multiple ten years out — 14x, 16x, 18x

This is the most subjective input and the one with the largest effect on the answer.

Over long periods the market's average multiple sits around 15–16x. You go higher for good businesses and lower for bad ones.

PayPal is somewhere in between. High and apparently improving returns on capital argue for a premium. But payments is a fiercely competitive space, and I don't think this company has yet earned a large premium.

So I used 14x, 16x, and 18x — below the market average. Get generous here and the entire output inflates, so this is the one input where I go deliberately stingy.

Step 6: Required return — why 9%

The last input is the annual return you demand.

I used 9%. The reason is specific: here I am not applying a margin of safety, I am trying to find intrinsic value in exactly the sense Burry meant — roughly what is this business worth.

Raise the required return and your buy price falls. Plug in the 15% I personally require and the middle case drops into the $70–80 range. That isn't the company's value changing. It's the price at which I want to own that value changing. Confuse the two and the whole valuation loses meaning.

The output, and how to read it

Running a ten-year analysis produces this.

Scenario	Revenue growth	FCF margin	Exit multiple	Fair value
Conservative	3%	14%	14x	$70–75
Middle	6%	17%	16x	$106–124
Optimistic	9%	20%	18x	$160–200

Two things stand out.

First, even the most conservative scenario lands in the $70s — above the $60.50 offer. In a world where revenue grows only 3% a year, margins keep sliding, and the market permanently assigns a below-average multiple, $60.50 is still cheap.

Second, if the middle case plays out, the annualized return over ten years is about 21.5%. That is the core of why I'd reject this bid. The choice is between locking in a one-year 20% gain and compounding at roughly 21.5% for a decade. The totals aren't close.

It also explains where Burry's $75–115 range comes from. It overlaps almost exactly with my conservative-to-middle band. When two people using different tools land on a similar range, that range earns a little more confidence.

The mistake people actually make here

In my experience, what breaks down isn't the arithmetic.

Most investors don't fail from lack of information — information is everywhere. They fail because when the market feels unpredictable and every decision looks like it could be the wrong one, they freeze. That freezing is anxiety, and anxiety costs far more than bad trades ever do.

The real value of this exercise isn't arriving at a correct number. It's deciding your price in advance. Once the price is set, you don't have to re-make the judgment every time the stock moves. You just execute a decision you already made calmly.

One last disclosure: I own PayPal. But you should never own a stock because I own it, or because Burry owns it. Run the process above with your own assumptions and produce your own number. That's the entire point of this piece.

For a practical way to pre-commit to a buy price, see selling cash-secured puts on PayPal, and for the margin-of-safety concept itself, price vs. value and margin of safety in volatile markets.

FAQ

Q: Why set the exit multiple (14/16/18x) below the market average? A: Competitive intensity in payments. High returns on capital argue for a premium, but assuming the market re-awards a premium multiple while Apple Pay, Stripe, and Shopify all press at once is optimistic. What matters more is whether the conclusion survives a stingy assumption — and here it does.

Q: Should I use a 9% or 15% required return? A: They answer different questions. 9% asks "roughly what is this business worth." 15% asks "what price do I want to pay for it." Use the lower rate to find intrinsic value, then the higher rate — set to your own situation — to set your buy price.

Q: Why not build the model directly off the EPS forecast ($5.40 to $9.17)? A: Analyst forecasts are a sanity check on my assumptions, not the spine of the model. The spine is revenue growth and free cash flow margin. Assuming those directly is what lets you see which variable is actually driving your answer.

Q: Does this analysis become useless if the takeover collapses? A: The opposite. It holds independent of the bid. If the deal breaks the stock retraces, but the cash-generating power of the business doesn't change. That's precisely the moment to compare the table above against the market price again.