PayPal Q3 2026: adjusted EPS +8% to $1.45 came from 10.6% fewer shares; revenue grew 2%

PayPal's third quarter of 2026 (July to September) looks like a turn in the press release: adjusted earnings per share rose 8% to $1.45 and management raised its full-year adjusted EPS guidance to about $5.60 from about $5.38. Underneath, revenue grew 2% to $8.58 billion, adjusted net income fell 3%, and GAAP (the standard accounting rules) EPS fell 4% to $1.25. The per-share gain came from a share count 10.6% smaller than a year ago, and the improvement in payments profit came from lower losses rather than from earning more on each dollar moved.

This report is written from the earnings release (Exhibit 99.1 to the 8-K filed October 27, 2026). The full 10-Q has not been filed yet, so the management discussion that explains why each line moved, the split between credit losses and transaction losses, and the revenue bridge by product (branded checkout, Braintree, Venmo) are not available; where those matter below, we say so.

Results in figures

A few terms: TPV is the dollar value of all payments PayPal processed. Take rate is the share of that volume PayPal keeps as revenue. Basis points (bps) are hundredths of a percentage point. Transaction margin dollars are revenue minus the cost of processing payments (card network and bank fees) and minus fraud and credit losses — roughly PayPal's gross profit. Operating margin is the share of revenue left after running the business, before interest and tax.

Where the revenue came from

Transaction revenues, the fees charged on payments, rose about 3% to $7,711 million. Revenues from other value-added services — partnerships, subscription and gateway fees, loan interest, and interest earned on customer balances — fell about 2% to $873 million. Within that, interest on customer balances fell 10% to $289 million from $321 million, which PayPal itself treats as outside its control because it moves with interest rates.

Geography split sharply. U.S. revenue rose 5% to $5,002 million; international revenue fell 2% to $3,582 million, and 4% on an FX-neutral basis (that is, at last year's exchange rates, so currency swings don't distort the comparison). A weaker dollar flattered the international figure by about two points, and it was still down. International now makes up 42% of revenue, against 44% a year ago. Without the 10-Q's commentary we can't say whether that is lower cross-border shopping, lost merchants, or pricing.

The take rate fell to 1.762% from 1.837%, about 7.5 basis points. On $487 billion of volume, each basis point is worth roughly $49 million of revenue. In Q2 the decline was about 8 basis points, so the pressure has eased only slightly. The release does not repeat Q2's explanation (more lower-priced Braintree processing for large merchants, more co-marketing payments booked as reductions to revenue, less foreign-exchange fee income); the 10-Q should say whether those are still the causes.

Engagement kept rising faster than the user base. Payment transactions grew 7% to 6.8 billion, and transactions per active account over the last 12 months rose 6% to 60.8. Active accounts grew only 0.6% to 440 million (up 1.6 million from June). PayPal's growth is coming from existing users paying more often, not from new ones.

What the headline numbers hide

The buyback carried adjusted EPS. Non-GAAP net income was $1,245 million against $1,288 million a year ago, down 3.3%. Non-GAAP EPS still rose 8.2%, because diluted shares fell to 858 million from 960 million. PayPal repurchased about 28 million shares for $1,501 million in the quarter, and $6.0 billion over the last 12 months (about 117 million shares). Shares outstanding were 837 million at September 30, against 920 million at December 31. At last year's share count, GAAP EPS would have been about $1.12 instead of $1.25.

A higher tax rate worked the other way. The non-GAAP tax rate rose to 21.6% from 18.1%. On roughly $1.59 billion of adjusted pre-tax profit, that is about $55 million less net income. Before tax, adjusted profit was roughly flat to up 1% — closer to the truth about the operating business than either EPS figure.

Lower losses, not better pricing, lifted transaction margin. Revenue rose $167 million, but transaction expense (what PayPal pays card networks and banks to move money) rose $185 million to $4,248 million. Revenue minus transaction expense therefore fell slightly, to $4,336 million from $4,354 million. Transaction margin dollars still grew $79 million because transaction and credit losses fell $97 million, to $386 million from $483 million; the loss rate dropped to 0.08% of volume from 0.11%. The transaction expense rate itself improved, to 0.87% of volume from 0.89%, so the issue is the take rate falling faster. The release doesn't split the loss line between fraud losses and credit losses on PayPal's loans, or say whether a reserve release helped (in Q2 a $27 million reserve release was part of the decline). That split is the first thing to check in the 10-Q.

GAAP profit carries a large restructuring charge. "Restructuring and other" was $255 million against $69 million a year ago. PayPal excludes $178 million of it as restructuring (severance and related costs; $1 million a year ago) and $33 million of acquired-intangible amortization from its adjusted figures. That gap is why GAAP operating income fell 7.8% while non-GAAP operating income rose 3% to $1,613 million. Restructuring is mostly workforce-reduction cost under the release's own definition, but it is tied to a defined savings program, so excluding it is reasonable. Other income also swung to a $28 million expense from a $13 million gain.

Operating costs were held flat. Excluding the restructuring line, customer support, sales and marketing, technology and general and administrative expenses totalled $2,293 million against $2,282 million a year ago, up 0.5% while revenue grew 2%. That is where the 16 bps of non-GAAP margin improvement came from.

Cash flow is adequate but doesn't cover the payout on its own. Operating cash flow was $1,592 million, 1.5 times net income (and $4,709 million for nine months against $3,290 million of net income). Free cash flow (operating cash flow minus capital spending) fell 17% to $1,431 million, below the $1,619 million spent on buybacks and dividends in the quarter. PayPal's "adjusted free cash flow" of $2,047 million adds back $616 million of timing on buy-now-pay-later loans it originates and then sells. Over nine months, buybacks and dividends of $4,923 million exceeded free cash flow of $4,109 million, and debt rose to $13.5 billion from $11.6 billion at December 31. Buy-now-pay-later activity is growing fast: loans originated for sale were $12.6 billion in the quarter against $9.7 billion a year ago, and loans held for sale stood at $3.7 billion against $1.7 billion at year-end.

On balance the quarter is understated on a GAAP basis: GAAP EPS fell 4% mainly because of a $178 million restructuring charge and a higher tax rate. But the adjusted EPS headline overstates the business by about as much in the other direction, because a 10.6% smaller share count turned a 3% fall in adjusted net income into an 8% rise per share.

Takeaway: PayPal's operating business barely grew this quarter — adjusted pre-tax profit roughly flat, payments gross profit up 2% only because losses fell $97 million — and the 8% adjusted EPS gain is almost entirely the result of buying back a tenth of the company in a year, partly with new debt.

Did last time's read hold up?

Our Q2 2026 report named three things to watch.

• Take-rate compression slowing: only slightly. The take rate fell about 7.5 bps against roughly 8 bps in Q2. Transaction margin as a share of revenue did recover, to 46.0% (flat on the year) from 44.9% in Q2, but through lower losses and transaction costs, not pricing.
• Savings turning into margin: early signs. Non-restructuring operating costs were flat and the non-GAAP margin edged up 16 bps. Restructuring charges of $178 million in one quarter are above the $120–140 million second-half charge PayPal flagged for the first phase of its program, though the release doesn't say which programs this quarter's charge belongs to.
• Credit as the likeliest surprise: not this quarter on the face of it — the combined loss line fell 20%. Whether consumer charge-offs (4.8% annualized in Q2) improved or a reserve release did the work again can't be told until the 10-Q.

Q2's guidance called for a low-single-digit decline in Q3 EPS against $1.30 GAAP and $1.34 non-GAAP. GAAP came in at $1.25 (−3.8%), in line. Non-GAAP came in at $1.45, about $0.12–0.17 above what that guidance implied.

Guidance and our read

PayPal raised full-year 2026 non-GAAP EPS guidance to about $5.60 from about $5.38 (FY2025: $5.31), and said it raised transaction margin dollar guidance without putting a figure in the release (the figure is in the earnings presentation, which is not part of the filing). GAAP EPS guidance was reaffirmed at about $5.07, a mid-single-digit decline from $5.41. For Q4 it guides to about $1.43 non-GAAP EPS (vs $1.23 a year ago) and about $1.37 GAAP EPS (vs $1.53). The full-year adjustments are about $570 million, so the gap between adjusted and GAAP profit stays wide.

Most of the $0.22 raise is Q3's own beat; the Q4 non-GAAP guide implies about 16% EPS growth, which the shrinking share count (837 million outstanding at September 30, against 920 million at December 31) will again help. The GAAP Q4 guide implies a 10% decline. The two numbers diverging is the restructuring spend still to come.

What would change the picture is the operating line, not EPS. Watch whether revenue minus transaction expense starts growing again — that requires the take rate to stop falling faster than processing costs. Watch the 10-Q's loss split, since lower losses supplied all of this quarter's transaction-margin growth. And watch whether international revenue, down 4% in constant currency, keeps shrinking. Until those turn, PayPal's per-share growth depends on how much stock it keeps buying, and this year it has been spending more on that than it generates in free cash flow.