PayPal Is Yesterday's News. Is This Fintech the Better Buy?
Key Points
PayPal's user base is stagnant, while fresher competitors continue to grow.
SoFi has swelled to more than 14.7 million users with its super app.
Despite some valuation and balance sheet risks, SoFi puts up a strong argument for your capital.
- 10 stocks we like better than SoFi Technologies ›
PayPal Holdings was one of the first companies in what is now known as the financial technology, or fintech, industry. It had a great run, but more recently PayPal stock has been a disaster, falling 32% during the past three years. It has struggled with fierce competition, and leadership turnover hasn't helped it right the ship.
On the other hand, SoFi Technologies (NASDAQ: SOFI) is among a new group of fintech companies that are changing how people interact with money. Putting the two companies next to each other definitely paints PayPal as yesterday's news versus the rising star.
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But is SoFi Technologies stock, up 75% during the past three years, actually the better buy? Here's what you need to know.
Image source: Getty Images.
PayPal has struggled to adapt to the times
PayPal remains a prominent player in payments, with about 439 million active accounts. The problem is that competition has crept up on PayPal. Apple and Alphabet have infiltrated the industry with their digital wallets. Meanwhile, PayPal's margins have dropped as its white-label payments business outgrew its more profitable branded checkout.
The company hired Alex Chriss from Intuit as chief executive officer in 2023 to rejuvenate branded checkout but fired him earlier this year. New CEO Enrique Lores will now draw on his experience at HP to help PayPal compete in today's market. The network effect from PayPal's legacy business has kept it around, but its failure to really grow and engage its base has been frustrating.
SoFi's super app is disrupting the industry
PayPal would love to have SoFi's growth. The digital banking company has almost tripled its user base from 5.22 million in 2022 to 14.70 million today. PayPal has added 3 million new active accounts during the past year, which sounds impressive until you realize that translates to 0.6% growth.
What's the secret sauce? SoFi has built a super app, a one-stop shop that houses all its products and services. People can bank, send money, borrow, save, trade stocks and cryptocurrencies, and manage their credit all on the app or website. Unlike traditional banks with physical branches, SoFi doesn't incur the overhead of operating branches.
SoFi built its name in the student loan industry before evolving into what it is today. That has given SoFi name recognition among millennials and Gen Z consumers, who will be the prime customer demographic for the foreseeable future. SoFi has grown to the point that its earnings and book value are skyrocketing, which bodes well for the stock's future.
SOFI Net Income (TTM) data by YCharts.
The rising star is the better buy, but it comes with two big risks
PayPal seems like the obvious buy at first glance because the stock trades at less than 8 times 2026 earnings estimates. That sets very low expectations and leaves room for upside if the company were to execute better. SoFi is far more expensive at almost 30 times 2026 earnings estimates. But for a long-term investor, the better company tends to win out the longer you wait.
Barring a shocking setback, SoFi's strong growth will drive its stock to overtake and outperform PayPal's in relatively short order. After all, analyst estimates call for SoFi's earnings to increase by an average of 31% annually during the next three to five years versus PayPal's 7% to 8% growth rate.
But buying SoFi does come with two big risks. First, a higher valuation can hurt investors if SoFi falls short of those growth expectations. Second, SoFi has operated as a bank since 2022 and carries loans on its balance sheet. There is investment risk whenever a company holds loans, because a recession could impair borrowers' ability to repay their loans, or interest rates could affect the market value of those loans.
In other words, SoFi's business model carries more inherent uncertainty, which is often an argument for a lower valuation, not a higher one. Still, SoFi is executing miles ahead of PayPal, so despite the risks of investing in a bank, it's still the better buy.
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Justin Pope has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Apple, HP, Intuit, and PayPal. The Motley Fool recommends the following options: short June 2026 $50 calls on PayPal. The Motley Fool has a disclosure policy.
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