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PayPal Holdings (NASDAQ: PYPL) is the original fintech company, with a robust digital payments system and merchant services. However, it was slow to innovate and seemed to be losing ground to competitors over the past few years. At the same time, its profits were becoming squeezed.

With a new CEO in the front seat, it looks like it's turning around. Let's get into what's happening now at PayPal and whether or not it makes sense to invest in its recovery.

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Making PayPal better

New CEO Alex Chriss put it aptly during the third-quarterearnings callwhen he said that PayPal is shifting from a payments company with disparate products to a commerce platform. It's developing a unified approach to commerce that includes valuable solutions for its consumer users and merchant clients.

PayPal has launched many products and made several important acquisitions over the years, but instead of using its vast array of services to become a dominant business, its messaging as the leader was getting lost among a new crop of technology-first upstarts.

One of the main examples of this approach is the story of Braintree, its unbranded checkout business. Braintree has been growing faster than the branded PayPal business for years, but since it's the equivalent of a wholesale business, it has adversely affected PayPal's gross margin. In other words, as a direct-to-consumer business, PayPal is capital-light and high-margin. Adding in a wholesale business lowers its margins.

Chriss came on board in 2023, and his immediate focus was on finding a clearer way forward. One of his first orders of business was fixing Braintree's fee structure and pricing it according to its value. PayPal's gross margin is still below what it was three years ago, but it's expanding. On the other hand, its operating margin has significantly improved over the entire three-year period.

PYPL Gross Profit Margin (Quarterly) data by YCharts.

While the company changes its pricing structure for Braintree, which helps with overall gross margin, it's also restricting its operating expenses, which is translating into better profitability despite the Braintree piece. As it generates more revenue, especially from branded checkout, addresses the Braintree product, and reduces expenses, the bottom line is growing. This is what management has been feverishly working on, and it's what investors should watch when fourth-quarter earnings are reported on Feb. 4.

A real chance at a turnaround

One of the ways PayPal had been falling behind was in easier payment options, specifically in mobile. It's now launched a one-page express checkout for quick one-time purchases, vaulted checkout for frequent purchases, and recurring payments for subscriptions and autopay. All of these have clear and easy instructions and don't require too many clicks. These are only available on 5% of checkouts right now, but early results are significant. Merchant conversion rates were up by a full percentage point for vaulted checkout and up to 4 percentage points for express checkout.

It's expanding its Fastlane product, which saves customer info for instant checkout, and it's now available on Shopify sites. It's also being rolled out as an option for the buy-with-Prime partnership with Amazon.

PayPal is back in growth mode, and it's profitable growth. Active accounts are increasing and numbered 432 million in the third quarter. That's a huge number of engaged customers that PayPal can leverage to generate higher sales. Monthly actives were up over last year, and so were the number of transactions. Transactions per active account were up significantly at 9% year over year.

PayPal stock looks like a good value

PayPal's turnaround story isn't finished, but it's in the process of happening. The market was pleased with its progress last year, and PayPal stock ended 2024 up 39%. It's not the cheapest it's been over the past three years, but it's close. Plus, it's a lot lower than the three-year average.

PayPal looks like a great value right now. It's gaining new customers, rolling out new products that are breathing life back into the business, and expanding its margins. PayPal stock is also trading at a great price, and I can envision it continuing to climb in 2025 and beyond.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, PayPal, and Shopify. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.