PayPal (PYPL) shares took a 10% hit in premarket trading Tuesday, even though the company beat Wall Street's Q1 estimates. The problem? Investors are looking past the headline numbers and seeing a business that's growing revenue but struggling to keep users engaged and margins healthy.

The parent of Venmo reported revenue of $8.353 billion, up 7% from a year ago and ahead of the $8.046 billion analysts expected. Adjusted earnings came in at $1.34 per share, topping the consensus of $1.27. Total payment volume jumped 11% to $464 billion, and payment transactions rose 7% to 6.5 billion. So far, so good.

But dig a little deeper, and the cracks appear. Active accounts inched up just 1% to 439 million — and actually declined by 0.2 million from the previous quarter. On a trailing 12-month basis, transactions per active account slipped 1% to 58.7. That's a sign that even existing users aren't using PayPal as frequently as they used to.

Margins are also under pressure. Operating margin narrowed 182 basis points to 17.8%, while adjusted operating margin fell 229 basis points to 18.4%. That's a big squeeze, and it's likely why the market is selling first and asking questions later.

On the cash flow front, PayPal generated $1.1 billion in operating cash flow and $0.9 billion in free cash flow during the quarter. It ended March with $13.5 billion in cash and equivalents against $11.6 billion in debt. The board declared a 14-cent dividend payable June 25, and the company returned $1.5 billion to shareholders through share buybacks — about 34 million shares.

New CEO Enrique Lores, who took the helm recently, is already moving to cut costs. Bloomberg reported Monday that PayPal is targeting at least $1.5 billion in savings over the next two to three years through job cuts and organizational changes. The goal is to improve efficiency and reignite growth.

But the near-term outlook is sobering. For the second quarter, PayPal expects adjusted earnings to decline by about 9%. The full-year 2026 forecast calls for adjusted earnings to range from a low-single-digit decline to slightly positive growth. That's not the kind of guidance that gets investors excited.

PayPal shares were down 10.18% at $45.26 in premarket trading Tuesday. The stock is feeling the weight of stalled user growth, thinning margins, and a cautious outlook — even if the quarter itself wasn't a disaster.