PayPal Holdings Inc. (PayPal (PYPL)) shares ticked up about 2% in premarket trading Tuesday after the company delivered second-quarter results that topped Wall Street estimates. The payments giant, which also has been the subject of acquisition interest from private equity firm Advent and payments company Stripe, reported revenue of $8.68 billion — up 5% year over year and ahead of the $8.47 billion consensus. Adjusted earnings came in at $1.38 per share, beating the $1.28 estimate.

But beneath those headline beats, the story is more nuanced. Total payment volume grew 10% to $486.4 billion, and payment transactions rose 8% to 6.8 billion. On a trailing 12-month basis, transactions per active account climbed 3% to 60. Active accounts, however, inched up just 0.3% year over year to 439 million and actually declined by 200,000 from the previous quarter. So PayPal is getting more usage from its existing users, but it's not adding new ones at a rapid clip.

The bigger concern for investors might be margins. Operating margin narrowed 171 basis points to 16.4%, and adjusted operating margin fell 248 basis points to 17.4%. That's a meaningful squeeze, and it reflects the costs of PayPal's transformation efforts. The company generated $2 billion in operating cash flow and $1.8 billion in free cash flow during the quarter. As of June 30, it held $15.3 billion in cash and investments against $13.4 billion in debt. The board declared a quarterly dividend of 14 cents per share, payable Sept. 25, and PayPal returned $1.5 billion to shareholders by repurchasing about 33 million shares during the quarter.

CEO Enrique Lores struck an optimistic tone. “Our transformation is well underway, and we’re executing with discipline on our priorities to deliver durable, profitable growth over the long term,” he said. The company noted that branded checkout continued to stabilize, while Venmo and Braintree delivered mid-teens payment volume growth. Lores also outlined plans to simplify the organization and reduce costs, targeting at least $1.5 billion in gross run-rate savings over the next two to three years through organizational simplification, operational optimization, and broader adoption of artificial intelligence.

During the conference call, Lores said a cohort of highly engaged consumers accounts for the majority of the company’s payment volume. He added that PayPal has simplified its operating model around three core businesses, is rebuilding the consumer side of its network, and is expanding Venmo beyond a peer-to-peer payments app into a broader money management platform.

Looking ahead, PayPal's third-quarter guidance disappointed. The company expects adjusted earnings to decline by a low-single-digit percentage in Q3. For the full year 2026, it now expects adjusted earnings of about $5.38 per share, compared with its previous outlook for a low-single-digit decline to slightly positive growth. So the full-year picture improved, but the near-term outlook is cautious.

PayPal shares were up 3% at $57.75 in premarket trading Tuesday. The stock has had a volatile year, and this earnings report gives investors both reasons for optimism — the turnaround is real — and reasons for caution, as margin compression and a soft Q3 outlook keep the pressure on.