All eyes are on PayPal (PYPL 1.27%) ahead of its fourth-quarter earnings report, which will be released on Feb. 4. The good news for investors is that shares of the financial technology (fintech) giant have climbed by 38% over the past year, riding a wave of steady growth and rising profitability. On the other hand, the stock still sits more than 70% below its all-time high of 2021, following a dramatic reset of market expectations in the period since.

Can the recent rally continue through 2025, and is now the time to buy PayPal shares ahead of this pivotal company update? Here's what you need to know.

PayPal's ongoing transformation

PayPal is recognized as a global leader in online payment processing, facilitating transactions for consumers and businesses across more than 200 countries. The company has been compelled to evolve from its traditional focus on e-commerce tools and peer-to-peer transfers amid intense competition from emerging fintech players. The changing landscape is evident in the numbers. PayPal's most recently reported 432 million active customer accounts, while up 1% in the past year, remain roughly flat compared to four years ago at the peak of its pandemic-era growth boom.

Favorably, PayPal is finding success through a strategy aimed at boosting monetization by driving user engagement and payment volumes higher through expanded service offerings. The company's key performance metric, transactions per active account (TPA), jumped 9% year over year in the third quarter (for the period ended Sept. 30), reflecting solid momentum from both its Braintree and Venmo platforms. The company's branded checkout solution, which enables merchants to seamlessly integrate PayPal and Venmo payments, has emerged as another growth catalyst.

Perhaps PayPal's most significant move in 2024 came with the launch of FastLane. This innovative checkout option simplifies the payment process by requiring only an email address, rather than a full PayPal account. The company has strategically extended this merchant feature to transactions processed by major payment providers like Fiserv, Adyen, and Global Payments, ensuring a seamless consumer experience while still capturing a share of the transaction fees.

Ultimately, this omnichannel approach with multi-platform integration and a renewed focus on mobile payments points to the company's future, defined by stronger and more consistent profitable growth.

Image source: Getty Images.

What to expect from PayPal's Q4 earnings

The market will be closely watching PayPal's upcoming fourth-quarter earnings (for the period ended Dec. 31) to cap off an important year in the company's long-awaited turnaround. Management guidance suggests a transitional quarter, projecting "low single digit" revenue growth compared to the prior-year quarter as it prioritizes higher-value opportunities. The company's target for Q4 adjusted earnings per share (EPS) of $1.07 to $1.11 represents a modest "low to mid-single-digit decrease" from last year, reflecting increased marketing spending and investments in new products.

In my view, there's a chance that the headline numbers will outperform expectations. PayPal has likely benefited from the resilient U.S. economic environment, characterized by low unemployment and robust retail spending. Recent positive consumer confidence indicators may be driving stronger payment activity into the new year.

Nevertheless, even a mixed Q4 wouldn't undermine the big picture. For full-year 2024, PayPal projects adjusted EPS growth in the "high teens" compared to 2023, while targeting free cash flow of $6 billion--a sharp increase from the $4.2 billion last year. Key monitoring points include monthly active accounts (MAA) and total payment activity (TPA), which will help gauge PayPal's brand momentum and position within the fintech landscape. The company's updated guidance will be critical, with management commentary likely setting the tone for the stock's trading action.

The big picture for investors

I'm bullish on PayPal and believe investors have a compelling opportunity to buy shares ahead of what could be a breakout year for this fintech juggernaut. The stock's valuation is particularly attractive, trading at approximately 18 times the consensus 2025 EPS. That's a forward price-to-earnings (P/E) ratio that could prove to be a bargain following evidence earnings can strengthen going forward, as a catalyst for the stock to rally higher. Investors with a long-term horizon can make a smart decision by adding PayPal stock to a diversified portfolio.