What PayPal, Affirm, and Klarna Reveal About the New Money Game — Barrons.com

By Andy Serwer

"Follow the money" is a longstanding adage in journalism, but it makes sense for investors, too. For hundreds of years, that has meant investing in banks (the Rothschilds and Mellons can vouch for that), but these days, payment companies seem to be sucking all of the air — er, money — out of the room.

As it turns out, though, grabbing market share in the money business isn't exactly like taking candy from a baby. A trio of high-profile payment companies, PayPal Holdings, Affirm Holdings, and Klarna Group — intertwined through a Silicon Valley--spun, keiretsu-like web — puts that notion in sharp relief.

PayPal, which besides its core brand also owns Venmo, is working through a turnaround. Affirm, in the buy-now, pay-later business, posted hale and hearty earnings late last month, while its Swedish rival Klarna (which means "to become clear" or "bright") looks to raise up to $1.27 billion at a $14 billion valuation in an initial public offering this coming week on the New York Stock Exchange.

So, you have a value story, a growth play, and a new offering. Sounds almost like the beginning of one of Johnny Carson's old Carnac the Magnificent gags, in which he sometimes tried to divine the connection among three random items.

PayPal is, of course, the OG of the bunch, the gangster reference fitting not because of any corporate malfeasance, but because the company was founded in 1998 by a group of now hugely influential entrepreneurs, including Elon Musk, Peter Thiel, Max Levchin, and Reid Hoffman, nicknamed the PayPal Mafia. (I was editor of Fortune when we published an article popularizing the term, with a now-iconic photo of the group.)

PayPal's story has drama enough for an HBO miniseries: battles between Musk and Thiel, a boffo IPO in 2002, only to be snapped up by eBay six months later, after which it languished in subsidiary purgatory, then was pried loose by Carl Icahn and IPOed again in 2015. The stock was a solid performer until the pandemic, when it rocketed to $308 in July 2021, then tanked to $50 in October 2023. CEO Alex Chriss came over in 2023 after 19 years at Intuit.

PayPal's stock, now at $70 with a trailing price/earnings ratio of 15, has struggled to find its footing, with shares down 18% year to date. "When I got here, we were doing 300 different things," Chriss says. "I challenged the team to tell me the three to five things that matter the most. We've returned Venmo to growth, but turnarounds take time. We're not where we want to be yet, but we're moving in the right direction."

Chriss has led PayPal to six quarters of profitability, though the P&L has still underwhelmed Wall Street. Most recently, analysts expressed concern over sluggish branded checkout volume, or payments made through its own branded options, such as its PayPal button. Fourteen Wall Street analysts have Hold ratings on the stock, while 11 have Buys or Overweights and two have Sells, according to FactSet.

As for Affirm, CEO Levchin founded the company in 2012, after studiously avoiding the payments sector for a time — paradoxically because of hitting pay dirt co-founding PayPal. "I spent my 30s trying to not be defined by my 20s and building businesses that looked nothing like PayPal," he says. "Finally, my wife said, 'Dude, like, you know, you're kind of good at one thing. Payments.' "

Affirm is available at checkouts online or in stores, with an Affirm credit card or on ApplePay. It pays the merchant upfront, from which it earns a fee. Consumers are offered various payment options (some of them interest-bearing) with no hidden or late fees. Revenue, which hit $3.2 billion in fiscal 2025, has been compounding some 38% annually since 2020. The company had earnings of 15 cents this year, its first annual GAAP profit. Evercore, Mizuho, and J.P. Morgan have Outperform or Overweight ratings on Affirm's stock.

The shares also soared, then sank, during the pandemic, but unlike PayPal, Affirm has come roaring back, up over 800% from its December 2022 low of $8.91 to $85 recently. With all of that action, does Levchin, whose 10% stake in the company is worth $2.7 billion, still follow PayPal?

"As I grow older, I realize there are some things I just cannot avoid, and so yes, my first child is dear to me," he says. "My second child is where I spend my full time, so that's probably more dear now. But I'm encouraged by the job Alex has done resurrecting what was a stumbling giant into a little bit more dynamic, interesting company."

Actually, there's another company Levchin probably is watching more closely, that being Klarna, which earlier this year replaced Affirm as Walmart's exclusive buy-now, pay-later partner, and is much more of a direct rival. Even though Klarna is based in Stockholm, there's (guess what) a PayPal connection, in that Klarna received early funding from the blue-chip venture-capital firm Sequoia, which is led by another PayPal Mafioso, Roelof Botha. In fact, funding Klarna precluded Sequoia from providing capital to Levchin's Affirm, as it was perceived as a competitor to Klarna.

But isn't there a blood oath, Max?

"I don't think Klarna was Roelof's deal," Levchin says with a grin. "Anyway, he's still one of my closest friends, and no personal damage has been done with that decision."

Could Carnac have predicted that?

Write to Andy Serwer at andy.serwer@barrons.com

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