PayPal Struggles as American Express Prepares for Economic Upswing

American Express (NYSE: AXP) and PayPal (NASDAQ: PYPL) are two of the world's leading payment companies, but they have distinct business models that make them react differently to economic downturns.

American Express issues its own credit cards and runs its own banking accounts, which provides it with a wide moat and natural resistance to interest rate swings. It targets more affluent customers with higher credit scores, reducing the risk of bad debt during recessions.

PayPal, on the other hand, generates revenue by charging transaction fees on its checkout services and money transfers. However, its take rate has been declining due to increased competition and a shift towards lower-margin unbranded payment services and Venmo peer-to-peer payments.

Analysts expect American Express' revenue and EPS to grow at CAGRs of 9% and 14%, respectively, from 2025 to 2028. PayPal's revenue and EPS are expected to grow at CAGRs of 5% and 4%, respectively, during the same period.

American Express trades at 19 times this year's earnings, while PayPal trades at 11 times its earnings. The difference in valuation may be due to PayPal's fragile turnaround efforts and its reliance on a shrinking moat in a highly competitive market.