PayPal, the digital payments company, is reportedly considering acquiring Pinterest, the social media and retail platform, which would create a marketplace behemoth.
According to a Bloomberg article citing unnamed sources, the $45 billion proposal revolves upon PayPal of San Jose, California, proposing $70 per share for Pinterest, a 25% premium on the company’s price. Pinterest’s spokesman in San Francisco declined to comment. PayPal’s spokesman did not respond to a request for comment.
“The key to attracting more transactions and payments is to make it as easy as possible,” said Daniela Hawkins, a payments analyst at research firm Capco, who praised the pairing.
Hawkins stated in an interview that one-click sales on Pinterest that go through PayPal systems, delivering things on their way to a customer’s house immediately, made solid commercial sense. She added that such a combination would provide PayPal access to shopping data, allowing for more focused marketing.
On the downside, according to Hawkins, PayPal’s expansion, particularly its expanding financial services scope, has gotten relatively little regulatory scrutiny to this point, but a deal like this highlights its dominance.
Pinterest’s stock soared in response to the announcement, prompting a trading pause in New York on Wednesday, but PayPal’s stock plummeted.
The largest PayPal transaction
If completed, the acquisition will bring to a close a year in which payments businesses have increased expenditure for a record number of acquisitions, fueled in part by startup cash coming into the market, which has fueled rivalry. Legacy players and new entrants alike have been eager to buy up growth and safeguard their turf by grafting on more businesses as fintechs, especially payment startups, have sprouted like weeds on the financial services landscape.
The Wall Street Journal said that Pinterest would be PayPal’s largest ever acquisition, noting that the payment company’s greatest purchase to yet was Honey Science for $4 billion in 2019. Pinterest’s price tag would not be an issue with $19 billion in cash and cash equivalents on hand, according to the report.
Pinterest began as a social media website where users could “pin” information related to their hobbies, as well as share home décor advice and cooking recipes. It has made money from the site’s advertising. Pinterest, like many of its counterparts, has recently shifted its focus to include shopping as well, generating new revenue streams. It expanded a global agreement with Shopify earlier this year, allowing retailers to sell on the platform.
“In order for (PayPal) to capitalize on this opportunity, (Pinterest) still requires executional improvements, such as improved merchant onboarding through SHOP, SKU availability onto the platform, integration of purchasable items into the core user offering, faster ad product development to improve targeting/performance, and a reorganization/development of a sales force,” Morgan Stanley analysts wrote in a report released on Wednesday. “We’re not sure how (PayPal) would help (Pinterest) execute on these factors faster.”
PayPal’s goals
PayPal, for its part, has been courting fresh channels for transactions since breaking free from previous owner EBay earlier this year. The two agreed to split up in 2015 through a spin-off, but their commercial links have been severed for several years.
PayPal CEO Dan Schulman highlighted fostering new merchant and consumer users at a Bank of America conference in June. In a chat with a Bank of America analyst, Schulman said, “We’re seeing continuous demand for our services, maybe even increased demand.” “Finally, our marketing is starting to pay off in ways that we can track.”
PayPal’s entry into the social purchasing area would be a good fit for its goals. It would also heighten PayPal’s competition with Amazon, the online retail juggernaut that has its own payment system and does not allow customers to buy things using PayPal.
“We are initially surprised by the proposed (PayPal-Pinterest) purchase given the size and note that the transaction might put (PayPal) in more rivalry with present and potential partners,” Cowen Equity Research analysts wrote in a research Wednesday in response to the PayPal-Pinterest announcement.
PayPal, like other fintechs, has been working on a “SuperApp” that aims to provide consumers with a package of shopping, payment, and financial features via their phones this year. Schulman has also embraced cryptocurrencies and QR codes as ways to increase PayPal transaction volume.
Schulman mentioned the app’s “shopping tab” at an investor day earlier this year, where users may create wish lists for purchases and receive merchant deals, according to the Cowen report. According to the report, Schulman stated that he wants the platform to achieve 1 billion users.
According to the company’s annual regulatory filing earlier this year, Pinterest has over 459 million monthly active users, with nearly two-thirds of them being female.
The Cowen study stated, “We believe a potential acquisition of (Pinterest) doesvetails with the Super App expansion strategy to enhance users and engagement.”
PayPal’s business is boosted by COVID.
PayPal’s stock has more than doubled in value since the COVID-19 pandemic broke out in March, owing to the e-commerce frenzy that erupted when people were quarantined at home and turned en masse to online purchasing. As e-commerce grew, more people used PayPal’s digital payment system to make more purchases, and more people used PayPal’s peer-to-peer payments tool Venmo to transfer money.
According to a quarterly regulatory filing, PayPal’s momentum has continued this year, with net revenue up 24 percent to $12.2 billion for the first half of 2021, compared to last year, and net income up 41 percent to $2.28 billion for the period, compared to last year.
On a July earnings call, PayPal Chief Financial Officer John Rainey stated, “We believe in the persistent drive toward e-commerce.” “We believe that digital payments are ubiquitous. And we’d like to play a role in shaping that outcome. We aim to be at the forefront of that field.”
The speculation of a deal comes at a difficult time for Pinterest, with co-founder and board director Evan Sharp, who is also the company’s chief design and creative officer, announcing his departure earlier this month, according to Bloomberg. Pinterest, which is profitable, has also been dealing with complaints from former employees, including legal claims, that the firm discriminated against female employees.
