M&A Deals

Is PayPal Pin-terested?

Recently it was announced PayPal are in talks with social media site Pinterest about a takeover that could be worth $45bn; possibly resulting in one of the largest corporate takeover deals of the year. After a failed approach by Microsoft earlier this year, PayPal may be about to add Pinterest to its ever-expanding portfolio and continue to widen its services. Shares in Pinterest jumped more than 13% to $63.31 on the revealing of the news, giving a market capitalisation of more than $40bn. Trading of the stock was suspended twice as a result. However, PayPal stock fell more than 5% — not a good sign for how investors feel about the potential deal.

PayPal (correct as of 22/10/2021)

Founded: 1998

Sector:  Financial services

CEO: Daniel Schulman

Share price: US$ 240.96

Market cap: US$ 283bn

Pinterest (correct as of 22/10/2021)

Founded: 2008

Sector: Communication services

CEO: Benjamin Silbermann

Share price: US$ 58.72

Market cap: US$37bn 

Overview of Pinterest

Pinterest was started as a social media company 13 years ago, offering users a way to store and share their favourite images by ‘pinning’ them to ‘boards’. They made their stock market debut in April 2019, with an initial valuation above $10bn, having almost tripled their share price since then. The app has a huge user base of 478m active users, two-thirds of which are women, and are highly valuable to advertisers. Pinterest’s business model is built around selling target ads, which they call ‘promoted pins’, that appear at the top of users’ feeds and search results. These ads brought in about $3 per user in 2018. The company also sells click-to-buy shopping ads to businesses and hundreds of retail partners. Their business benefited hugely from the pandemic stay-at-home mandates forcing people to shop online, but they have since had difficulty keeping up the momentum. 

 Deal Rationale

The mainly stock-based $70 a share offer comes off the back of PayPal seeking to capitalise on its relatively high share price as a currency for the transaction. PayPal was able to hugely benefit from the pandemic, with their share price growing more than 150% since the low of March 2020 as people were told to stay at home to control the spread of the virus. The boom in online shopping meant last year was their strongest ever annual performance, with the company processing a record $936bn in payments. PayPal is attempting to use their strong stock price to fuel its acquisition to become a super app like China’s WeChat, which offers payments and also acts as a social media platform. Evidence of them actively pursuing this goal can be seen in the recent acquisition of Paidy, a Japanese “buy now, pay later” company for $2.7bn. In July, PayPal’s president, Dan Schulman, revealed a “consumer wallet super app” was being rolled out in the US with savings, e-commerce, cryptocurrency and messaging capabilities. The company is also in the early stages of building a stock trading platform and owns the mobile payments service Venmo.

PayPal is not alone in trying to expand its presence across internet services. Last year, Pinterest themselves signed a deal with Shopify, an e-commerce platform for online retailers, to allow its customers to create catalogues on Pinterest. Facebook has recently been challenging Pinterest through its app Instagram. The social media giant is using Instagram to increasingly push retail, letting users shop through regular sponsored Instagram posts and other features. Last summer they began testing a dedicated “shop” tab on its home screen. With the massive shift towards online shopping due to the pandemic, it is unsurprising companies with a large online presence are trying to come up with new, innovative ways of capitalising on the trend. 

Don’t spend too soon 

But, as many online companies are, PayPal and Pinterest have seen the pandemic boom begin to fade. Pinterest’s July earning report fell short of investor expectations, with lower-than-expected user growth, wiping a huge $8bn from its market value in a single day. News of the deal also comes a week after Evan Sharp, Pinterest’s co-founder and design chief, announced he was stepping down from his role. The company has recently faced criticism over its internal culture, including allegations of gender discrimination from former employees. Another issue for PayPal may be the increasing competition from US and international technology companies, including Apple, Facebook and WeChat, who are all expanding their financial technology services. PayPal will have to be smart when integrating Pinterest into its services, mitigate any potential reputation risks, and ensure it stays ahead of its competitors

Should they stick a pin in it? 

While a boom in online shopping throughout the pandemic has benefited both companies greatly, PayPal will need to ensure it is up for the challenge should the acquisition occur. With many competitors on their heels, it is vital to keep innovating and moving forward when creating a cohesive online space for its users. As the pandemic fades, keeping shopping online, while beating competitors such as Instagram, will be crucial in the success of Pinterest to generate revenue going forwards.  


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