Paypal stock

Why PayPal Investors Got Nervous on Wednesday

What happened

Shares of PayPal(NASDAQ:PYPL) stumbled on Wednesday, falling as much as 6.8%, though the stock recovered a bit, ending the trading day down 4.7%. The catalyst that sent the fintech leader lower were reports that it might be expanding into new markets via a massive acquisition.

So what

Reports surfaced early in the day that PayPal had made overtures to acquire social-media site Pinterest(NYSE:PINS). Bloomberg dropped the story, citing the oft-quoted "people with knowledge of the matter," which sent Pinterest stock soaring. 

A smiling person in a restaurant making a digital payment with a smartphone.

Image source: Getty Images.

The report had the opposite effect on PayPal. Investors were likely concerned about the proposed acquisition price for Pinterest of roughly $70 per share.

As of Jul. 23, 2021, Pinterest had more than 555 million shares of Class A common stock outstanding and more than 89 million shares of Class B shares, which, taken together, would value Pinterest at more than $45 billion. For context, PayPal currently has a market cap of roughly $300 billion, so an acquisition of this magnitude could have a significant impact on PayPal's business -- particularly if things go south.

The report didn't specify when these discussions happened, though an updated version of the report said, "Terms of a transaction could still change, and there's no certainty the talks would lead to an agreement." 

Now what

PayPal has been looking to expand beyond its digital-payments business and has been working to become a "destination app" as a way to help users take control of their financial lives. Last month, the company added a host of new features and services, taking it one step closer to what some are calling a "super app."

The added functionality includes a high-yield savings account, in-app shopping tools, up to two-day early access to direct deposit funds, bill pay, and deals and rewards for users. In the coming quarters, PayPal plans to expand its features even more, adding investment capabilities and purchasing with cryptocurrency.

By joining forces with Pinterest, PayPal would establish a sizable beachhead in social commerce, a natural extension of its payments business.

Thus far, neither PayPal nor Pinterest has confirmed the reports.

Sours: https://www.fool.com/investing/2021/10/20/why-paypal-investors-got-nervous-on-wednesday/

Pinterest Shareholders Should Say No to a PayPal Buyout

Of all the companies that could make a bid for Pinterest (NYSE:PINS), Paypal (NASDAQ:PYPL) was one of the least likely.

The fintech giant's business is only tangentially related to the social media company's, and Paypal seems mostly interested in Pinterest's potential as an e-commerce platform that can be tucked into its "super app."

However, the logic behind a potential deal, which was first reported by Bloomberg, isn't really important to Pinterest shareholders. What matters is the price -- and $70/share is a head-scratcher for a stock that was one of the breakout stories of the pandemic, and was trading above that level for much of this year.

A woman looking at a Pinterest board on an iPad

Image source: Pinterest.

While the offer represents a 26% premium over Pinterest's closing price on Tuesday before the news broke, the stock was trading near a 52-week-low at the time, and $70 a share would still be 22% below its peak in February. In other words, anchoring to its price before the news broke seems to be a mistake here, especially for a high-growth, volatile stock. That's the biggest reason why a buyout for $70 a share isn't in the best interest of Pinterest investors. As a stand-alone company, Pinterest has the ability to greatly exceed that value.

A brief refresher

The stock price tumbled when the company released its second-quarter earnings report, which showed that its domestic user base shrunk unexpectedly. Management also said that revenue growth would decelerate significantly in the third quarter after the top line more than doubled in the second quarter. However, there were good explanations for both of those potential warnings signs.

First, monthly active users (MAUs) surged in Q2 2020 as the pandemic lockdown drove millions of people to check out Pinterest for the first time, looking for recipes, children's activities, are other ideas to stave off boredom. However, many of those lockdown visitors were low-value users, who just came to the platform under unique circumstances. Even though Pinterest lost domestic MAUs over the past year, that number is misleading because the value of its user base still increased. In its shareholder letter, management explained, "Virtually all of the difference between our Q2 MAU guidance and our actual Q2 MAUs is attributable to a decline in MAUs who use Pinterest on the web. These users have tended to be less engaged and generate less revenue than Pinners who visited our mobile apps directly." Domestic mobile users actually increased year over year and were up by more than 20% internationally. Domestic MAUs under 25 increased by double-digit percentages, showing that the company is gaining traction with the youngest generation of consumers, which is a valuable demographic for advertisers.

Meanwhile, the company called for revenue growth in the low-40% range for the third quarter, a strong clip that only seemed disappointing because the top line soared 125% in the second quarter.

Pinterest's profit potential is clear

When Pinterest had its IPO in 2019 at a valuation of around $10 billion, it was still unprofitable, but its scalability and profit potential are evident after the pandemic-driven surge. In its second-quarter report, the company posted an adjusted EBITDA margin of 29%, or $178 million in EBITDA, on $613 million in revenue. That surge has come not just from growth in its user base, but as the company has improved its advertising products and built out its advertiser ranks. Pinterest has only just started monetizing its platform, especially in international markets, and the business has plenty of potential -- not least because many of its users come to it for specific use cases and are receptive to ads.  

Don't take the money

Selling out to PayPal for a price that's 22% below its February peak would be a disservice to investors. Pinterest has significant revenue growth momentum from large advertisers and international markets, and a business model that is just starting to demonstrate its scalability. The company has a bright future ahead of it, in spite of the stock's weak performance this year.

At best, there's a weak business case for merging with PayPal, and at worst, management would be depriving shareholders of significant upside potential as a stand-alone company. Management and shareholders are better off remaining independent and allowing the company's growth to play out.

Sours: https://www.fool.com/investing/2021/10/21/pinterest-shareholders-say-no-to-paypal-buyout/
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Stocks: Real-time U.S. stock quotes reflect trades reported through Nasdaq only; comprehensive quotes and volume reflect trading in all markets and are delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements. Fundamental company data and analyst estimates provided by FactSet. Copyright 2019© FactSet Research Systems Inc. All rights reserved. Source: FactSet

Indexes: Index quotes may be real-time or delayed as per exchange requirements; refer to time stamps for information on any delays. Source: FactSet

Markets Diary: Data on U.S. Overview page represent trading in all U.S. markets and updates until 8 p.m. See Closing Diaries table for 4 p.m. closing data. Sources: FactSet, Dow Jones

Stock Movers: Gainers, decliners and most actives market activity tables are a combination of NYSE, Nasdaq, NYSE American and NYSE Arca listings. Sources: FactSet, Dow Jones

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Bonds: Bond quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Currencies: Currency quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Commodities & Futures: Futures prices are delayed at least 10 minutes as per exchange requirements. Change value during the period between open outcry settle and the commencement of the next day's trading is calculated as the difference between the last trade and the prior day's settle. Change value during other periods is calculated as the difference between the last trade and the most recent settle. Source: FactSet

Data are provided 'as is' for informational purposes only and are not intended for trading purposes. FactSet (a) does not make any express or implied warranties of any kind regarding the data, including, without limitation, any warranty of merchantability or fitness for a particular purpose or use; and (b) shall not be liable for any errors, incompleteness, interruption or delay, action taken in reliance on any data, or for any damages resulting therefrom. Data may be intentionally delayed pursuant to supplier requirements.

Mutual Funds & ETFs: All of the mutual fund and ETF information contained in this display, with the exception of the current price and price history, was supplied by Lipper, A Refinitiv Company, subject to the following: Copyright 2019© Refinitiv. All rights reserved. Any copying, republication or redistribution of Lipper content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Lipper. Lipper shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

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PayPal is in late-stage talks to acquire Pinterest

Pinterest went public in April 2019, where it was valued at just more than $10 billion.

Competitive pressure from e-commerce platform Shopify has pushed PayPal to explore the acquisition, the person told CNBC. Shopify has heavily invested in blending e-commerce and fintech. Last year, it partnered with Affirm, a buy now pay later provider, to become the exclusive provider or point-of-sale financing for Shop Pay, Shopify's checkout service.

PayPal has largely benefited from the boom in online shopping since the start of the coronavirus pandemic. Last year, it pitted itself against the growing buy-now-pay-later companies with its "Pay in 4" offering. A potential acquisition of Pinterest could push the company into social commerce, a growing space that other tech giants are already working on.

Facebook, for example, has heavily pushed into making Instagram shoppable. Last summer, it began testing a dedicated "Shop" tab on its home screen. It also lets users shop through regular Instagram posts, Live, Stories and its Explore feed, and has tested shopping on its short-form video feature Reels.

Social commerce lets companies track clicks and purchases within their respective apps, so they can prove the effectiveness of ads to advertisers. It also could allow the companies to receive a cut of each transaction.

Sours: https://www.cnbc.com/2021/10/20/pinterest-shares-soar-following-report-paypal-may-buy-it.html

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