PayPal-Pinterest deal plays wallet long game

The $320bln payments company is mulling nearly a $45bln bid for the scrapbooking social network

  
The PayPal app logo seen on a mobile phone in this illustration photo October 16, 2017.

The PayPal app logo seen on a mobile phone in this illustration photo October 16, 2017.

REUTERS/Thomas White/Illustration

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

NEW YORK - PayPal’s Pinterest interest displays both greed and fear. The $320 billion payments company is mulling nearly a $45 billion bid for the scrapbooking social network. The news sent PayPal’s stock down 7%, and in one sense, investors are rightly skeptical: PayPal has thrived on its own since its 2015 spinout from eBay. But payments companies and banks are racing to own consumer gateways, and Pinterest has what might be valuable land for PayPal.

At first blush, it’s not clear the two belong under the same roof. EBay bought then much smaller PayPal in 2002, and initially supercharged its growth. Eventually, however, PayPal was gaining more customers from outside eBay, and the online consumer marketplace was starting to lose steam in general. As eBay became a drag on PayPal’s valuation, management decided the two would be better off apart. PayPal’s stock has risen about sevenfold since.

But technology is changing the dynamic. U.S. banks and online payments firms are competing for customers’ money. That has become a land grab for firms looking for a way in. Goldman Sachs, for example, owns online bank Marcus and has teamed up with Apple to offer credit cards. Online brokerage Robinhood Markets, having attracted nearly 23 million users, is offering its own version of a checking account with a debit card. The goal seems clear: hook customers and sell multiple financial products. That’s not that different than PayPal’s Venmo allowing customers the ability to buy cryptocurrencies earlier this year.

It sounds a bit farfetched now, but there is a precedent. China’s e-commerce firm Alibaba set up an affiliated payment network that became a financial colossus by selling investment products to customers who had built up balances in their online shopping accounts. A money market fund run by what’s now called Ant had $120 billion of assets at the end of June.

Once someone is hooked, it’s hard to tear them away. U.S. adults have had their checking account, on average, for 14 years according to a 2020 Bankrate survey. So merging with Pinterest is a way into this game, and it may be cheap, too. Revenue is growing far faster than Twitter, and its price-to-estimated earnings ratio over the next 12 months is about 25% less, according to Refinitiv.

The sharp fall in PayPal’s stock on news of the deal means investors fear distraction will outweigh opportunity. Perhaps they aren’t seeing a longer game.

CONTEXT NEWS

- PayPal has made an offer to buy Pinterest for $45 billion, according to Reuters on Oct. 20, citing people familiar with the matter. At $70 a share, the reported price, PayPal would be paying a 26% premium for the social network.

- As of 2:37 p.m. EST, PayPal’s shares had decreased 5% to $258.24 while Pinterest’s shares had increased almost 14% to $63.06.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Lauren Silva Laughlin and Amanda Gomez) ((For previous columns by the author, Reuters customers can click on CYRAN/ SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS https://bit.ly/BVsubscribe | robert.cyran@thomsonreuters.com; Reuters Messaging: robert.cyran.thomsonreuters.com@reuters.net))


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