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Is PayPal About to Pay Too Much for Pinterest? 5-Star Analyst Shares His View
Stock Analysis & Ideas

Is PayPal About to Pay Too Much for Pinterest? 5-Star Analyst Shares His View

The rumor mill spun into action on Wednesday, with reports suggesting PayPal (PYPL) was considering a massive addition to its roster.

Apparently, the digital payments leader is in advanced talks to acquire Pinterest (PINS). PayPal values the social commerce company at $45 billion – or roughly $70 per share.

It’s potentially a big deal, involving two industry giants, but is it a good move for Paypal considering its offer values Pinterest at a premium compared to the stock’s current trading price?

Baird’s Colin Sebastian’s gut feeling says yes.

“At first glance,” said the 5-star analyst, “We believe a potential combination of the two companies could make strategic sense, just as the convergence among e-commerce, digital payments, and social platforms is accelerating.”

PayPal’s plan for the next 3-5 years is to evolve into a “super app.” Incorporating Pinterest’s search, discovery and inspiration – or in marketing speech, the “top of the funnel” platform – with PayPal’s “bottom of the funnel” digital wallet and deals (such as Honey) platform would create “clear synergies. “In other words,” Sebastian clarifies, “Pinterest could help PayPal accelerate its super app ambitions.”

With over 400 monthly million users, Pinterest offers a “massive source of value,” not to mention, treasure troves of data. PayPal can put all of this to good use, benefiting both consumer and merchant services, whilst removing “friction” from the buying experience.

What’s more, by “converting” Pinterest users into PayPal account holders, the company could meaningfully swell the size of its consumer wallet base.

Further adding to the appeal, is the very on-point trend of social commerce. With PayPal’s super app ambitions to consider, adding one of the “top 3-4 social commerce platforms,” could prove vital in realizing this goal. Super-apps in other markets, as in China for instance, usually have social networking features too.

That said, any thoughts PayPal might be paying too much are countered by Sebastian, who believes the company might end up forking out more than $70 per share.

“With Pinterest shares under significant pressure since Q2 results due to user churn, we do not believe the valuation embeds the significant opportunity of the platform to expand monetization in both the core U.S. and international markets,” the analyst summed up.

All in all, Sebastian rates PYPL shares an Outperform (i.e. Buy) along with a $325 price target. This figure implies ~33% upside from the current trading price. (To watch Sebastian’s track record, click here)

Looking at the consensus breakdown, barring 3 Holds, all 21 other reviews are positive, resulting in a Strong Buy consensus rating. The forecast calls for one-year gains of ~37%, considering the average price target comes in at $335.62. (See PYPL stock analysis on TipRanks)

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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