PayPal (PYPL), a leading global fintech company, is planning to boost its e-commerce capabilities, as the company is in talks to buy Pinterest (PINS) in a $45-billion deal.
Pinterest shares surged, and PayPal shares fell following the Bloomberg report that was published on October 20.
If this deal is completed, it will be the largest social media acquisition since Microsoft (MSFT) bought LinkedIn back in 2016. Whether or not this deal goes ahead, PayPal’s move sends a clear signal about the payment giant’s ambitions for the future.
I am bullish on PayPal stock because of the favorable macroeconomic outlook for the global payment processing industry and the company’s aggressive expansion efforts. (See Analysts’ Top Stocks on TipRanks)
A Promising Strategic Move
Entering the social media industry will be advantageous for PayPal’s e-commerce business, as the company aspires to become a super app that goes beyond providing payment solutions.
Pinterest is a digital idea-sharing platform on which users share photos, videos, and links to various ideas, and a potential deal could provide the digital payments giant with a much-needed boost for its expansion efforts of e-commerce offering. According to the Bloomberg report, PayPal plans to acquire the digital pinboard company for around $70 a share.
Previously, PayPal mostly acquired companies that provide digital payment services. The company recently announced the acquisition of Japanese unicorn Paidy, a buy-now-pay-later service provider, for around 300 billion yen ($2.7 billion).
In November 2019, PayPal announced the acquisition of Honey Science Corporation, a shopping and rewards platform, for $4 billion. These acquisitions have rewarded the company during the pandemic, but the company lacks a competitive advantage when it comes to the social media shopping industry because of the massive reach of companies such as Facebook (FB) and Twitter (TWTR).
Given this competitive environment, expanding the company’s e-commerce platform is likely to be a positive move. Pinterest has over 450 million active users, including businesses, advertising their products on the platform.
Although Pin media is facing slower growth, the pandemic boost to social media shopping is not going to go away any time soon. Pinterest remains one of the top choices for advertisers as Pins remain active for much longer than advertising solutions introduced by all other social networking platforms.
Pinterest has been expanding into e-commerce with the launch of several new features in recent months. In April 2020, the company launched the Shop tab, allowing users to browse the in-stock inventory by uploading photos of the products they want to buy.
The company recently added features such as Story Pins allowing users to reach a wider audience, account tagging, and story stickers to increase platform engagement. On October 7, Pinterest announced new options for advertisers and brands to promote their products to users as well. These new features include a slideshow option called “collections ad” which will show more than one product from brands’ catalogs.
In comparison to other leading social media platforms, Pinterest is rapidly growing its shopping solution tools for businesses while adding unique features for creators, making it a distinguished platform in the social media shopping space.
Considering the increasing popularity of social media shopping and Pinterest’s recently introduced initiatives to tap into this industry, PayPal seems to be making a good move to acquire the company to establish itself as a prominent player in this fast-growing industry.
Wall Street’s Take
Based on the ratings of 24 Wall Street analysts offering 12-month price targets for PayPal, the average price target comes to $335.45, which implies upside of 33.9% from the current market price.
Analysts are yet to account for the possibility of PayPal acquiring Pinterest as the two companies have yet to announce a finalized deal publicly, and it would be reasonable to expect revisions to this price target if a deal is confirmed.
PayPal aims to become a one-stop-shop for payments and financial services, and its move to bid for Pinterest makes sense given the rising popularity of social media shopping.
If the deal goes through, PayPal is likely to achieve scale advantages in the long run in comparison to other payment solutions providers, which will pave the way for the company to report stellar revenue growth for many years to come.
At the time of publication, Dilantha De Silva did not have a position in any of the securities mentioned in this article.
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