People familiar with the issue said on Wednesday that PayPal Holdings has made an offer to purchase digital pinboard site Pinterest for $45 billion, a potential merger that may presage additional financial technology and social media deals in the e-commerce space.

  • This comes as online consumers increasingly buy products they see on social media, frequently by following "influencers" on platforms like Instagram and TikTok
  • It would be the largest social media transaction ever, topping Microsoft's $26.2 billion purchase of LinkedIn in 2016

"[It] would be a significant positive for PayPal's ongoing monetization initiatives on both sides of its merchant and consumer platforms, especially if Pinterest's social commerce platform gets integrated with Honey's AI into PayPal's destination app" Wedbush Analysts

Pandemic Winner And Post-Pandemic Looser

The payments giant was one of the pandemic's main beneficiaries, as more people utilised its services to make purchases online and pay bills instead of going out. Its stock has increased by roughly 36% in the last year, giving it a market valuation of about $320 billion.

When Pinterest went public in 2019, it was valued at over $13 billion. As lockdowns kept people at home throughout 2020, it witnessed a significant increase in customers seeking for crafts and DIY project ideas.

  • But Pinterest has cautioned about slowing user growth, particularly in the United States, its largest market, as lockdowns have been lifted
  • It has stated that it anticipates revenue growth to come mostly from greater interaction with current users rather than from new user acquisition

Buying At A Discount?

Pinterest shares have been priced lower than those of certain newer social media platforms, such as Snap, but higher than those of more established firms, such as Twitter.

  • PayPal's offer is a 26% premium to Pinterest's closing price of $55.5 on Tuesday, and it is equivalent to 62 times the social media company's earnings over the previous year
  • As a comparison, Microsoft paid 79 times LinkedIn's earnings in an all-cash acquisition. Pinterest, on the other hand, would be donating part of PayPal's shares to its shareholders in the hope that this currency would increase over time as the merged firm generate synergies

Social Media e-Commerce

Social media players that have not sought mergers with fintech businesses have been looking on methods to allow users to buy straight from their platforms.

  • TikTok, for example, is experimenting with allowing users to buy items straight from its short video app. It has collaborated with e-commerce behemoth Shopify and began enabling retail companies to link their product catalogues to the app in August
  • According to analysts, the PayPal-Pinterest merger illustrate the potential for other social media and finance businesses to collaborate to grab large swathes of the e-commerce industry

"Social/interactive commerce is growing in the United States and no one has won it yet. So rather than going against Amazon, PayPal is making a bet on a different kind of shopping model" Joe Kaziukėnas for Marketplace Pulse

BENCHMARK'S TAKE

  • The acquisition would move PayPal's into the "Super-App" territory and enable it move closer to consumers
  • Furthermore, by acquiring Pinterest, PayPal would be able to take a larger share of the e-commerce boom and diversify its revenues through advertising revenue

Disclaimer

Please note that this article does not constitute investment advice in any form. This article is not a research report and is not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Souvik Banerjee on Unsplash.