Pinterest Stock Spikes on Report of PayPal Buyout Interest. Why It Makes ‘Zero Sense.’
Pinterest stock was jumping on a report that said PayPal was exploring a potential acquisition of the social media company.
PayPal (ticker: PYPL) was looking to acquire Pinterest (ticker: PINS) at around $70 a share, which would value the social media site at roughly $39 billion, people familiar with the deal told Bloomberg. The price would represent a 26% premium to Pinterest’s closing price of $55.58 on Tuesday. The terms could still change, and there is no certainty the talks will lead to an agreement, Bloomberg said.
Pinterest stock was up 13.3% Wednesday to $62.99. PayPal fell 5.9% to $255.58.
The report is yet unconfirmed. A Pinterest spokesperson said the company had no comment, and a spokesperson for PayPal wasn’t immediately available.
If the report is true, Truist analyst Andrew Jeffrey said it “makes zero sense,” and would accentuate Truist’s concerns about the durability of PayPal’s revenue growth. Moreover, he saw the move as “an act of near desperation” as PayPal grappled with more competition and lagging Venmo monetization.
“We are perplexed by this potential transaction, and see little or no strategic rationale,”Jeffrey wrote Wednesday. “In many ways, we believe a PayPal/Pinterest combination would be reminiscent of PayPal’s historical eBAY ( EBAY , Hold, Squali) relationship, the unwind of which created significant shareholder value. We also note that such a merger could create conflict w/PayPal’s other large marketplace customers, increasing risk.”
Truist’s Jeffrey maintained a Hold rating on PayPal shares.
Wedbush analysts viewed the possible combination as a “significant positive” for PayPal’s monetization initiatives on both sides of its merchant and consumer platforms. Pinterest’s platform has proven to be an important channel for digital advertisers by driving shoppability, including aiming to roll out native payments on the app, they said.
“It’s a creative combination for sure, but at its heart is based on the growing and critical theme of social commerce, and integrating a payments business with a shoppable social app is forward looking in our view,” the team wrote Wednesday.
Mizuho analyst Dan Dolev agreed that the acquisition could present another way for PayPal to “delve deeper” into internet or e-commerce. The acquisition would also add some of Pinterest’s 450 million active users to PayPal’s current 400 million.
But Dolev expressed concerns over the extent of the pre-existing overlap there was between the two companies’ user bases. He also pointed out that the social media site’s dropping user count could pose a problem.
“The deal potentially [be] signaling that PYPL’s organic net new adds in 2H may be weaker than hoped,” Dolev said.
Earlier this year, the stock rallied after the Financial Times reported that Microsoft (MSFT) was interested in buying Pinterest. Microsoft owns professional network LinkedIn, but lacks the exposure to consumer-focused networking that Pinterest has. Had the deal gone through, it would have been one of the largest Microsoft acquisitions to date.
“This is an effort to compete with Facebook and TikTok,” said Julian Alexander, a senior strategist at R/GA, in a statement. “The big U.S.-based players right now that are lining up momentum in Web3 are the ones combining payments, digi/physical product, inspiration, social features, community and curation into one product.”
The news comes less than a week after Pinterest co-founder Evan Sharp said he would be leaving the company to join LoveFrom, a firm led by former Apple designer Jony Ive.
Pinterest went public in April 2019 with an initial public offering valuing the company at just more than $10 billion. The social media site saw a big boost to its user base and profits as people were stuck inside during the Covid-19 pandemic, but has seen those numbers dip as the world reopens. The company said in July that its monthly active user count fell by 5%, or 20 million users, in the second quarter from the first quarter.
The stock plunged after the user count drop, resulting in half of the 28 analysts covering the stock at the time slashing their target prices.
As of Oct. 20, 18 of the 32 analysts covering Pinterest gave the stock a Hold rating. Thirteen had Buy or Overweight ratings, and one had a Sell rating, according to FactSet.
The company reported earnings of 25 cents a share its second quarter, beating analysts’ estimates of 13 cents. Analysts surveyed by FactSet expect third-quarter earnings per share of 23 cents.
Pinterest stock has had a tough year. Including Wednesday’s gains, shares have fallen 4.5%. The S&P 500 has gained 22.6%.
Write to Sabrina Escobar at [email protected]
