PayPal in $45 billion bid for Pinterest, targeting social-commerce potential

It would be the biggest acquisition of a social media company, surpassing Microsoft Corp's $26.2 billion purchase of LinkedIn in 2016

PayPal in $45 billion bid for Pinterest, targeting social-commerce potential
Image: Reuters
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PayPal has offered to buy digital pinboard site Pinterest for $45 billion, people familiar with the matter said on Wednesday, a combination that could herald more financial technology and social media tie-ups in e-commerce.

The deal talks come as internet shoppers increasingly buy items they see on social media, often following “influencers” on platforms such as Instagram and TikTok. Acquiring Pinterest would allow PayPal to capture more of that e-commerce growth and diversify its income though advertising revenue.

“(The) combination 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 wrote in a note.

READ ALSO: Social commerce is here to stay: what will the big techs do about it?

The payments behemoth was among the big winners of the COVID-19 pandemic, as more people used its services to shop online and pay bills to avoid stepping out. Its shares have risen about 36% in the last 12 months, giving it a market capitalization of nearly $320 billion.

Pinterest was valued at about $13 billion when it went public in 2019. It also saw a huge spike in users looking for crafts and DIY project ideas, as lockdown curbs kept people at home.

As lockdowns eased, Pinterest has warned about slowing user growth, especially in the United States, its largest market. It has said it expects revenue growth mainly through deeper engagement with existing users rather than signing up new ones.

READ ALSO: Pinterest turns “good vibes” into shopping experience in Latin America

PayPal has offered $70 per share, mostly in stock, for Pinterest, one of the sources said. The online payments provider hopes to successfully negotiate and announce a deal by the time it reports quarterly earnings on Nov. 8, the source added.

PayPal’s offer represents a 26% premium to Pinterest’s closing price of $55.58 on Tuesday and it is equivalent to 62 times the social media company’s earnings before interest, taxes, depreciation and amortization over the last 12 months, according to Eikon.

READ ALSO: PayPal relies on its network and partnerships to keep expanding in its fastest-growing region: Latin America

By that metric, Microsoft paid 79 times LinkedIn’s earnings when it acquired it in all-cash deal. Pinterest, however, would be giving its shareholders some of PayPal’s stock, in a bet that this currency would appreciate over time over time as the combined company reaps revenue and cost synergies.

Pinterest is at a crossroads after co-founder Evan Sharp announced last week he would step down as chief creative officer to join LoveFrom, a firm led by Jony Ive, the designer of many Apple Inc products.

Sharp founded the online scrapbook and photo-sharing platform in 2010 with Ben Silbermann, who is the San Francisco, California-based company’s chief executive officer, and Paul Sciarra, who left in 2012.

READ ALSO: Pinterest Ads launches in Brazil; expects to soon add more Latin American countries

PayPal had been looking to boost its e-commerce offerings in recent years through acquisitions. It bought online coupon finder Honey Science in 2019 for $4 billion and Japanese buy-now-pay-later (BNPL) firm Paidy for $2.7 billion earlier this year. It acquired return-service provider Happy Returns in May.

Social media-driven commerce

Social media platforms like Facebook, YouTube, Snap and Twitter are investing heavily in shopping features to drive revenue growth. The companies are vying for a piece of the so-called social commerce industry, a business model originated in China which relies on users’ ability to discover and buy products through social media apps.

Research by eMarketer/Insider Intelligence shows that sales made in this business model could reach $351.65 billion in 2021 in China, an increase of 35.5% over the previous year. Data also shows that more than half of digital buyers ages 14 and over in China will make a purchase via social network platforms.

READ ALSO: Mexico-based social commerce platform Neta raises round from Kaszek

The model is becoming popular in other countries. In 2021, the United States social commerce sales will rise by 35.8% to $36.62 billionBrazil and Mexico, the two largest Latin American economies, also may achieve a great social buyer penetration this year, with 38.7% and 30.9% penetration rate, respectively.

Analysts said the PayPal-Pinterest deal talks highlight the potential for other social media and fintech companies to join forces to capture swaths of the e-commerce market.

“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,” said Marketplace Pulse e-commerce analyst Joe Kaziukėnas.

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