May 17, 2022

PayPal is reportedly in talks to acquire Pinterest for between $40 billion and $45 billion in cash and equity. According to sources, the timing of any deal remains uncertain.

Paypal’s recent announcement of interest in acquiring Pinterest sparked confusion and surprise. It was a natural first reaction, given that PayPal is a payments network that also owns Venmo and dabbles in cryptocurrency. On the other hand, Pinterest allows you to create a digital vision board for your ideal dinner.

Now that the news has settled, some on Wall Street are beginning to appreciate the deal’s merits.

“We see technology companies increasingly competing to service consumers across entertainment, information, and commerce functions. The deeper a company can penetrate a consumer’s daily activity (think Amazon providing TV programming, advertising messages, home hub interactivity, and product delivery), the more long-term economic value that company can potentially provide from its relationship,” explained Guggenheim Securities analyst Michael Morris.

“To the extent companies with unique functional strength and financial power see opportunity to add a consumer touchpoint to their portfolio, we believe the current low capital cost environment and concern about inflation may drive more aggressive consolidation exploration than we have previously seen.”

Morris rates Pinterest’s stock as a Buy.

Pinterest’s stock soared more than 13% following the news. In comparison, PayPal’s stock dipped 5% over concerns the deal would dilute existing owners. PayPal’s shares sank another 5% on Thursday, while Pinterest’s stock slid 3%.

Not everyone on Wall Street is sold on the prospect of PayPal entering the developing world of social commerce.

Pinterest’s user growth is slowing after a year of rapid growth due to individuals staying at home during the epidemic, according to a report from Mizuho Securities analyst Dan Dolev. Meanwhile, the deal may indicate that PayPal is concerned about its own sluggish growth.

As CFRA analyst Angelo Zino explained, “While Pinterest is contending with a deceleration in subscriber growth as it laps pandemic figures, we see strong secular tailwinds as greater ad dollars shift towards Pinterest social network. On PayPal’s side, we think the firm could be looking at a proposed deal in a push to further integrate e-commerce and social media together to provide additional avenues of transaction growth.”