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PayPal-Pinterest Potential Deal Gets Mixed Reviews From Analysts

PayPal's potential purchase of Pinterest looks like 'a significant positive' to one analyst but another says the price is difficult to justify.
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Analysts weighed in Thursday on PayPal's  (PYPL) - Get Free Report potential acquisition of Pinterest  (PINS) - Get Free Report, with some seeing the upside of the huge combination while others had their doubts.

At last check shares of PayPal, the San Jose, Calif., payment-services major, were off 3.3% near $250. Pinterest, the San Francisco social-media site, was down 1.7% to $61.60.

Bloomberg reported Wednesday that PayPal was exploring purchasing Pinterest for $70 a share, which value the image-sharing social-media platform at close to $40 billion.

Jefferies analyst Trevor Williams was not completely sold on the rumored deal, saying in a research note that the price was difficult to justify. For any strategic benefit, Pinterest needs to enable commerce, compared with the current 100% ad model, he said.

He said the possible acquisition appears to be a reaction to Square's  (SQ) - Get Free Report $29 billion acquisition of Australia's Afterpay.

"With competition increasing from large tech platforms taking more control over the top and bottom-end of the shopping funnel, ... even the serious consideration of acquiring PINS signals the strategic importance PYPL has ascribed to top-of-funnel access in order to insulate from disintermediation," he said.

Wedbush's Moshe Katri said he viewed the possible combination "as a significant positive."

"It’s a creative combination for sure," Katri said, "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." 

Social commerce is projected to about double to $52.5 billion in 2023 from $26.8 billion in 2020, Katri said. "Pinterest’s platform is unique, and while it has lower engagement than typical social platforms, the intent of users is quite different," he said.

"It’s proving to be an important channel for digital advertisers that can tie together top of funnel intentions increasingly with transactions at the bottom of the funnel," the analyst said.

KeyBanc analyst Justin Patterson said that Microsoft  (MSFT) - Get Free Report had explored acquiring Pinterest in the fall of 2020. At the time, he said "Pinterest had little reason to sell when the business was strong."

"However, Pinterest is in a different situation today," Patterson said. "Pinterest's user growth has struggled amid Covid-19, with monthly active users missing for consecutive quarters, and MAUs remaining weak entering the third quarter."

Despite the MAU challenges, he added, "Pinterest does have a fairly stable WAU (weekly active user) base and strong shopper intent, which could appeal to PayPal."

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Credit Suisse analyst Timothy Chiodo said that while he sees merit and revenue synergy potential in "the two companies seeking to combine their strengths to pursue social commerce opportunities (both on Pinterest and in-app for PayPal/Venmo), the rationale for acquiring Pinterest vs. forming a partnership is less clear."

Chiodo said the primary benefit to PayPal relates to Pinterest's large user base of monthly average users and the potential to add new international PayPal users. 

"One question relates to how PayPal’s relationships with large advertising-based technology platforms will evolve if this acquisition went through given Pinterest is a direct competitor," he said.

He noted that PayPal works with Facebook's FB Marketplace and Instagram Shopping, among others.