Why? That is the crucial question, everyone else has been clarified: PayPal wants to take over Pinterest, the online payment service wants to buy the social pin board network for 45 billion dollars. That would be about 25 percent more than the current rating of Pinterest on the stock exchange. Roughly because the prices of the companies involved make wild elevator rides with such news – so much in this case that trading in the Pinterest paper, which rose by 13 percent, was suspended twice on Wall Street on Wednesday.
The excitement is immense; no wonder it would be one of the largest acquisitions in recent history, larger than Salesforce’s $ 27.7 billion acquisition of Slack last year. So then: why? What does the pay dinosaur (almost 400 million users) want with the online pin board, which with around 454 million users is always a little underestimated compared to Facebook, Snapchat and Tiktok? To understand that, you should know the history of both companies and see what is happening in Asia right now.
PayPal was founded in 1998 as Confinity by Peter Thiel, among others. After the takeover by x.com (co-founder: Elon Musk), not only the now well-known group emerged, but also the so-called “PayPal Mafia”: The list of well-known companies that were founded by former PayPal employees is very long (Linkedin , Space-X, Palantir, Youtube, Yelp, Affirm), the networks are extensive. With the sale on Ebay in 2002, the PayPal Mafia members redeemed capital for new ideas. In 2015, the company was spun off into its own group and a huge expansion followed: Acquisition of the Japanese lender Paidy and the Swedish payment processor iZettle. Valuation on the stock exchange currently: about 306 billion dollars.
At Wechat, the social network and payment service are linked
The group is still the market leader, but there are now competitors such as the start-up Stripe, which is valued at 95 billion dollars after several financing rounds. There is the hype about crypto currencies, this week Facebook announced the start of the pilot project Novi: a digital wallet, initially with the crypto stablecoin Paxos, which is pegged to the dollar, instead of its own crypto currency Diem, which is included in all Facebook Apps should be integrated and is causing immense concerns, especially in Europe. Money can also be sent using Apple Cash via Apple’s messenger service.
This is exactly why Paypal is so interested in Pinterest. In China there is Wechat, the largest single app in the world with more than 1.5 billion active users – also because social media and payment services are linked. And there is Alipay, a subsidiary of the everything group Alibaba, which is why the payment app is integrated into all of the offers of one of the most valuable companies. That means – to put it simply: A payment service becomes more successful and powerful if it provides its infrastructure itself and combines as many offers as possible under one roof. Chinese corporations as role models for US companies, that is quite interesting.
Pinterest, founded in 2009 and listed on the stock exchange since 2019, functions as an online inspiration pin board; there is hardly a wedding, hardly a visit to the hairdresser without a previous search on this platform. For a few months now, many of these so-called “pins” have been products that can be bought directly in the app. The company was one of the winners of the coronavirus pandemic, but the number of active users has fallen by 24 million to around 450 million since the restrictions were gradually lifted. When the quarterly results are announced in the coming week, robust figures are expected (sales increase by more than 40 percent to 631 million dollars, profits are likely to have grown by more than 40 percent).
“PayPal would get a foot in the e-commerce and social media door and break away from being a pure payment service,” says Dan Dolev of Japanese finance company Mizuho. It could induce its corporate customers to sell their products on Pinterest – and at the same time use all the tools on the social media platform to attract new customers: “It is possible that PayPal will compete with the internet shopping giants Amazon or Shopify in the medium term will.”
PayPal isn’t exactly known for integrating its acquisitions smoothly
The acquisition could be strategically worthwhile, even if PayPal is admittedly not the first company to recognize the synergy between social networks and payment services. The Fintech Affirm (founded by PayPal co-founder Max Levchin, among others) recently announced that it would become a so-called “super app” and expand into the areas of e-commerce and crypto currencies, also with a view over the Pacific to Wechat and Alipay ; Competitor Square recently announced the purchase of buy-now-pay-later company Afterpay for $ 29 billion.
That means: The “why” has been clarified, but PayPal is not the only company in the world (and not even in the US) that is pursuing this strategy – and it is still a long way from being clear whether it will be successful in this case . An analysis by the investment company Alliance Bernstein, for example, has the title “Why Pinpay is NOT a dream couple”, the text says: “It is known to be incredibly difficult to change user behavior on platforms.”
That means that the deal makes sense in theory, but it also has to be implemented. PayPal is not exactly known for integrating its acquisitions smoothly, with iZettle that took just under three years. Perhaps that is why the PayPal course, in contrast to the Pinterest paper, first took the elevator down. It’s not that easy to create a super app.