Why PayPal investors got nervous on Wednesday

There are reports that the digital-payments giant could be making a pricey acquisition.

| More on:
A happy man using PayPal to pay.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Shares of PayPal (NASDAQ: PYPL) stumbled on Wednesday, falling as much as 6.8%, though the stock recovered a bit, ending the trading day down 4.7%. The catalyst that sent the fintech leader lower were reports that it might be expanding into new markets via a massive acquisition.

So what

Reports surfaced early in the day that PayPal had made overtures to acquire social-media site Pinterest (NYSE: PINS). Bloomberg dropped the story, citing the oft-quoted "people with knowledge of the matter," which sent Pinterest stock soaring. 

The report had the opposite effect on PayPal. Investors were likely concerned about the proposed acquisition price for Pinterest of roughly $70 per share.

As of Jul. 23, 2021, Pinterest had more than 555 million shares of Class A common stock outstanding and more than 89 million shares of Class B shares, which, taken together, would value Pinterest at more than $45 billion. For context, PayPal currently has a market cap of roughly $300 billion, so an acquisition of this magnitude could have a significant impact on PayPal's business -- particularly if things go south.

The report didn't specify when these discussions happened, though an updated version of the report said, "Terms of a transaction could still change, and there's no certainty the talks would lead to an agreement." 

Now what

PayPal has been looking to expand beyond its digital-payments business and has been working to become a "destination app" as a way to help users take control of their financial lives. Last month, the company added a host of new features and services, taking it one step closer to what some are calling a "super app."

The added functionality includes a high-yield savings account, in-app shopping tools, up to two-day early access to direct deposit funds, bill pay, and deals and rewards for users. In the coming quarters, PayPal plans to expand its features even more, adding investment capabilities and purchasing with cryptocurrency.

By joining forces with Pinterest, PayPal would establish a sizable beachhead in social commerce, a natural extension of its payments business.

Thus far, neither PayPal nor Pinterest has confirmed the reports. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Danny Vena owns shares of PayPal Holdings and Pinterest and has the following options: long January 2022 $85 calls on PayPal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended PayPal Holdings and Pinterest. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia has recommended PayPal Holdings and Pinterest. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on International Stock News

A woman is excited as she reads the latest rumour on her phone.
Broker Notes

Goldman Sachs says this US stock is replacing Tesla in the Magnificent Seven

And no, it's not a tech company. It's in the healthcare sector.

Read more »

A man looking at his laptop and thinking.
Share Gainers

Should I buy Nvidia stock as an Australian investor?

Many Aussies are thinking of jumping on the bandwagon, but they need to think about these issues first.

Read more »

Digital rocket on a laptop.
Broker Notes

Is the Nvidia share price on course to reach US$1,400?

You betcha, says one analyst.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Could Nvidia become the most valuable stock on earth?

Can anything stop the Nvidia stock price?

Read more »

A group of young ASX investors sitting around a laptop with an older lady standing behind them explaining how investing works.
International Stock News

What can ASX investors learn from Warren Buffett's latest buys and sells?

We've just found out what Buffett's been buying and selling recently.

Read more »

electric vehicle such as Tesla being charged at charging station
International Stock News

Why Tesla stock tanked in January

Will the electric vehicle leader see earnings decline once again in 2024?

Read more »

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
International Stock News

Will Nvidia stock be worth more than Microsoft by 2030?

The graphics giant has been growing at a much faster pace than Microsoft, but can it sustain that momentum?

Read more »

Man with hands in the middle of two items with money bags on them.
International Stock News

Stock-split watch: Is Tesla next?

Stock splits are fun. But how much substance there is in Tesla splitting its stock is debatable.

Read more »