If Paypal buys Pinterest, what could it mean for Afterpay shares?

Could Paypal be looking to put a pin in Square once and for all?

| More on:
Group of thoughtful business people with eyeglasses reading documents in the office.

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

It is the talk of the town today — rumours of Paypal Holdings Inc (NASDAQ: PYPL) engaging in discussions to acquire social media company Pinterest Inc (NYSE: PINS). The whispers on the grapevine likely have investors drawing comparisons between Square Inc's (NYSE: SQ) deal to acquire 100% of shares in Afterpay Ltd (ASX: APT). Although, Paypal shareholders didn't seem to receive the news positively, with shares falling 4.9% overnight.

The rumoured move comes amid a recent push in acquisitions among fintech companies. In both the United States and Australia, the crossover between payments and e-commerce businesses is becoming a more common phenomenon.

With that being said, let's evaluate the similarities and differences in acquisitions here.

What's the big deal?

When news originally broke last night, Pinterest shares jumped around 12% higher. This was aligned with the rumoured valuation of US$39 billion that Paypal would potentially pay for the pinboard-style social platform. The speculation was met with a variety of perspectives. Some see the potential deal as a positive move for Paypal, while others were left scratching their heads.

Speaking on the positives, Mizuho senior analyst Dan Dolev said:

The key value proposition for PayPal would be to have an anchor in internet and/or e-commerce and social media, which helps diversify away from standard online checkout. Down the road, PayPal could potentially add more shopping capabilities, and boost its e-commerce presence, potentially competing with other large online retailers like Amazon.

There are similarities between Paypal's rumoured acquisition play and that of rival payment company, Square. For instance, both are financially big deals. When announced in August, Square's all-stock deal valued Afterpay shares at US$29 billion. This equates to approximately a quarter of Square's total market capitalisation. Similarly, if the rumours are correct, the acquisition value of Pinterest would be equivalent to roughly 15% of Paypal's total current value.

Another similarity is the growth profile of Afterpay and Pinterest. In the last financial year, Pinterest benefitted from a shift towards online, resulting in revenue increasing 83.6% year over year. Meanwhile, Afterpay dished out some tantalising revenue growth of its own, growing the top line by 75.4% year over year. As you would suspect, both Pinterest and Afterpay shares did similarly well.

Differences from Square's acquisition of Afterpay shares

When the Square/Afterpay combination was announced, the market was largely excited and pleased. However, opinions on Paypal's grab for Pinterest have been more mixed. This might be due to the overlaps and synergies being less clear for Paypal and Pinterest.

To the benefit of Afterpay shareholders, the company is largely built on financial technology that allows shoppers to pay in installments easily. This payment method has exploded in popularity in recent years, giving rise to new payment giants such as Klarna and Affirm Holdings Inc (NASDAQ: AFRM).

Hence, the connection between a payments processor, such as Square, and a buy now, pay later player is quite apparent. However, the compelling synergies between a social media platform and a payment processor, not as obvious.

For now, the market will need to wait for clarification from Paypal to determine whether the rumours are true. Meanwhile, it appears Afterpay shareholders are unfazed, with shares trading 0.51% higher today.

Motley Fool contributor Mitchell Lawler owns shares of AFTERPAY T FPO. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Affirm Holdings, Inc., PayPal Holdings, Pinterest, and Square. 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 owns shares of and has recommended AFTERPAY T FPO. 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 Share Market News

Man with rocket wings which have flames coming out of them.
Broker Notes

These ASX 200 shares could rise 40%+

Big returns could be on offer from these shares according to analysts.

Read more »

a man in a business suite throws his arms open wide above his head and raises his face with his mouth open in celebration in front of a background of an illuminated board tracking stock market movements.
Broker Notes

Analysts say these ASX shares are top buys in June

Brokers are urging investors to buy these shares. Let's find out why.

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

Investors finished the trading week on a high note this Friday.

Read more »

A man in trendy clothing sits on a bench in a shopping mall looking at his phone with interest and a surprised look on his face.
Broker Notes

Brokers name 3 ASX shares to buy today

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why Brainchip, Findi, Lottery Corp, and REA shares are falling today

These shares are ending the week in the red. But why?

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

4 ASX 200 shares leading the charge higher this week

Investors have been piling into these four ASX 200 shares this week. But why?

Read more »

Woman and man calculating a dividend yield.
REITs

What price target does Macquarie have on Goodman Group shares?

Goodman Group posted an interesting set of numbers in Q3. Here's Macquarie's take.

Read more »

A happy investor sits at his desk in front of his laptop and does the mexican wave with his arms to celebrate the returns from his ASX dividend shares
Share Gainers

Why Catapult, Champion Iron, Healthco, and Meeka Metals shares are pushing higher today

These shares are ending the week on a high. But why?

Read more »