PayPal Holdings Inc. is said to be exploring a $45 billion takeover of Pinterest Inc., and investors are as puzzled by the pairing as they are by the astronomical valuation. After Bloomberg News broke the story of the potential megadeal on Wednesday, investors were asking: Why is a social-media app worth so much to PayPal? And what is Pinterest anyway?
To even try to understand, investors need a whole new lingo to navigate the millennial-mom scrapbooking party that is the Pinterest platform. So, allow me to translate: Pinterest is a social network with a lot of users, or Pinners, who are mostly women, the household spending chiefs that advertisers and brands like so much. (Discovery Inc.’s HGTV cable network has long used a similar sales pitch.) These Pinners are constantly bookmarking or saving Pins, that serve as tokens of inspiration for their next purchases, whether it be a living room redesign, bridesmaid dress or recipe for dinner. Think of the platform as one big influencer — a virtual Martha Stewart reincarnate that serves as a gateway to buying stuff. Users find this stuff either by searching or passively discovering items through the accounts they follow.
“Pinners are shoppers” is what Pinterest tells its retail partners. And influencer-directed spending is how many younger consumers decide on purchases because it takes some of the work out of shopping. In the 12 months through June, the company generated $2.25 billion of revenue by selling ads, which are presented in various formats on users’ feeds and make it simple to buy the items they see.
The community is also bigger than you might think. It has about 450 million monthly active users. (For context, Facebook has 2.9 billion monthly active users, of which 259 million are in the U.S. and Canada.) But Pinterest has only just begun turning a profit. Its business got a boost during the Covid-19 pandemic and related home-buying frenzy, as well as from all those do-it-yourself backyard weddings.
The attraction for PayPal is that owning Pinterest is not only an opportunity to control valuable user data that provides a detailed window into a consumer’s tastes, it may also be a chance to make PayPal the primary transaction method for Pinners. PayPal has been seeking to forge a more direct relationship with consumers instead of being merely a payment prompt when they’re transacting on other sites. The company recently introduced a new “super app” for managing a variety of personal-finance capabilities, although it needs some work. One feature it’s planning is a personalized shopping component that allows users to build wish lists — sound familiar?
The companies are said to have discussed a potential takeover price of about $70 a share. That’s a 33% premium to Pinterest’s average closing price for the last 20 days; the company went public for just $19 a share in April 2019. Pinterest is already valued at 39 times forward Ebitda, making it more expensive on that basis than Twitter Inc. or even Netflix Inc. That means that while the unusual combination may have logic, PayPal risks overpaying. Its own stock fell 5% on Wednesday’s news reports.
PayPal seems to be looking for inspiration and found a Pin it likes. But it needs to decide if the purchase is worth the price or if it should just keep scrolling.
