PayPal: Heads I Win, Tails I Win

Seeking Alpha2021-10-21

Summary First, I briefly discuss the news about PYPL buying PINS. Second, I explain how this improved PYPL's price for investors. Third, I describe how PINS fits into PYPL and how it could be ...

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精彩评论

FollWin
2021-10-21
FollWin
Thanks for the sharing
tyng8825
2021-10-21
tyng8825
Nice
- tyng8825:
  Nice
HBONG
2021-10-21
HBONG
what if paypal takes a huge impairment a few years down the road?
ykhoo
2021-10-21
ykhoo
Dailies
Beli
2021-10-21
Beli
Interesting n well defined. Will follow news!
Myname
2021-10-21
Myname
🤔

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Quite frankly, I don't care if they buy PINS or the deal falls through. That's what I'm covering.\nHere's how the article plays out. First, I briefly discuss the news about PYPL buying PINS. Second, I explain how this improved PYPL's price for investors. Third, I describe how PINS fits into PYPL and it could be good. However, fourth, I also outline why a \"dead deal\" is also acceptable.\nThe \"Shocking\" News\nIf you're reading this, then you're probably already familiar with the news. As Bloomberg reports,PayPal Is Exploring a Purchase of Pinterest.\n\n San Jose, California-based PayPal has recently approached Pinterest about a potential deal, the people said, asking not to be identified because the talks are private. The companies have discussed a potential price of around $70 a share, the people said.\n\n\n That would value Pinterest at about $45 billion for the entire company, including its Class B shares. A deal at that level would represent about a 26% premium to Pinterest’s Tuesday closing price of $55.58.\n\nAnd, as a result, here's what happened:\nData by YCharts\nYou might laugh that I'm showing the six month chart and that's the point. In six months, PYPL from $264 to $258, for a slight drift down. PINS is actually down about 25% over six months, from $71 to $63, for a pretty big drop. For PINS, the 13% gain today was a real gift, at least in terms of price action.\nLet's take another peek at this, in a much shorter timeframe. From a price perspective alone,in just one day, it's easy to see huge changes:\nSource: Seeking Alpha\nSource: Seeking Alpha\nOn the surface, it sure does look like PINS is on fire and PYPL is taking a hit. But, as per my very first chart above, PINS is still weak on price, even after the movement today. And, PYPL is close to breakeven from six months ago.\nIn an absolute sense, I care far less about PINS than PYPL, since I own PYPL and I like the company. So, there's a bias, just to be 100% clear.\nWith that perspective out of the way, and my bias on full display, let's take a look at what this all means for investors -especially PYPL investors.\nHeads I Win, Part 1\nSo, when the news broke, I expected a slight drop in PYPL. When I saw the drop down below $260, I got greedy. For the record, I bought more PYPL at $255.62 with a smile on my face.\nPYPL got cheaper but the value is the same, or better, as it was just 1-2 days ago. I'll explain more shortly. For now, just consider my point of view, which is that the price of PYPL went lower so I got more for my money. I ended up with a 5% discount because of some moderately good news. (More on that soon.)\nSo, before going on, I strongly encourage you to review an article that I wrote back in early August 2021:PayPal: The Star Business.\n\nPYPL is in a high growth industry.\nPYPL commands significant market share.\nPYPL is growing very fast.\nPYPL is innovating like crazy.\n\nFurthermore, I was very clear:\n\n I'm very bullish on PYPL below $250 and I'm bullish at $275. And, in fact, I've established a starter position recently at $275. I'll continue to add small amounts on the way down, if that happens.\n\nTherefore, at $255, I feel very good about buying more PYPL. It's high quality, well managed business, in a rapidly growing market. In short, when the price dropped about 5%,it simply meant getting more PYPL at a discount.\nTails I Win\nNow, let's suppose that the PINS deal falls through. In that case, I am happy because I was able to purchase more PYPL at a lower price. Again, same company, but a better bargain.\nFurthermore, let's assume the deal falls through and markets reflect on this. It's my feeling that investors will simply reprice PYPL back upwards, toward $270 to $275, or higher.\nI have no idea how long that \"rerating\" would take, but there's no reason to think that an offer to buy PINS would permanently impair PYPL. I just don't see it. Making an offer doesn't usually cause any real damage. If you have data otherwise, please offer it up.\nHeads I Win, Part 2\nWith all of that out of the way, perhaps PINS is a good company, and it's good for PYPL. Well, on the surface, I like what I see here:\nSource: Business of Apps\nAnd, the user base is growing strongly, although Q2 2021 took a dip:\nSource: Business of Apps\nHere's more color on that drop:\nSource: Pinterest Q2 2021 Earnings Report\nThe drop doesn't worry me too much. After all, Pinterest enjoyed a boost due to the stay-at-home, work-from-home effects of the pandemic. Furthermore, you can see the actual YoY numbers, quarter to quarter, and they are at least satisfactory.\nFor what it's worth, PINS CEO Benjamin Silbermann explains the drop off it quite well:\n\n One, overall time at home has shifted. And two, a lot of the use cases that were especially relevant last year, things like redecorating your home, educating your kid at home, cooking meals at home, those have lessened. Now it's early to say how those will normalize over time. I wouldn't describe the current user behavior or the current social environment exactly the same, but we're seeing some promising early signs.\n\nThat perfectly lines up with my intuition as well.Moving on.\nI'm also enjoying this data, properly broken out for inspection:\nSource: Pinterest Q2 2021 Earnings Report\nWhile I do care about the numbers, and the improvements over time, I'm more interested in what PYPL might see here. That is, users have value, because users are shopping and buying. Imagine if PYPL was able to push more e-commerce, or really any kind of transaction, through these users. Clearly, they spend money.\nConsider the usage, adoption and general activity flow:\n\n “If PayPal does buy Pinterest, the fintech gains a social media presence rivaling Instagram, bringing in highly engaged consumers and helping merchants sell products,” said Julie Chariell, Bloomberg Intelligence senior fintech industry analyst. “PayPal has much to gain: Pinterest has \n 380 million monthly active users who use the app 37 times a month, compared with 80 million PayPal users who are active eight to nine times a month.” [Emphasis: Author's]\n\nUser activity is wonderful. Now, imagine how user activity isn't just looking at funny cat videos or pictures of the Grand Canyon. Instead, the activity on Pinterest is very heavy on browsing-to-buy, andliterally shopping. I mean, that's almost entirely the point from what I gather.The data speaks volumes:\n\nNearly 80% of U.S. Millennial women are on Pinterest.\n4 in 5 U.S. moms have an active presence on Pinterest.\nHalf of U.S. users are also using Pinterest to shop.\nNearly 9 in 10 users are on Pinterest to plan purchases and find inspiration.\n85% of users have made a purchase based on seeing a branded pin.\n\nAnd, PINS is looking to continue down the user monetization path.\n\n “Pinterest has been intently focused on driving greater shoppability into its platform,” and he notes that product inventory grew almost 50% in the second quarter “driven by Pinterest’s Shopify partnership expansion.”\n\nAnd, I have heard plenty of people talk about PYPL's plans to expand their user base, since they have a relatively easy monetization path if they have the users.For example:\n\n PayPal has over 400 million registered users, and they are the customers, but they're also the product going forward because PayPal also has over 30 million merchants on its platform and one of its main goals right now,\n it's trying to grow its user base, it's trying to get 750 million users by 2025. But it's trying to get them to transact more and more on the platform, that's why it's launching these new products and services like buy now, pay later; cryptocurrency; things like this. It wants to basically know all of the transactions, all the financial dealings of its consumers, because then it can take that data and give it to merchants. [Emphasis: Author's]\n\nI definitely see how PYPL could help take PINS social e-commerce to the next level, and even more effectively partner with Shopify (SHOP) along the way. As I've said to several people now -I don't hate this deal, and that's usually a good sign.\nTails I Win, Part 2\nAt this point, per the data above, you might be very keen to see PYPL buying PINS. I am certainly not against it, knowing what I know. PINS users are rather fanatical, and I could see great synergy. It almost reminds me of how PYPL and eBay (EBAY) were once under one roof. But, I think PINS is far superior in this day and age. That is, PYPL is better off with PINS than EBAY at this point in time - I have no doubt about that in my mind.\nI should also mention that the price is better now than when Microsoft (MSFT) was considering a deal:\n\n Price tag–wise,\n Pinterest’s stock is off roughly 30% from its all-time high in February as the platform has been losing users—a discount from when reports swirled that Microsoft was looking into buying the firm at around $51 billion early this year. [Emphasis: Author's]\n\nEven if the deal falls through, I still see the conversations as being productive, and I still see some partnership activity increasing in the future. You don't need to be married to dance at the party.\nFurthermore, I don't like big deals, but I do like intelligent conversations. Put another way, PYPL is looking to spend $45 billion for PINS. That's huge. And it's messy:\n\n Barclays’ El-Assal commented that a deal for Pinterest would be the biggest one that PayPal has attempted in its history and “\n would necessitate a different mix of funding than just cash on hand, as has been the case for previous acquisitions.” [Emphasis: Author's]\n\nAnd...\n\n It would be the biggest acquisition of a social media company, surpassing Microsoft Corp's $26.2 billion purchase of LinkedIn in 2016.\n\nThey can't just buy it with cash. This isn't a simple \"bolt on\" for PYPL. And, if it fails, quite honestly, I'll cheer a little because the research is against big M&A. According to theHarvard Business Review:\n\n ...study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.\n\nWrap-Up\nI hope a few things are clear. First, I'm bullish on PYPL and I'm happy to be buying at prices around $250. I'm even willing to buy up to $275, but I'll take a lower price, of course. (Thank you for any discount.)\nSecond,I do see how PINS could be a great purchase for PYPL. It fits their mission for user growth, and general business growth. The revenue and user monetization opportunity is intriguing, if not excellent. Furthermore, the user base itself likes to shop and buy, which is perfect for PYPL.\nThird, if the deal does not go through, then I won't be shocked, and I won't be sad. The price for PINS seems about right, and it might even be at a slight discount - especially in its potential long-term value to PYPL. But, if talks fail, it won't cause me to skip a beat, or lose faith in PYPL whatsoever. And, in fact, I might even feel relief. Again,Godzilla-size M&A doesn't have a great record.\nAnd, finally, the biggest risk that I see is quite simple. Namely, that PYPL decides to raise the offer price, higher and higher. Right now, the price is acceptable as a PYPL shareholder. But, if the price tag keeps going up, for whatever reason, then I'll be much less enthusiastic. In fact, if the offer price goes up too much, I might have to revise my entire PYPL thesis. Poor capital allocation is deadly. I want a great deal, or no deal. We'll see how it plays out.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":853874309,"gmtCreate":1634794424997,"gmtModify":1634794425572,"author":{"id":"3586145401912378","authorId":"3586145401912378","name":"FollWin","avatar":"https://static.tigerbbs.com/8519c8db9252abe3b637d4d01b75e54c","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Thanks for the sharing","listText":"Thanks for the sharing","text":"Thanks for the sharing","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/853874309","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":853845750,"gmtCreate":1634792641753,"gmtModify":1634792642448,"author":{"id":"3570852047190387","authorId":"3570852047190387","name":"tyng8825","avatar":"https://static.tigerbbs.com/96881c116505f25bd9b7404b76c5e06d","vip":1,"crmLevel":2,"crmLevelSwitch":0},"htmlText":"Nice","listText":"Nice","text":"Nice","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/853845750","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":6273655,"gmtCreate":1634792648787,"gmtModify":1634792648816,"authorId":3570852047190387,"author":{"id":3570852047190387,"authorId":3570852047190387,"name":"tyng8825","avatar":"https://static.tigerbbs.com/96881c116505f25bd9b7404b76c5e06d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":853845750,"type":1,"supId":0,"prevId":0,"content":"Nice","text":"Nice","html":"Nice"}],"langContent":"CN"},{"id":853846136,"gmtCreate":1634792431944,"gmtModify":1634792433143,"author":{"id":"3582855207960072","authorId":"3582855207960072","name":"HBONG","avatar":"https://static.tigerbbs.com/a0b6ef216c7f159c6548906cb1930a1c","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"what if paypal takes a huge impairment a few years down the road?","listText":"what if paypal takes a huge impairment a few years down the road?","text":"what if paypal takes a huge impairment a few years down the road?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/853846136","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":853848722,"gmtCreate":1634792398784,"gmtModify":1634792399282,"author":{"id":"3580621459771902","authorId":"3580621459771902","name":"ykhoo","avatar":"https://static.tigerbbs.com/17429448896a95bc7ed438b67951084a","vip":1,"crmLevel":9,"crmLevelSwitch":0},"htmlText":"Dailies","listText":"Dailies","text":"Dailies","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/853848722","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":853848297,"gmtCreate":1634792358254,"gmtModify":1634792358325,"author":{"id":"4092138473478360","authorId":"4092138473478360","name":"Beli","avatar":"https://static.tigerbbs.com/12287da3d64d63968897c06e82fb422b","vip":1,"crmLevel":6,"crmLevelSwitch":0},"htmlText":"Interesting n well defined. Will follow news!","listText":"Interesting n well defined. Will follow news!","text":"Interesting n well defined. Will follow news!","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/853848297","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"},{"id":853848685,"gmtCreate":1634792353796,"gmtModify":1634792354244,"author":{"id":"3575455489344050","authorId":"3575455489344050","name":"Myname","avatar":"https://static.tigerbbs.com/3fff4aa421deeb7a8d801ab27a14a82f","vip":1,"crmLevel":3,"crmLevelSwitch":0},"htmlText":"🤔&nbsp;","listText":"🤔&nbsp;","text":"🤔","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/853848685","repostId":1118528593,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"CN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":113,"commentSize":15,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.25.1","shortVersion":"4.25.1","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1118528593"}