PayPal Holdings Inc (NASDAQ:PYPL) (PYPL) has reportedly offered to purchase digital pinboard site Pinterest (NYSE:PINS) Inc PINS for $45 billion. PayPal's offer represents a 26% premium to Pinterest's closing price of $55.58 as of Oct 19. The news hit the market on Oct 20. Pinterest shares gained 12.8% on Oct 20 on 12.45 times higher trading volume. However, PayPal Holdings shares lost about 4.9% on the day on five times higher volume.
A surge in online shopping has helped PayPal stock more than double since the start of last year, giving the company a market capitalization of nearly $320 billion and helping it to amass funds for acquisitions. Pinterest went public in an April 2019 initial public offering valuing the company at just over $10 billion. On Oct 20, the social media company had a market cap of $40.40 billion.
The market has valued Pinterest shares more cheaply than the likes of Snap Inc (NYSE:SNAP) but higher than more mature companies such as Twitter Inc (NYSE:TWTR), according to Refinitiv Eikon valuation metrics, as quoted on a source. PayPal’s offer price is equivalent to 62 times Pinterest’s earnings before interest, taxes, depreciation and amortization over the last 12 months, according to Eikon. The offer price appears cheaper than what Microsoft (NASDAQ:MSFT) paid (79 times) when it acquired it LinkedIn in an all-cash deal.
The merger talks came as “internet shoppers increasingly buy items they see on social media, often following "influencers" on platforms such as Instagram and TikTok. Acquiring Pinterest would allow PayPal to capture more of that e-commerce growth and diversify its income though advertising revenue,” per a source.
PayPal has been striving to boost its e-commerce presence in recent years in an inorganic way. It bought online coupon finder Honey Science in 2019 for $4 billion and Japanese buy-now-pay-later (BNPL) firm Paidy for $2.7 billion earlier this year. It acquired return-service provider Happy Returns in May.
The payments behemoth was among the big winners of the COVID-19 pandemic, as customers are all choosing digital payments to serve their bills for essential items, while merchants and utility providers are encouraging the same. The sources highlighted that no deal between PayPal and Pinterest was sure and terms could vary. PayPal and Pinterest did not respond on this matter yet.
Market Reaction
PayPal stock and PINS stock both fell on Oct 21 amid questions over a deal's structure. It's still unclear how much equity or cash PayPal would use to finance the deal. At Mizuho Securities, analyst Dan Dolev said in his note: "We see several potential concerns including unknown degree of user overlap, rapid deceleration in Pinterest user growth in recent quarters, and the deal potentially signaling that PayPal's organic net new adds in the second half of 2021 may be weaker than hoped," as quoted on investors.com.
ETFs in Focus
Against this backdrop, below we highlight a few ETFs that are invested in Pinterest and PayPal. These ETFs should be tracked closely in the coming days due to the above-said news.
Invesco Dynamic Media ETF PBS
The underlying Dynamic Media Intellidex Index comprises of stocks of 30 US media companies. These are companies that are principally engaged in the development, production, sale & distribution of goods or services used in the media industry. These companies may include advertising, marketing & public relations companies; companies that own, operate, or broadcast free or pay television, radio. Pinterest takes the top spot with about 5.39% weight. The fund charges 63 bps in fees.
American Customer Satisfaction ETF ACSI
The underlying American Customer Satisfaction Investable Index utilizes proprietary customer satisfaction scores to weight stocks within each sector by their relative customer satisfaction scores. Pinterest takes the second spot in the 36-stock fund. The fund charges 66 bps in fees.
Invesco NASDAQ Internet ETF PNQI
Though PNQI lost about 1% on Oct 20 due to underperformance of PayPal and Netflix (NASDAQ:NFLX) shares, the internet ETF should gain over the long term if the deal materializes.
ETFMG Prime Mobile Payments ETF IPAY
The underlying Prime Mobile Payments Index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, specifically focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions. The fund charges 75 bps in fees. PayPal has about 5.52% weight in the fund.
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Invesco Dynamic Media ETF (PBS): ETF Research Reports
Invesco NASDAQ Internet ETF (PNQI): ETF Research Reports
ETFMG Prime Mobile Payments ETF (IPAY): ETF Research Reports
American Customer Satisfaction ETF (ACSI): ETF Research Reports
Pinterest, Inc. (PINS): Free Stock Analysis Report
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