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Less than two years ago, PayPal had plans to acquire Pinterest for a whopping $45 billion. However, due to slow growth, the online payments company had to prioritize cost cuts instead. With the arrival of new CEO Alex Chriss, PayPal may now be ready to resume its acquisition strategy.
Upon announcing Chriss’s appointment, PayPal’s board highlighted his role in helping Intuit acquire MailChimp for $12 billion, a deal larger than any of PayPal’s own acquisitions. These include the purchase of iZettle for $2.2 billion in 2018 and Honey, a price-comparison app, for $4 billion in 2020.
PayPal has aspirations to expand its empire beyond online payments. During the surge in online spending driven by the pandemic, the company envisioned acquisitions that would transform it into a WeChat-style super app, offering not just payments but also savings and shopping services.
However, since then, PayPal’s stock price has declined nearly 80%. The company no longer has the strong financial position required for large acquisitions like Pinterest.
Nonetheless, Chriss’s appointment signals a desire for change. Last year, activist investor Elliott Management acquired a stake in PayPal, expressing dissatisfaction with CEO Dan Schulman’s leadership. Schulman has been leading the company since its split from eBay. Revenue growth, which previously ranged from 18-20%, is now expected to be less than 8% this year. The goal of reaching 750 million active accounts and $10 billion in free cash flow by 2025 is no longer feasible. Currently, PayPal has 431 million users and an annual free cash flow of just over $5 billion.
Despite being a well-established brand known for its convenience, PayPal faces competition from banks and Apple’s rapidly growing one-click services in the checkout business.
If PayPal chooses to pursue expansion through mergers and acquisitions, it should exercise caution. Acquiring a company like Pinterest may provide a large user base, but few benefits for PayPal. Chriss should focus on targets in the financial services industry rather than social media.
Listen to Lex deputy editor Elaine Moore discuss the future of social media with creators, companies, and critics in the FT’s new podcast series, Tech Tonic.
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