PayPal’s Vision Board Comes Into Focus With Pinterest

Enough with the idle pinning. PayPal PYPL -4.91% Holdings might be hoping it can inspire Pinterest’s PINS 12.77% users to start spending real money.

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The payments giant is in the early stages of talks to acquire the social-media company, according to The Wall Street Journal. A deal would represent the biggest new bet yet for PayPal, and an acknowledgment that Pinterest’s best potential may lie in someone else’s hands.

PayPal is aiming well beyond payments as it drives toward its outlook of 750 million active users by 2025. That includes a bevy of credit and other financial tools aimed at attracting users and monetizing them further, ranging from bill payments to crypto. But it also aims to move up the ladder into the consumer’s decision to spend in the first place.

Having a role in that shopping decision is a significant revenue opportunity. Not only does it potentially add to payment volumes, merchants also will pay for access to that funnel. Pinterest, whose users notoriously come to its image-sharing platform with purchase intent, makes money mostly via ads for relevant products. Combined, the hope may be that PayPal’s “super app” would play a key role in many parts of the shopping experience.

In the ads business, Pinterest never had hope of closely competing against the likes of Facebook for algorithmic-based targeting. And while it has planned to finally pilot seamless online transactions by the end of this year, it hasn’t yet hit upon a formula in commerce that gave it an edge.

Perhaps PayPal can help it unlock that formula, making it both easier and more compelling to buy the things Pinterest’s users find inspiring. Pinterest boasted more than 450 million monthly active users as of the second quarter, but it hasn’t been able to monetize many of them, particularly those outside the U.S.

PayPal could find opportunity in Pinterest’s most lucrative user base. In 2019, Pinterest said in its initial-public-offering filing that two-thirds of its total monthly active users were female and that eight out of 10 U.S. moms were using its platform. Especially in the U.S., though, the platform has struggled to appeal to demographics outside that niche. A recent Morgan Stanley survey suggested a subset of younger male users had little interest in what Pinterest had to offer.

Some investors might feel this potential deal recalls PayPal’s prior combination with eBay. Being tied to a merchant platform arguably limited PayPal’s opportunities in a number of ways, and it has since benefited hugely from being a payments Switzerland. But PayPal likely would view Pinterest as a discovery platform to channel users to its long list of merchant partners rather than as a competing end-destination. There is the question of what, if anything, would need to happen to Pinterest’s ongoing partnership with Shopify, which in some respects is a rival to PayPal in competing for merchant business, even including its own payment button.

Pinterest’s shares rose 13% Wednesday on news of the potential deal, while PayPal’s fell 5%. Bloomberg reported Wednesday the companies discussed a potential price of around $70 a share, citing people with knowledge of the matter. That would value Pinterest at about $45 billion, according to the report, including class B shares—a premium to its current $35.8 billion fully diluted market value.

At its peak earlier this year, Pinterest garnered well above a $55 billion market value, as homebound users flooded to the platform amid Covid-19’s depths. Many of those users have since left the platform, though, casting doubt on Pinterest’s ability to meaningfully grow on its own.

The bottom line is that PayPal would benefit from people using its app for more things, while Pinterest needs to find a way to get more users to pay. Sometimes what is most inspirational is actually just what is essential.