So should it be any surprise that PayPal Holdings Inc., the payments company, in turn also wants to become a social media company? For the San Jose, Calif.-based firm, attack may be the best form of defense against the incursions of the other West Coast titans.
PayPal is planning a $45 billion offer for Pinterest Inc., the lifestyle-focused social media platform, Bloomberg News reported on Wednesday. There could be sound logic behind the deal, perhaps enough to justify the steep price.
Pinterest has managed to carve out a successful niche as the destination for, in essence, online mood boards. Its predominantly female users use it to find ideas on how to remodel their homes or reinvigorate their wardrobes. My other half sent me a Pinterest board with engagement rings she liked. We’re now married and have twins. Thanks, Pinterest.
It makes money mostly from selling ads to brands eager to get their products in front of its 454 million users. If users see something they like, they can then click through to the advertiser’s website and buy it there. And that’s where the opportunity may lie for PayPal—by imitating an approach pioneered by Google and Facebook.
The two tech behemoths have been aggressively trying to bring more purchases onto their own platforms over the past three years. On both Instagram, owned by Facebook, and YouTube, owned by Google, it’s increasingly possible to buy products from inside the app.
So if Kim Kardashian posts a snap of herself wearing the latest loungewear from her SKIMS brand on Instagram, you can buy it without being redirected to another website. Instagram can not only take a royalty fee, but it also gets valuable information about purchasing habits and what persuaded the consumer to part with their cash.
If PayPal can make Pinterest a shopping destination, it can take its standard 2.9% cut of each payment transaction, while also encouraging its existing portfolio of 32 million merchants to advertise on Pinterest. Facebook has six times as many users as Pinterest, but makes 47 times as much revenue.
That prospective upside should be enough to justify a $45 billion outlay. Despite the mounting competition in online payments, the e-commerce payments pot is growing fast enough right now for everyone to make bank. The Covid-19 lockdowns accelerated the shift online and payments companies have benefited accordingly: PayPal’s stock is up some 140%, outperforming the S&P 500’s 68% gain, since the World Health Organization declared a pandemic in March 2020.