That was the general first hot take on the news that crossed the wires Wednesday afternoon that PayPal was exploring a deal to buy Pinterest. It was a logical initial reaction as PayPal is a payments platform that happens to own Venmo and is dabbling in crypto. And Pinterest lets you lay out your dream meal on a digital vision board.
But now that the news has sunk in, some on Wall Street are starting to see some merit to the deal even if it took 10 hours.
“We see technology companies increasingly competing to service consumers across entertainment, information and commerce functions. The deeper a company can penetrate a consumer’s daily activity (think Amazon providing TV programming, advertising messages, home hub interactivity and product delivery), the more long-term economic value that company can potentially provide from its relationship,” explained Guggenheim Securities analyst Michael Morris. “To the extent companies with unique functional strength and financial power see opportunity to add a consumer touchpoint to their portfolio, we believe the current low capital cost environment and concern about inflation may drive more aggressive consolidation exploration than we have previously seen.”
Morris rates Pinterest shares at a Buy rating.
Multiple reports have PayPal in talks to acquire Pinterest in a range of $40 billion to $45 billion mostly in stock. The timing of any deal remain uncertain, the reports say. Pinterest declined to comment to Yahoo Finance on the news.
Pinterest shares (PINS) rocketed more than 13% on the reports, while PayPal fell 5% amid concerns the deal would dilute existing shareholders.
PayPal’s stock fell another 5% on Thursday while Pinterest dropped 3%. Both stocks have been the top trending tickers on the Yahoo Finance platform since the deal news broke.
Not everyone on the Street is sold on the potential combination, which would take PayPal into the budding land of social commerce.
Pinterest’s user growth is decelerating after a year of strong upside with people home during the pandemic, said Mizuho Securities analyst Dan Dolev in a note. Meanwhile, the deal could signal PayPal is worried about slowing growth of its own.
Explained CFRA analyst Angelo Zino, “While Pinterest is contending with a deceleration in subscriber growth as it laps pandemic figures, we see strong secular tailwinds as greater ad dollars shift towards Pinterest social network. On PayPal’s side, we think the firm could be looking at a proposed deal in a push to further integrate e-commerce and social media together to provide additional avenues of transaction growth.”
Zino cut his rating on Pinterest to Buy from Strong buy.