Shares of PayPal (PYPL) rallied earlier this week on reports that fintech Stripe (STRIP) was interested in buying some or all of the payment processing company.
While news outlet Semafor later refuted those claims, it also reported that PayPal has been preparing for the possibility of an unwanted takeover offer.
We asked Seeking Alpha analysts Ragmar Rikberg and Atilla Zambito whether they thought PayPal would be taken over and who might be interested in acquiring it.
Ragmar Rikberg: I think PayPal’s (PYPL) current valuation makes it an attractive takeover target for a wide range of suitors. It’s important to remember that the company has 430M accounts, and in today’s fintech landscape—where wallets are one of the hottest areas—such scale is very attractive.
With an enterprise value of around $40B and roughly $6B in annual free cash flow, PayPal trades at low multiples that could also draw interest from private equity. They could potentially unlock more value by breaking the company into parts. A spinoff of Venmo, a growing business and a leader in its category, could make sense and might even be worth the majority of PayPal’s current market cap on its own.
Apple (AAPL) could be interested in PayPal’s consumer-facing business, given its strong push into wallets and the influence it already has over PayPal’s destiny through Apple Pay. Alphabet’s (GOOG) (GOOGL) Google Pay could also be a logical contender, along with Meta (META), which explored fintech a few years ago with WhatsApp-based payments.
Large platforms are likely not interested in Braintree or PayPal’s other B2B units, but the consumer accounts and wallet base represent a highly attractive strategic asset, as I see it.
Atilla Zambito: After PayPal (PYPL) reached a market cap of just $38B, it was only a matter of time until the company received interest in all or part of its business.
First, PayPal is highly cash-generative and has a healthy balance sheet. Second, it has one of the largest user bases in the world. Moreover, PayPal owns attractive assets, such as its BNPL business, Venmo, and Braintree.
PayPal could be acquired by a large competitor like Alphabet (GOOG) (GOOGL) to complement its own payment service or by a larger bank seeking to enter the fintech space. Business parts could be sold to competitors as well; for example, unbranded checkout Braintree to Adyen (ADYEY) (ADYYF) or Venmo to Block (XYZ). It remains to be seen who will buy what, but I’m convinced that investors will see some form of a deal or deals soon.