Hot rumor has PayPal buying Pinterest for $45 billion

According to CNBC, PayPal and Pinterest are on the verge of announcing a deal that would see the financial tech company acquire the image-sharing service. This follows up on a report by Bloomberg released this morning that publicly acknowledged that the two firms were talking. The transaction supposedly values Pinterest at $45 billion or $70 a share and will be paid for mostly with PayPal stock.

Pinterest shares started to soar following Bloomberg's morning report and closed for the day at $62.68, up $7.09 or 12.75% today. Over the last five days, the stock has soared over 22% indicating that rumors about the deal might have been leaked and were circulating.

When Pinterest first went public in April 2019, it had a valuation slightly north of $10 billion. According to an unnamed source, PayPal felt pressure to make a deal after e-commerce platform Shopify spent money looking to combine e-commerce and financial technology. Last year Shopify teamed up with buy now, pay later platform Affirm to be the exclusive provider of point-of-sale financing for Shopify's Shop Pay checkout service.

Last year PayPal battled against the buy now, pay later firms by offering its "Pay in 4" service. A purchase of Pinterest would give PayPal entry into the social commerce business, a space that other tech firms have already shown an interest in. With social commerce, the addition of a "Buy" button to a social media site will allow consumers to purchase something they see and like directly from that site.

For example, Facebook has put a "Shop" button on regular Instagram posts while also allowing users to shop from Instagram Stories, Live, and Explore feeds. It also tested shopping from Instagram's short-form "Reels" platform.

Social commerce allows tech firms to track the number of clicks and purchases that it receives from its apps; this allows the firms to figure out which ads are working to drive views and purchases, and which ads aren't. The purchase of Pinterest would allow PayPal to get more involved in e-commerce and allow it to collect advertising revenue.

PayPal investors weren't as thrilled about the rumor as Pinterest users were. During Wednesday's trading session, shares of PayPal declined $13.34 or 4.91% to $258.36. The latter has a valuation of $303.6 billion while Pinterest is worth $40.4 billion. According to Reuters, if the deal does get done it would be the largest acquisition of a social media company since Microsoft paid $26.2 billion for LinkedIn back in 2016.

Consumers are turning to internet influencers more and more to determine the brands and products that they buy. Social commerce allows these consumers to purchase these products with the click of an online button. Pinterest specifically was able to gain traction during the pandemic and those locked down at home were looking for do it yourself (DIY) projects to work on.

However, with lockdowns fading, Pinterest has warned that it faces slowing growth, especially in the United States. The latter is Pinterest's top market and is now resigned to squeezing growth out of existing customers instead of depending on new customers to sign up.

Wedbush analysts in a note to clients said, "(The) combination would be a significant positive for PayPal's ongoing monetization initiatives on both sides of its merchant and consumer platforms, especially if Pinterest's social commerce platform gets integrated with Honey's AI into PayPal's destination app." 

The sources who have been on top of the rumor said that there is no guarantee that the rumored deal will get done and terms of a deal might also change. The sources asked not to be identified by Reuters because the talks are confidential.