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Less than two years ago, PayPal’s merger and acquisition ambitions included a huge $45bn deal to buy cutesy virtual scrapbooking company Pinterest. Stuttering growth forced the US online payments company to put those plans on hold in favour of cost cuts. New chief executive Alex Chriss could soon usher in a new era of acquisitions.
In announcing his appointment, PayPal’s board made sure to mention Chriss’s lead role in helping financial services company Intuit buy marketing company MailChimp for $12bn. This is bigger than any of PayPal’s own deals, which include buying payments start-up iZettle for $2.2bn in 2018 and price-comparison app Honey for $4bn in 2020.
PayPal wants to expand its empire. At the height of the pandemic-driven boom in online spending it envisaged acquisitions that could turn it into a WeChat-style super app encompassing payments, savings and shopping.
Unfortunately, since then the share price has fallen by nearly 80 per cent. PayPal no longer possesses a strong currency with which to make big deals like Pinterest.
Still, Chriss’s appointment is designed to engender change. Activist investor Elliott Management’s stake in PayPal last year was a criticism of chief executive Dan Schulman. He has led the company since its split from eBay. Revenue growth, which once hovered between 18-20 per cent, should be less than 8 per cent this year. Hopes of doubling active accounts to 750mn and free cash flow to $10bn by 2025 are now off the table. At the last count the company had 431mn users and annual free cash flow of just over $5bn.
PayPal is now a quarter of a century old. It has a recognisable brand known for convenience with a defensible legacy position. But its main checkout business competes with banks and fast growing one-click services from Apple.
Expansion via M&A could increase sales but requires prudence. A company such as Pinterest has a lot of users but few benefits for PayPal. Best that Chriss seeks targets in financial services, not social media.
Listen to Lex deputy editor Elaine Moore talk to creators, companies and critics about the next era of social media in the FT’s new Tech Tonic podcast series