Activist Elliott snaps up an interest in PayPal. This is what could be next for the payments giant

Business: PayPal is a leading technology platform that enables digital payments and simplifies the commerce experience on behalf of merchants and consumers worldwide. The company operates a global, two-sided network connecting merchants and consumers with 426 million active accounts (392 million consumer active accounts and 34 million active consumer accounts). for sale) in more than 200 markets. They generate revenue primarily by charging customers to complete payment transactions and other payment-related services typically based on the volume of activity processed on their payment platform.

Stock market value: $97.7 billion ($84.36 per share)

PayPal has a strong business with its core payments business (accounting for about 80% of revenue) growing at least in line with its peers and is expected to continue to grow. as e-commerce expands. In 2013, PayPal acquired Braintree, a more tech-savvy payment provider, allows customers to customize their shopping carts and integrate them with their existing platforms. This division accounts for about 10% of the company’s revenue, but it can grow over 20% annually. PayPal also owns Venmo, which accounts for about 5% of revenue but can also grow at 20% per year.

Elliott has made big investments in tech growth companies that have been destroyed by the market over the past year, and this is no exception. PayPal is down more than 70% from its peak close of $308.53 just over a year ago. While that’s largely due to a sell-off in growth stocks, there is an opportunity to improve margins as the company’s sales, marketing, research and development expenses are higher than in the previous year. peers – even double the rate in some of them. However, Elliott is more of a strategist than an activist and has had best-practice successes through encouraging M&A at his portfolio companies. me. Elliott has had the best returns buying portfolio companies, fixing them, and selling them. However, with a market cap of $99 billion, PayPal is likely too big for them to do that, even with a single partner. A more likely scenario is for the company to encourage PayPal to explore strategic alternatives around Venmo or Braintree or to acquire other companies that could synergize with PayPal’s core business.

One of such possibilities would be Pinterest. Last year, there are rumors that PayPal is interested in bidding for Pinterest. Furthermore, one of the reasons why potential pursuers have so far not pursued Pinterest is because of the perception that its founder and longtime CEO Ben Silbermann won’t sell. Recently, however, he has loosened his grip on the company by Handing over the role of CEO, which could be a sign that he’s willing to listen to offers. Even more remarkable, Elliott has a approximately 9% (or $1 billion+) invested in Pinterest. So, incentivizing PayPal to acquire Pinterest could be a win-win situation for Elliott.

Elliott has not disclosed the size of his position, but based on its history we expect it to be between 1% and 2%, mainly in swaps and instruments. other derivatives, which do not have the same disclosure requirements as common shares.

Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder performance, and he is the founder and portfolio manager of 13D Activity Fund, a mutual fund. invest in a portfolio of 13D activists. Squire is also the creator of the AESG™ portfolio, an active investment style focused on improving the ESG practices of portfolio companies.