PayPal is one of the most revolutionary companies in the digital payment space ever, but it now finds itself in an unfortunate situation, as the company is being taken over by the bid it did not want. Five years ago, the company was a Wall Street darling and the stock had been rising rapidly, while its sway over the digital commerce world seemed indomitable. The narrative has turned upside down in recent times, as PayPal has been presented with a $53 billion bid by Stripe and private equity firm Advent International, a bid their board has publicly said is too low at $60.50 per share. It’s a dramatic turnaround for the company, which at one time was worth $360 billion and was responsible for the rise of tech giants such as Elon Musk and Peter Thiel.
Paypal can be traced back to 1998 when it was established as one of the initial companies in the email payments and e-commerce segment. Its success attracted the attention of eBay, who bought the company in 2002 and eventually separated it from the main company in 2015. PayPal has continued to rise over the years since its breakout from the auction giant, benefiting from the greater trend towards electronic payments and becoming the payment method of choice for millions of consumers around the globe. It developed an ambitious ecosystem that included more than 400 million consumer accounts, its merchant checkout business and the hugely popular peer-to-peer payments application Venmo, which seemed to offer an impenetrable fortress in the fintech market.
But cracks did start to show as the competition quickly changed. Large companies like Apple, Google, and Samsung have rolled out new payment systems and quickly emerging start-ups like Stripe and Affirm have come up with novel ideas on how to pay consumers and businesses, while PayPal looked like it was missing the creative spark. The company’s reaction to the evolving landscape of digital banking and commerce appeared to be slow, especially given the growing popularity of mobile payments among consumers. Several times in recent years, the company has tried to revive its growth and regain momentum but succeeded in disappointing the market that still does not believe the company is capable of achieving the glory days of its past.
The key meeting will take place Monday before the board, when they are considering whether or not to accept the present bid or wait for a better one. The central issue facing the stakeholders is whether PayPal is worth more as a whole or its parts are more valuable on the auction block. This calculus is given to the potential sale of individual assets, such as the Venmo platform, which has a lot of brand recognition and user loyalty even though the parent company has been struggling. With the difficulties and competitive environment of payments, analysts have been raising doubts about whether the company can draw in the better offers in today’s market.
PayPal’s hiring of a new CEO in February signaled there was a strong need for the company to tackle its competitive footing and industry reputation. The board acknowledged that some developments had taken place over the last two years, but the rate of change and execution were not as well received as expected, in a statement. The frank statement highlighted a level of dissatisfaction among both directors and shareholders, especially regarding the company’s strategic efforts not meeting the lofty goals established by its management. Enrique Lores, who took over as chief executive in March, has been very cagey in his public comments about the possibility of a sale, and hasn’t said much about the prospects for a sale or other alternatives to revitalisation.
The timing of the unsolicited bid is especially important, as the payments industry is experiencing more general consolidation forces and investors are more closely reviewing company valuations. The upstart company behind the acquisition bid, Stripe, has itself become a big player and is offering businesses a streamlined payment-bucket which has taken a big slice of PayPal’s monopoly. Stripe’s technologically advanced and Advent’s financial backing is a tall order for PayPal to remain independent, so it is unclear if the company’s board can reasonably hope to see a more lucrative offer.
PayPal’s difficulties have been picked up by industry analysts, who have been warning for a while that the current fintech giants were facing competition from new players as competitors began to wreak havoc on their profits. The inability of the company to see and take advantage of new opportunities in the digital banking, consumer finance and mobile commerce space has put it at risk from more nimble rivals who are prepared to try new things and new pricing models. PayPal has built up a significant amount of brand value and significant user base, but these alone are not enough to maintain the growth that had previously made it a highly valued stock.
