The PayPal logo displayed on a smartphone screen with a stock chart in the background.
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Company: PayPal Holdings (PYPL)
Company: PayPal is a leading technology platform that enables digital payments and simplifies commerce experiences for merchants and consumers around the world. The company operates a two-way global network that connects merchants and consumers with 426 million active accounts (392 million active consumer accounts and 34 million active merchant accounts) in more than 200 markets. They generate revenue primarily by charging fees for performing payment transactions for their customers and other payment-related services which are generally based on the volume of activity processed on their payment platform.
Market value: $97.7 billion ($84.36 per share)
Activist: Elliott Management
Percentage of ownership: n / A
Average cost: n / A
Activist Comment: Elliott is a very successful and shrewd activist investor, especially in the technology sector. The team includes analysts from leading technology private equity firms, engineers and operational partners. When evaluating an investment, Elliott also hires specialist and general management consultants, expert cost analysts and industry specialists. The firm often monitors companies for many years before investing, and it has an extensive stable of impressive board candidates.
What is happening?
In the wings
PayPal has a solid business with its core payments business (accounting for around 80% of its revenue) growing at least in line with its peers and expected to continue growing as e-commerce expands. In 2013, PayPal acquired Braintree, a more technologically savvy payment provider, allowing customers to customize their shopping carts and integrate them with their existing platforms. This division represents about 10% of the company’s turnover, but it could grow by more than 20% per year. PayPal also owns Venmo, which accounts for around 5% of its revenue but could also grow by 20% annually.
Elliott has made big investments in tech growth companies that have been decimated by the markets over the past year, and this is no exception. PayPal is down more than 70% from closing at $308.53 just over a year ago. Although this is mainly due to a sell-off in growth stocks, there is an opportunity here to improve margins as the company’s levels of sales, marketing, research and development expenses are higher than those of its peers – even double the levels of some of them. these companies. However, Elliott is more of a strategic activist than an operational activist and has had its best success encouraging mergers and acquisitions in its portfolio companies. Elliott had its best returns buying portfolio companies, fixing them and selling them. However, with a market capitalization of $99 billion, PayPal is probably too big for them even with a partner. A more likely scenario is that the company encourages PayPal to explore strategic alternatives around Venmo or Braintree or acquire other companies that would have synergies with PayPal’s core business.
One such possibility would be Pinterest. Last year, there were rumors that PayPal was interested in bidding for Pinterest. Plus, one of the reasons potential suitors haven’t historically sued Pinterest is the perception that its longtime founder and CEO, Ben Silbermann, wouldn’t sell. However, he recently eased his grip on the company by handing over the role of CEO, which could indicate that he is ready to listen to offers. Even more remarkably, Elliott has an investment of around 9% (or $1B+) in Pinterest. So encouraging PayPal to acquire Pinterest could be a win-win situation for Elliott.
Elliott did not disclose its position size, but based on its history, we expect it to be between 1% and 2%, primarily in swaps and other derivatives, which have not the same disclosure requirements as common stock.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and he is the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist investments 13D. Squire is also the creator of the AESG™ investment category, an activist style of investing focused on improving the ESG practices of portfolio companies.