Shares of PayPal (PYPL) are in focus on Thursday after the company announced plans to buy shopping and rewards platform Honey for $4B in cash. Following the announcement, one Wall Street analyst called the acquisition a "sweet deal," while another said PayPal made a "bold move" with the purchase.
PAYPAL BUYING HONEY FOR APPROXIMATELY $4B: On Wednesday, PayPal announced that it is buying Honey Science, a technology platform for shopping and rewards, for approximately $4B. Founded in 2012, Honey is best known as a discovery tool that helps consumers find savings as they shop online. PayPal said in a statement that Honey will transform the shopping experience for PayPal's consumers while increasing sales and customer engagement for its merchants. Following the acquisition, which is expected to close in the first quarter of 2020, Honey will retain its headquarters and brand in Los Angeles, California. Honey co-founders George Ruan and Ryan Hudson will continue to lead the Honey team as part of PayPal's global consumer product and technology organization, reporting to Senior Vice President John Kunze. The deal is expected to be accretive to PayPal's non-GAAP earnings per share in 2021, PayPal said.
The acquisition is PayPal's biggest purchase ever, surpassing last year's $2.2B purchase of iZettle.
“Honey is amongst the most transformative acquisitions in PayPal’s history. It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding,” said Dan Schulman, president and CEO of PayPal. “The combination of Honey’s complementary consumer products with our platform will significantly enhance our ability to drive engagement and play a more meaningful role in the daily lives of our consumers. As a partner of choice for our merchants, this is another way that we can help them build and strengthen their customer relationships, provide personalized offers, and drive incremental sales. The combination of Honey and PayPal adds another significant and meaningful dimension to our two-sided platform.”
'SWEET' DEAL: Baird analyst Colin Sebastian called the acquisition of Honey a "sweet deal," saying that the acquired business will offer the company a way to "capture online shopping throughout the purchase funnel," not just at the end of the process, which should generate additional ways of monetizing the company's 275M active users. Sebastian adds that Honey's "combination of rewards and payments" adds a "very lucrative" opportunity for PayPal and should result in greater user engagement, monetization, and increasing usage of PayPal checkout. In a research note of his own, Jefferies analyst John Hecht said the purchase of Honey has strategic benefits, as he believes Honey should boost both the consumer and merchant sides of the network with increased engagement. Honey's services are a natural complement to PayPal's existing offerings to consumers in addition to bringing PayPal higher "up the funnel" in the buying process, Hecht further said.
Stephens analyst Brett Huff said he likes PayPal's deal to buy Honey as he sees it increasing the key PayPal value proposition of providing best-in-class conversions at merchant websites. The purchase of Honey also gets the PayPal consumer intent data and moves the company up in the marketing funnel and commerce process, added Huff. Additionally, he sees the purchase as "very growth rate accretive" believes it should drive user engagement increases. RBC Capital analyst Daniel Perlin said the deal is "transformative" as it will enhance the company's "consumer and merchant engagement proposition." The analyst added that the near-term synergies of the deal will allow PayPal to be engaged with the consumer prior to the purchase and also boost engagement, noting that 90% of Honey's 17M users are active each month.
'BOLD CHESS MOVE': Meanwhile, JPMorgan analyst Tien-tsin Huang said PayPal made a "bold chess move" he was not expecting by announcing plans to acquire Honey for $4B, its largest acquisition to date. The analyst had expected PayPal to bolster consumer engagement by adding financial services tools, "but Honey gives PayPal smart shopping tools instead," he noted. The valuation paid is steep, the analyst contended, but said that with the potential for real revenue synergies from flywheel effects, and earnings accretion by year two, he likes the merits of the deal.
PRICE ACTION: In morning trading, shares of PayPal are down 0.6% to $103.44.