Stripe is exploring a whole or partial acquisition of PayPal, according to Bloomberg sources, who said that the talks are preliminary and might not lead anywhere. Regardless of how close a deal actually is, it's interesting that talks of a PayPal acquisition are even being held.
Could Stripe afford to acquire PayPal without taking on debt?
Stripe recently secured a valuation of $159B via a share tender offer to provide liquidity to employees, with the majority of the funds for the offer being provided by investors including Thrive Capital, Coatue, and a16z.
PayPal, although having experienced an 85% slump in market share over the past few years, still holds a market cap of around $42B.
While Stripe is a private company and doesn't have to report how much cash they have on hand, it's highly unlikely that they're sitting on a $42B cash reserve (or potentially $50B+ if they had to pay a premium over the currently traded stock price) to acquire PayPal. They'd undoubtedly have to tap into their investor network and give away parts of the pie to make the deal happen, take on debt, and/or do a partial stock-for-stock trade with existing institutional PayPal holders.
Why would Stripe even want to acquire PayPal?
Likely for a few reasons:
- PYPL is incredibly undervalued right now on the market. Even if they paid a 20% premium, Stripe would be getting a steal in my opinion.
- PayPal / Venmo have a combined 540M wallet users, while Stripe's Link only has around 200M users, most of which I'm convinced don't have the same relationship with Stripe that they do with PayPal. Meaning consumers choose to pay with PayPal, whereas Stripe Link is just kind of there on some websites with their payment info saved.
- Stripe doesn't currently have a peer-to-peer or in-house BNPL offering, both of which PayPal/Venmo bring to the table.
- PayPal's Braintree is Stripe's direct competitor for enterprise processing, and a merger would effectively consolidate that market.
- PayPal has been positioning itself as the digital wallet of choice for agentic commerce, which Stripe would inherit.
- PayPal is at the beginning stages of growing an ad network, a high margin vertical that Stripe would also inherit, alongside the decades of consumer purchase behavior data that PayPal brings to the table to power that ad network.
- A merger with PayPal could instantly take Stripe public without having to go through the traditional IPO process. Now, would one of the most coveted private companies in the world, that has never expressed urgency or even desire to go public, even want to go public in that manner? I'd think not, as they likely have a lot more to gain through a traditional IPO that would undoubtedly skyrocket their share price, but maybe there are things I'm not aware of that would make a reverse merger attractive.
The list of reasons to acquire PayPal goes on and on, but hopefully that sheds some light on why Stripe could be entertaining the idea.
However I hope that Stripe doesn't acquire PayPal — both for personal financial reasons and because I don't see it benefiting the market. It would benefit Stripe, but not the market.
First, I'm way too invested in PYPL because I have high aspirations for the company. See my recent post about how I believe Alex Chriss was positioning PayPal for the next several decades and why firing him was a mistake. I don't want cash for my PYPL stock, which I would most likely receive as a retail investor. I want Stripe equity, which there's no way I would get. I don't want a 20% premium on my PYPL either. I want to see the 10+ year upside to PayPal's valuation, which is why I heavily invested in the stock in the first place .
Second, I don't want a payment processing monopoly. I want competition in the market, which Stripe and PayPal currently bring to each other. It's already hard enough for a startup payment processor to compete in the market with either Stripe or PayPal, let alone the combination of the two. It'd also be a loss for merchants, who in many cases, would have nowhere to go if their relationship with Stripe went sour (which it's known to do).
What are your thoughts on a Stripe-PayPal merger? Join the conversation on LinkedIn.