On Wednesday, November 20th, PayPal announced it would acquire Honey Science at $4 billion valuation, immediately adding a new tool to their already coveted fintech platform. This acquisition is the largest that PayPal has completed.
PayPal’s Recent Transaction’s by Acquisition Value
PayPal, headquartered in the heart of Silicon Valley, is a FinTech and e-commerce company that facilitates the transactions between parties through the use of online, secure transfers. Honey Science, headquartered in Los Angeles, CA, is a technology firm that aggregates coupons from online websites and applies them to consumers’ purchases when they visit specific sites corresponding to the coupon.
The online payments space has gotten continually more competitive as larger brands such as Apple, Amazon, Zelle, and Visa (to name a few) have decided to join the party. The market has seen considerable growth within the last couple years as consumers opt away from cash and move to more convenient, secure payment options.
In the days following the announcement, PayPal’s shares were down around 2%. The negative sentiment reflected in the market can largely be attributed to the arguably high premium that was placed on Honey Science and its arsenal. Many investors believe that Honey is nothing more than a coupon searching platform, but there is reason to believe that this acquisition is much more accretive to PayPal than what meets the eye.
First off, Honey Science’s financials, as reported by PayPal, are nothing to scoff at. According to PayPal, they had $100 million in revenue in audited 2018 results and are expected to hit $200 million by year end 2019. PayPal is expecting for this acquisition to be accretive to their non-GAAP EPS by 2021. To add icing on the cake, Honey has achieved what many tech companies in today’s day and age cannot and that was profitability in 2018.
Second, given Honey Science’s customer contact point in the sale process being before the checkout, this allows for PayPal to reach their targeted consumer sooner. According to Dan Schulman, PayPal’s CEO, nearly 40% of all online transactions are started due to outside events and by acquiring a company like Honey, PayPal is giving themselves the ability to offer consumers a more personalized shopping experience and to be that outside event. They do this by allowing for the Honey browser add-on to search through consumers’ recently visited sites’ current and future deals, notifying the consumer, via the PayPal app, that there is a coupon found for the product they were looking for. Once notified, the consumer will log into the PayPal app and check out what the platform was able to dig up. In the end, PayPal will get more users interacting with their platform, and consumers will find the goods they want at a discounted price; it’s a win-win.
Third, Honey Science has already seen immense success given its current size and market share, but imagine what it will be like when it fully rolls out to all of PayPal’s offering locations. A value cannot be placed on the market barriers that Honey Science is able to break through by being added to PayPal’s immense platform. Getting Honey in front of the 300+ million active user accounts that PayPal’s platform supports will yield heavy dividends for Honey and its future scaling.
Lastly, the value of data cannot be quantified in today’s personalized and convenience obsessed world. Now that PayPal is able to reach their target consumer earlier on in the shopping experience, they are able to acquire more data regarding their behaviors, preferences, and shopping habits. This data can then be used for insights into product R&D, consumer customization, and even sold to other companies for insights. Given PayPal’s history of valuing customer privacy and security, it would not be crazy to see them not capitalize on the final point, however, the other potential streams of future income are viable in adding to their bottom line.
If PayPal is able to capitalize on these opportunities, not only will it give them an increasing share of an increasingly competitive market. It will also pair with their other highly valuable services such as Venmo to create a “Super E-commerce” app, capable of taking care of all of the shopper’s needs with one cohesive application.
In the days following the announcement, PayPal’s shares were down around 2%. The negative sentiment reflected in the market can largely be attributed to the arguably high premium that was placed on Honey Science and its arsenal. Many investors believe that Honey is nothing more than a coupon searching platform, but there is reason to believe that this acquisition is much more accretive to PayPal than what meets the eye.
First off, Honey Science’s financials, as reported by PayPal, are nothing to scoff at. According to PayPal, they had $100 million in revenue in audited 2018 results and are expected to hit $200 million by year end 2019. PayPal is expecting for this acquisition to be accretive to their non-GAAP EPS by 2021. To add icing on the cake, Honey has achieved what many tech companies in today’s day and age cannot and that was profitability in 2018.
Second, given Honey Science’s customer contact point in the sale process being before the checkout, this allows for PayPal to reach their targeted consumer sooner. According to Dan Schulman, PayPal’s CEO, nearly 40% of all online transactions are started due to outside events and by acquiring a company like Honey, PayPal is giving themselves the ability to offer consumers a more personalized shopping experience and to be that outside event. They do this by allowing for the Honey browser add-on to search through consumers’ recently visited sites’ current and future deals, notifying the consumer, via the PayPal app, that there is a coupon found for the product they were looking for. Once notified, the consumer will log into the PayPal app and check out what the platform was able to dig up. In the end, PayPal will get more users interacting with their platform, and consumers will find the goods they want at a discounted price; it’s a win-win.
Third, Honey Science has already seen immense success given its current size and market share, but imagine what it will be like when it fully rolls out to all of PayPal’s offering locations. A value cannot be placed on the market barriers that Honey Science is able to break through by being added to PayPal’s immense platform. Getting Honey in front of the 300+ million active user accounts that PayPal’s platform supports will yield heavy dividends for Honey and its future scaling.
Lastly, the value of data cannot be quantified in today’s personalized and convenience obsessed world. Now that PayPal is able to reach their target consumer earlier on in the shopping experience, they are able to acquire more data regarding their behaviors, preferences, and shopping habits. This data can then be used for insights into product R&D, consumer customization, and even sold to other companies for insights. Given PayPal’s history of valuing customer privacy and security, it would not be crazy to see them not capitalize on the final point, however, the other potential streams of future income are viable in adding to their bottom line.
If PayPal is able to capitalize on these opportunities, not only will it give them an increasing share of an increasingly competitive market. It will also pair with their other highly valuable services such as Venmo to create a “Super E-commerce” app, capable of taking care of all of the shopper’s needs with one cohesive application.
Carter Bradsky - 04/01/2020