Once high-flying PayPal becomes a takeover target as it attempts a turnaround

Digital payments giant PayPal was soaring high five years ago, riding the surge in online shopping after the COVID-19 pandemic reshaped people’s buying habits.

Now the San José fintech company has reportedly become a takeover target as it tries to get more people to click on the PayPal button to purchase items amid fierce competition.

Stripe, a financial services platform that helps businesses accept and manage payments, and private equity firm Advent International made a joint offer to acquire PayPal for $60.50 per share, according to multiple news reports, citing anonymous sources. The bid values PayPal at roughly $53 billion.

The takeover offer puts pressure on a business facing a critical juncture. PayPal has seen growth in branded checkout slow down and its stock plummet more than 25% over a year. PayPal’s new chief executive, Enrique Lores, who took the helm in March, has laid out a plan to help the company bounce back.

In a call with analysts on Tuesday after PayPal reported its second-quarter results, Lores reiterated the company doesn’t comment on market speculation or potential merger and acquisition discussions. PayPal, he said, remains focused on maximizing long-term shareholder value and carrying out its turnaround plan.

He added, however, that PayPal remains “open and objective in evaluating opportunities.”

“If we see levers or a path that we believe would create superior value for our shareholders than executing our current strategy, we will, of course, carefully consider them,” he said.

PayPal’s stock jumped 4% to $58.32 Tuesday after the company reported second-quarter earnings that beat Wall Street’s expectations.

PayPal’s reported adjusted earnings of $1.38 per share surpassed analysts’ estimates of $1.28 per share.

PayPal’s board is evaluating the bid but thinks it undervalues the company while new leadership attempts a turnaround, Reuters reported, citing people familiar with the matter. The offer could also face regulatory and financing hurdles.

PayPal, Stripe and Advent International declined to comment.

Analysts say a takeover could reshape the payments space, bringing together major fintech powerhouses. The merger could help lower processing fees, spurring more merchants and consumers to use online payment services.

PayPal has seen growth in other areas. It owns Venmo, a payments platform especially popular among young people. The company also provides consumers with a Buy Now, Pay Later service so they can split the payment for items they buy over a longer period of time.

Stripe would get access to PayPal’s Buy Now, Pay Later customers “and the lucrative business opportunity to start offering said consumers longer duration, interest-bearing loans,” a July 20 note from Mizuho Securities said.

Founded in 1998, PayPal was a digital payments pioneer. Instead of having to write a check or fill out a money order, the platform enabled people to securely and quickly send money digitally using their email address.

Dubbed the PayPal mafia, the company’s founders and early employees, such as Elon Musk and Peter Thiel, would go on to invest in or build successful Silicon Valley companies.

Today, the digital payments space is highly competitive, with major tech companies such as Apple and Google enticing customers to use their payment services for online purchases. PayPal is trying to keep up.

“We operate in markets defined by growth and rapid change,” Lores said in a call in May. “It is during this period that leading companies find ways to differentiate themselves by innovating, delivering new and superior solutions, and driving durable growth. This is where PayPal needs to focus.”

PayPal has been trying to cut costs through restructuring its business and accelerating artificial intelligence adoption. PayPal plans to eliminate about 20% of its workforce or roughly 4,500 jobs, over the next two to three years, Bloomberg reported in May. The global company employs about 23,800 people, including many in California.

In the second quarter, PayPal reported a net income of $1.1 billion, down 12% from the net income of $1.26 billion the company reported for the same period last year.

Under the new chief executive, PayPal also reorganized its business into three parts: Checkout Solutions & PayPal, Consumer Financial Services & Venmo, and Payment Services & Crypto.

PayPal’s branded checkout is showing signs of improvement, with total payment volume in that area growing 2% in the second quarter.

The company expects digital identity and agent payments to become “increasingly meaningful contributors” to its business in the future while advancements in AI could also help the company better personalize experiences for its users, Lores told analysts on Tuesday.

“While there is still significant work ahead, I have strong conviction in our direction and in our ability to execute,” Lores said.