PayPal Holdings Inc. [PYPL: NASDAQ] – Market Cap as of 30/11/2019 USD 126.82bn

Honey Science Corporation – Privately Held


On November 20th, 2019 PayPal announced the $4bn acquisition of deal-finding company Honey, which is expected to complete in Q1 2020. The deal will provide PayPal with an additional source of insight on customer behavior and preferences in the online shopping environment, allowing it to eventually offer consumers a wider range of services in the near future. Furthermore, the purchase, which is PayPal’s biggest one since its establishment in 1998, is the natural result of the increase of competition in the online payments industry, mainly due to the recent entry of massive players such as Google and Apple.

About PayPal Holdings Inc.

PayPal was founded in 1998 with the name of Confinity and became a money transfer service. After PayPal became independent from Confinity it launched an IPO raising $63m, and soon after in 2002, it would be acquired by eBay for $1.5bn, or 77% over the IPO share price. Under eBay, the company grew significantly by creating partnerships, making acquisitions, and beating competitors.

In 2015 PayPal became a separate public company with its headquarters in California. Now it’s known globally for being the pioneer of digital payment services, marketing these more convenient and secure. Also, PayPal now has more than 300 million customers, it operates in 200 countries and has 21,800 employees. Its sources of revenue all depend on transactions. It is possible to distinguish these in the following categories: Merchant Services, eBay marketplace, Person to Person (P2P), and Venmo services. PayPal benefits from a 60% market share in the global payment processing market, competing against Stripe, Amazon Pay and many others which individually hold a quite smaller market share (the market share can vary significantly by country, PayPal holds 64% market share in the United States).


In 2018 PayPal reported $15.45bn in net revenues, with an increase of $2.2 billions, or 19% since 2017. PayPal is able to increase its revenue each year of about 20%. Its revenue is made 88.7% of transaction income and the remaining 12.3% in value added services such as interests on loans which together generate a good profit margin of 14.2%, lower than 2017’s 16.2%.

The 21% rise in costs reported in 2018 can be explained by increasing advertisement to constantly increase the number of clients, by the acquisitions of Hyperwallet and iZettle and the 17% increase in headcount that follows, and by continuous innovation costs that each year place PayPal at the head of the market. The final net income stands at $2.06bn, that is a promising 14.5% higher than 2017.

The overall financial performance creates great prospects for the company, with ratios such as ROTA at 5.06% and ROE at 13.4% that could be further improved, which acts as a motivation for investors. Lastly, in 2019, quarterly report have shown figures constantly improving since earlier years.

The transaction revenues increase each year thanks to new clients, as the newly acquired 38 million active clients in 2018 that with the other 267 million users totaled 9.87 billion transactions. Clients are attracted to PayPal mainly through acquisitions such as Hyperwallet and iZettle (2.9 million) and advertisement.

About Honey Science Corporation

The deals company, Honey Science Corp., was founded in 2012 and holds its headquarters in Los Angeles. It was born as a browser extension to find the best deals on the web and became viral very soon. Honey immediately reached attention and funding year after year. By 2018 Honey had raised about $41m in venture-backing.

Now Honey operates in different ways: other than its enhanced browser extension, it also offers a desktop marketplace and a mobile app. Moreover, Honey created a loyalty program where customers can collect points and redeem gift cards. Its services are currently offered to 17 million monthly active users who saved over $1 billion dollars last year and 30 thousand merchants. The company competes with great advantage against RetailMeNot, Dealsshutter, and CupoNation. Impressively, recent research suggests that buyers are significantly more likely to complete their purchases through Honey. The mediation company creates its revenue imposing a fee to the merchant for each transaction it makes happen.


As a young company, Honey doesn’t reveal to the public much financial information. It is known however that its 2018 net revenue is of about $100m, however, with a 100% YoY annual increase. Its estimated headcount is at 279, which is increasing as the company quickly expands.

Industry Overview

The online payments industry performance is strictly linked to the economic outlook, in fact, in a positive momentum for the economy, people tend to spend more money. As a result, the sector will tend to perform better in an expansionary phase of the business cycle. According to World Bank data, in 2016 global nominal GDP grew by 1.5% YoY and by 6% YoY in 2017. During the same period of GDP growth, Online Payments’ industry revenues witnessed an increase as well: 7% YoY revenue growth in 2016 and 11% YoY in 2017.

The Online Payments market size was valued at $43.5bn in 2018 and is expected to register a CAGR of +17.6% from 2019 to 2025. Moreover, between 2012 and 2017, the share of the world’s transactions carried out in cash has fallen from 89% to 77%; over the same timeframe, the share of combined debit and credit card use has nearly doubled, from 5% to 9%. The factors that will boost the market the most over the forecasted period will mainly be the growing use of smartphones combined with high internet penetration and easy accessibility of digital payment mobile applications. Moreover, governments across the world are taking initiatives to promote and fuel digital payments. For instance, the Indian government launched the Digital India Initiative, which focuses on promoting digital payment methods and cashless transactions in the country. So far, proliferation of global digitalization has had a huge impact on the Online Payments industry. In the end, the increasing need to provide enhanced customer support at the Point of Sales (POS) terminal is expected to drive the digital payment systems market over the next few years.

Global online payments revenues swelled to $1.9tn in 2017, and the industry as a whole is now on track to reach $2tn by 2020. Looking at the major regional composition of the industry’s revenues, the robust performance was mainly driven by APAC: the region accounts for over 60% of the world’s population, hence it is not surprising that it is responsible for two-thirds of global transactions. Additionally, Latin America’s online payments industry has been the fastest-growing among the major regions in the recent past, but growth rates flat-lined abruptly in 2017. EMEA revenues were similarly flat, continuing a trend that has persisted for the past decade. The developing nations of Eastern Europe and Africa have generated high single-digit growth, offsetting nominal declines in Western Europe. On the other side of the Atlantic Ocean, North America’s overall Online Payments’ revenue growth returned to a 7% growth rate in 2017 and is poised to continue at a similar pace over a five-year horizon. As of 2017, US citizens spent $2,271 per capita on e-commerce and $24,248 through POS annually. In the US, the most popular alternative payment methods to cash are PayPal, Bank Transfer, Clickandbuy. Credit card remains the most popular paying method, with a 32% share in the whole CNP payment methods landscape in 2017.

The payment gateway segment is expected to register the highest CAGR of +14.43% in 2019 – 2025 in the whole online payments industry. The segment is expected to be driven by factors such as emergence of cash pooling, token system, and cashless transactions. A gateway solution enables organizations to collect money through the bank preferred by the user without putting at risk personal data. Furthermore, gateways utilize industry-standard encryption, which aim to preserve consumer and merchant data from fraud. Amazon Payments along with PayPal, WePay,, 2Checkout Stripe and WorldPay are the most important players in the segment. The payment gateway segment is very consolidated, as a result, we have high M&A activity: Stripe announced the acquisition of Touchtech Payments in April 2019. The competition among the players is fierce, with high pressure on lowering fees and low bargaining power towards the customers. The average transaction fees charged accounts for 2.9% + $0.30; only WorldPay is able to charge a 2.75% + $0.25. From a cross-border transaction fees perspective, Amazon Payments charges lower fees compared to PayPal (3.9% + $0.30 vs 4.4% + fixed fee). Lastly, another crucial aspect that a brick and mortar must consider when choosing the right payment gateway is the popularity of the latter in its country combined with its international presence: PayPal leads the race with presence in 203 countries, followed by Stripe (25) and 2checkout (87).

Deal Structure

PayPal offered $4bn to acquire 100% of Honey Science Corporation including its 17 million clients, 30 thousand merchants, data on customer behavior, and its fast-growing revenue that reached $100m in 2018 (about 100% higher than the previous year). The acquisition is expected to be accretive to PayPal’s non-GAAP EPS in 2021.

This is the most expensive acquisition in PayPal’s history, valuing Honey with a P/S at $40 or $235 per user. The price is considered by the public too high for Honey’s current revenue as when Braintree was acquired by PayPal it was paid $800m and now has $17bn in revenues. However, Honey could look cheap in a few years too. Another reason that could explain the high price is the data on customer behavior that Honey will bring along. The deal will be financed completely by PayPal’s cash reserves. Also, as part of the deal which is expected to come through 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 division.

Deal Rationale

Through the strategic acquisition of Honey, PayPal will now be present throughout the whole consumer journey and, most importantly, in the era of customer relevance, the combined entity will own a huge amount of data that will be used by PayPal to enlarge its consumers’ knowledge, in order to better address their potential needs. Many of PayPal’s services are focused on checkout and payments, so acquiring Honey could add value to the customer experience, since they would be able to conduct the entire purchase journey with PayPal. Moreover, PayPal can potentially capture more volume by being present at the beginning of the purchase process, as it could set Honey’s services up to feed into its relevant checkout and payment options.

In order to understand the user along the consumer journey, an organization must have access to three kinds of data: identity data, behavior data and intent data. So far PayPal has always had identity data (which gives information about who the customer is) and behavior data (which gives insights about customer behavior when purchasing something). However, these data only refer to the end of the consumer journey. By acquiring Honey, they now have access to intent data, which means that PayPal will start collecting data about consumers online researches and their intent to purchase something. At the moment, PayPal has a powerful two-sided platform for customer engagement (like Amazon or Facebook) that takes the company beyond the transactional relationship to get the best deals for its customers and engage with them in a personalized way.

The acquisition of Honey will support PayPal and Honey shared mission to simplify and personalize shopping experiences for consumers, while driving conversion and increasing consumer engagement and sales for merchants. The combination will help accelerate growth across both companies, especially in a period in which the transaction process is consistently becoming more technology-intensive after several countries have announced their aim to become completely cash-free, allowing both companies to expand their business in new territories in the future. Honey will accelerate its growth by driving adoption among PayPal and Venmo’s more than 275 million active consumer accounts and sourcing exclusive offers from PayPal’s extensive network of 24 million merchant accounts. On the other hand, Honey will enable PayPal to reach consumers at the beginning of their shopping journeys and will enhance PayPal’s ability to help merchants acquire and convert consumers by delivering offers that are personalized, timely, and optimized across channels.   In addition to its mobile app, Honey offers price-tracking services that notify consumers when a selected product’s price drops, and both can be used by consumers just as they start to make purchases.

This is the largest acquisition of PayPal’s history, which has a remarkable track record of M&A activity: it bought in 2013 Braintree for $800m, which has seen its revenues growing by 54% YoY in 2018; through the acquisition of the latter, PayPal took also control on Venmo, one of the most popular apps for transferring funds mainly among friends.

Market reaction

On November 20th, the day of the announcement of the transaction, PayPal (PYPL) listed on the Nasdaq, was down 2% to $102 a share in after-market trading. What initially caused the drop was a widespread sentiment that the acquisition, standing at close to 20 times forward revenues, was overpriced. Over the subsequent week, PayPal’s shares went back to previous levels and finally touched $107.69 a share on November 28th, a level that was last reached in early September 2019.

On the other hand, no information is available on Honey, which is privately held.

Financial Advisors

Perella Weinberg Partners LP served as sole financial adviser to PayPal. Skadden, Arps, Slate, Meagher & Flom LLP served as Paypal’s legal counsel.

Qatalyst Partners served as sole financial adviser to Honey, while Latham & Watkins, LLP is acting as its legal counsel.


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