A potential Pinterest acquisition would bring PayPal hundreds of millions of new users but carries risk.

Photo:

fabrizio bensch/Reuters

Shares of

PayPal Holdings Inc.


PYPL -5.86%

fell 5.9% Thursday, a sign that investors have doubts about the company’s potential purchase of

Pinterest Inc.


PINS -2.12%

Shares dropped $15.15 to $243.21. That was on top of a 4.9% drop on Wednesday, after news of a potential deal. In two days, PayPal lost more than $30 billion in market value.

Pinterest shares fell 2.1%. They had jumped 13% Wednesday.

PayPal’s history of turning acquisitions into profit drivers is mixed. As part of a 2013 acquisition of another company, PayPal took over Venmo and gained access to its base of millions of young users. Almost a decade later, Venmo still hasn’t turned a profit for its parent company, though executives have said they expect it to next year.

A potential Pinterest acquisition would bring PayPal hundreds of millions of new users and help it meet its target of doubling the number of PayPal active accounts to 750 million by 2025. But it carries “significant execution risk” and could also alienate other merchant platforms that are already PayPal customers and that view Pinterest as a competitor, said

Lisa Ellis,

an analyst at MoffettNathanson, in a research note.

Under Chief Executive

Dan Schulman,

PayPal has tried to adapt into a service that helps users find new items to buy online rather than just helping them pay for ones they already identified. Adding shopping tools is part of a larger strategy to make PayPal a “super-app” that combines payments, e-commerce, banking, borrowing and investing. That would also potentially deepen PayPal’s ties to users and lead to more sales at PayPal merchants.

A similar motivation was part of the rationale for

Square Inc.’s

$29 billion deal for

Afterpay Ltd.

Square announced in August that it plans to acquire the buy-now-pay-later company. Afterpay’s technology allows users to pay for goods in installments but receive them instantly.

In that deal, Square’s Cash App would integrate with Afterpay and introduce the more than 70 million Cash App users to items they might want to buy at Afterpay merchants. Square executives cited the roughly 1 million referrals a day that Afterpay’s app sent to retailers as evidence that the company propelled higher sales at merchants that accept it.

Pinterest has less of a record in e-commerce. It generates most of its revenue from advertising, not shopping. PayPal would have to spend resources to help make Pinterest into a commerce platform while also integrating it with PayPal’s other properties. Jefferies analyst

Trevor Williams

wrote that PayPal potentially acquiring Pinterest looked “reactive” to the Square-Afterpay deal “while bringing fewer obvious revenue synergies.”

This week’s decline in PayPal’s shares could make pulling off a transaction harder given that much of the consideration would be its own stock. With a lower price, PayPal would likely have to hand a larger portion of its shares to Pinterest investors. The worse-than-expected stock reaction has complicated discussions and could put the deal in jeopardy, though it is too early to tell, a person familiar with the matter said.

Write to Peter Rudegeair at Peter.Rudegeair@wsj.com

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