PayPal's stock slides as a takeover bid is said to fall through. What's next for the company?

By Barbara Kollmeyer and Hannah Pedone

Reports of a takeover offer have propped up PayPal's stock in recent months, but now the company may have to execute a turnaround on its own

An Argus analyst thinks PayPal may have a "strong go-it-alone story."

PayPal Holdings may have to go it alone, as a new report says that a widely discussed potential takeover is now off the table.

Shares of PayPal Holdings (PYPL) are down 12% on Friday after Bloomberg News reported that a consortium led by payments rival Stripe and private-equity firm Advent International has abandoned plans to acquire PayPal. The report cited anonymous sources.

Advent and PayPal declined to comment. Stripe didn't immediately respond to MarketWatch's requests for comment.

The prospect of "no deal" suggests that "the stock and strategy is back in a 'perpetual seesaw,'" Loop Capital Markets analyst Dominick Gabriele told MarketWatch.

PayPal's stock had gained 37% in the three months through Thursday's close, but it was still down 82% from its peak level achieved in July 2021.

Gabriele lowered his price target to $50 from $62 on Friday morning, as his prior target was based on the deal coming to fruition. However, he believes it's only a matter of time before the "next wave of M&A activity begins," referring to mergers and acquisitions.

"Investors knew [PayPal] deserved to be part of another company to make the combined entity stronger and although its platform had so much potential on a standalone basis, it never grew out of its shell," he wrote in a Friday note.

While the stock was an investor darling during the pandemic era, the company has found itself in a more competitive payment-technology market since then. Apple Pay (AAPL) has made meaningful inroads with shoppers, and internet browsers now make it easy for consumers to store their payment credentials online.

William Blair analyst Andrew Jeffrey wrote last month that PayPal's "value proposition and tech stack lag disruptive competitors." And Bernstein's Harshita Rawar said on Friday that the company looks "structurally challenged," largely because its core checkout business "is the cash cow and is under siege from several competitive forces."

PayPal viewed the Stripe-Advent offer as insufficient, and the two sides had been discussing a higher price, the Wall Street Journal reported in August. Michael Burry, the former hedge-fund manager depicted in the book and film "The Big Short," said last month that PayPal's true intrinsic value was between $75 and $115 a share and that a winning bid should be around $100 a share.

Reuters had reported in July that the consortium had come up with an acquisition offer of $60.50 a share, which would have valued PayPal at more than $53 billion.

The company may still have a "strong go-it-alone story," as management has articulated on earnings calls, Argus Research analyst Stephen Biggar told MarketWatch.

He noted that payment volumes have begun to reaccelerate based on a new strategy to focus on three defined market opportunities.

PayPal announced what it called a "strategic reorganization" in April in order to accelerate growth opportunities in the long term and streamline decision-making. The three businesses are Checkout Solutions & PayPal, Consumer Financial Services & Venmo, and Payment Services & Crypto.

Rawat wrote that there are "some obvious improvements in the product that need to be executed upon." She also deemed the Venmo peer-to-peer payment platform to be "seriously under-monetized," although she said the company has been making improvements there.

PayPal delivered an earnings beat last month, and while CEO Enrique Lores didn't comment directly on the Stripe takeover reports, he said the company wouldn't dismiss an acquisition in principle.

"If we see levers or a path that we believe would create superior value for our shareholders than executing our current strategy, we would, of course, carefully consider them," he told investors on the earnings call.

Lores came to PayPal from HP (HPQ), where he was viewed as an architect of the company's 2015 breakup with Hewlett Packard Enterprise (HPE). Since joining in March, he has tried to refocus PayPal on innovation.

-Barbara Kollmeyer -Hannah Pedone

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08-28-26 1100ET