PayPal responds to Stripe's $53 billion offer: willing to consider it, but not at that valuation.

      PayPal has finally responded to the $53 billion offer it received, indicating that it won't accept the bid at the proposed price. During the Q2 earnings call on Tuesday, the company provided its first public statement concerning the situation, which coincided with a positive earnings report. Chief Executive Enrique Lores refrained from directly commenting on the bid from Stripe and Advent, stating that PayPal would "carefully consider" any options that would deliver "superior value for our shareholders compared to our current strategy." He made it clear that he did not believe Stripe’s offer met that standard.

      PayPal had already dismissed the offer as insufficient, and the latest results allowed it to maintain that stance. Stripe and Advent's proposal is for $60.50 per share. On his LinkedIn account, Lores expressed he was "encouraged by the progress" and held "strong conviction in our direction."

      He has a valuation point to reference. Cantor estimates PayPal's worth closer to $70 per share, which is significantly higher than the offer, with the stock currently trading around $58. Even from a favorable perspective, $60.50 appears to undervalue the company if it successfully executes its turnaround.

      Support from financial results

      The recent financial results provided validation. Revenue increased by 5% to $8.68 billion, surpassing expectations, and adjusted earnings of $1.38 per share exceeded the anticipated $1.28 from analysts. Although net income decreased to $1.1 billion, PayPal raised its full-year outlook, predicting that an important profit measure will rise this year instead of decline, according to the Wall Street Journal.

      However, there is a caveat. Transaction-margin dollars only increased by 1% due to decreasing interest on customer balances as rates softened. Excluding this factor, the underlying figure grew by around 3%. The payments sector performed slightly better than the overall headlines suggested, leading to a nearly 4% rise in shares.

      The trust needed in the strategy

      All of this hinges on a turnaround that is still ongoing. Lores has reorganized PayPal into three divisions, aiming for $1.5 billion in savings over the next two to three years, while laying off about 20% of its workforce and integrating AI into coding, support, and risk management. He refers to this as "improving execution."

      The challenge lies in the ask. PayPal has not initiated a public auction, which is typically the method to establish the true price. Instead, it is asking shareholders to have faith in its strategy. As noted by Martin Peers from The Information, this is a significant request from a board that holds approximately 0.6% of the company’s shares, especially as the stock has plummeted nearly 80% since 2021 and with a CEO who took office in March and has no prior experience in running a payments company.

      The irony of Stripe

      The bidder, Stripe, is the competitor that contributed to PayPal's struggles. Stripe is financially strong and actively pursuing acquisitions, aligning with a broader trend of consolidation in the payments sector. For a company looking to transform online monetary transactions, acquiring the incumbent would represent a shortcut. However, for now, PayPal prefers to rely on itself and challenges Stripe to increase its offer.