Tesla (NASDAQ:TSLA) raises the price of certain models and strikes a $4.2 billion deal with Hertz. Wells Fargo (NYSE:WFC) gets ready to roll out a new virtual assistant named “Fargo.” Motley Fool analyst Asit Sharma analyzes those stories and shares why he thinks mini candy bars are underrated at Halloween.
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This video was recorded on Oct. 25, 2021.
Chris Hill: It’s Monday, October 25th. Welcome to Market Foolery. I’m Chris Hill. With me today, Mr. Asit Sharma. Thanks for being here.
Asit Sharma: Chris, thanks as always for having me. Excited to be with you today.
Chris Hill: We’ve got the latest in banking innovation, we’ve got Tesla’s new high. We’re going to start with the unraveling of last week’s big deal. PayPal (NASDAQ:PYPL) issued a statement saying the company is “Not pursuing an acquisition of Pinterest (NYSE:PINS) at this time.” This is in response to reports last week that PayPal was preparing to spend up to $45 billion to buy Pinterest. The deal is now off and shares are reacting accordingly, I would say. PayPal up about five percent, Pinterest down about 13 percent. Where do you want to start with is? Because we were talking right before we started recording here, there are a bunch of different ways we could go, but where do you want to start?
Asit Sharma: I want to start Chris, with the idea that PayPal might have had an interest in Pinterest. Stock was initially down when the potential of a deal was announced, not announced but leaked out last week. PayPal stock is up today. Shareholders are obviously relieved. I think I’m in the minority because I actually believe the deal would have had some potential. PayPal has very quietly added another layer to its stock. They started with payments and payments processing few years ago. They added in financial services like debit cards, direct deposit, buy now pay later of course. Of course, they have the merchant services end, which focuses on helping merchants get the most out of their business. But they added on shopping tools and marketing tools. They’ve done this over the last few quarters. Now, they’ve got things like Droplets, which is a technology that sends you an email if you like something online but the price is too high. That technology lets you know when it might be time to buy. On the marketing tools side, they have what they call Deals Engine to help merchants really try to find customers and convert them in the shopping cart. Especially significant is investment in Honey, the e-couponing add-on for different browsers, which helps you find the best price or the best coupon to get a deal. All this technology which the company is still investing in, leads to a really powerful way to make sure that buyers are going to ultimately convert when they hit a site.
Pinterest’s website is set up to benefit from this technology. It takes you from a page on the site all the way through to the advertisers part where they are going to try to convert you. I thought that PayPal was really well suited for this. I saw some great potential. It doesn’t make sense on a first glance. But when you start thinking about how the company wants to be the super app, it begins to make more sense. Now, on Pinterest’s side, I know this has been discussed a lot and Chris, you’ve recently talked about this last week. I think this is good for Pinterest shareholders because a PayPal acquisition would have taken their potential to grow out of the hands of public investors and the ability to reap rewards from that. But they are at a crossroad. Co-founder Evan Sharp recently announced his departure from the company. Also this last earnings report that we had from Pinterest showed some slowdown from a really great COVID pull. They too are here at this liminal space where if you’re a shareholder, you’re happy maybe today that the deal isn’t going to go through, but you’re wondering, what now? When are we going to pick up some momentum guys for the stock price to reflect some business momentum?
Chris Hill: I like the way you framed it with Pinterest being at a crossroad because I think you’re absolutely right. This is a business that early on, there were legitimate questions, particularly from the marketing industry, from people, media directors who control advertising budgets. They are looking at Pinterest saying, well, why would I spend money on this platform as opposed to other known quantities like radio, television, online, Facebook, Google, all that thing. Pinterest methodically answered those questions over the years. But they’re at a crossroads, I would say maybe five years ago in trying to convince the marketing industry that this was a good place to spend their money. As you said, they are at another crossroad now. I think that Dan Schulman who runs PayPal has so much credibility in part because of the acquisitions he’s made over the years. I think that’s why PayPal shares only dropped to the degree that, they did drop last week. But I think if it was someone else, if there was a new CEO, it was not someone with Dan Schulman’s track record. I think PayPal shares would’ve been down twice as much as they were. As you said, I think what we’re seeing at least when it comes PayPal some measure of relief. It’s like look, Dan, you’ve done such an amazing job for so many reasons, including the acquisitions, $45 billion is a lot of money and we’re happy that you’re not pursuing this acquisition at this time.
Asit Sharma: Exactly. Now Dan, if you bring us a $22 billion acquisition, we won’t even blink.
Chris Hill: Right.
Asit Sharma: I totally agree with you, Chris. If listeners are interested, this is a great exercise. You can find us online on PayPal’s Investor Relations website. Go back to their February 2021 investor presentation. There’s a video where Dan Schulman lays out the vision for the next several years. It’s a great half an hour, well worth the time spent if you own shares. But the vision he lays out shows you that there are a number of companies PayPal could acquire on its way to becoming a super app. This may not be the last big news of a potential acquisition that we hear. You’re so right, from investing in MercadoLibre to buying so many small companies that really helped that engine grow. I mentioned Honey is just one of those. They have a great track record of capital allocations. I think investors would have given the company a pass, but relief is probably the flavor of the day today.
Chris Hill: Last thing before we move on. Shares of Pinterest, as of right now, are about 12 percent lower than they were before reports of the deal. They spiked last week on reports of the deal. They haven’t returned to where they were. They’ve gone lower. Do you look at Pinterest even though they’re at a crossroads, do you look at it now and think you could do a lot worse if you’re looking for an entry point?
Asit Sharma: Sure. Pinterest has such a huge platform. It’s got actually a much bigger global user base than PayPal does in terms of its customers. I believe that Pinterest is starting to look really attractive here. They monetize their international users at a fraction of how they monetize North American users. There is a lot of wide space for this company to grow. The road obviously it’s going to be a bit bumpy here. I think we’ll still have some post COVID effects in our next earnings report. But it’s starting to look attractive for that reason. Now, by traditional valuation metrics, does it still look pricey? Yes, but you’re getting a discount here for a company that easily will be a vibrant platform business over the next 3-5 years. It’s worth considering it at these prices in my opinion.