Wednesday, Nov 20th 2019

PayPal Acquires Honey in Landmark $4bn Deal


The landmark deal represents PayPal's commitment to constantly evolving the consumer payments experience.

On Wednesday after hours, PayPal announced that it was acquiring popular savings-automation browser extension Honey for an impressive $4 billion - its largest acquisition ever.

Honey is a free browser extension that is best known for its savings discovery function, which automatically finds and applies discounts and coupon codes across thousands of retail websites for all of its users.

The deal values every current Honey monthly active user at $235 each and we believe signals PayPal's commitment to growing user engagement on its platforms, so as to improve its value proposition to merchants and consumers alike.

Surprisingly, the deal also benefits PayPal's bottom line over the near-term. Unlike many fast-growing startups, Honey is already profitable and the deal is expected to increase PayPal's earnings per share as early as 2021.

While the value of the check seems high at face value, we think the price ultimately came down to "build vs. buy" math, and we believe Honey arguably is worth a lot more in PayPal's hands than anyone else's given PayPal's dominant exposure to consumer/ecommerce payments.

In fact, we've seen hints at just such a move in the types of promotional experiments PayPal has run across both its platforms this past year.

For example, PayPal has already begun experimenting with offering coupon codes from branded partners like Neiman Marcus directly inside its credit card platform.

Venmo has similarly experimented with offering "direct-to-consumer" brand partnerships, and currently powers both Chipotle and Pepsi's nascent consumer loyalty programs, both of which function by sending cash directly into consumers' Venmo accounts (and social payment feeds).

It's not too difficult to see how Honey's browser-based model might fit in there, and on PayPal's scale, with a merchant base orders of magnitude larger than Honey's, we think Honey could see its headline growth accelerate tremendously under the new corporate umbrella.

As of this writing, PYPL was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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