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Tuesday, November 26, 2019

Sweet Honey deal set to expand PayPal’s reach

PayPal just paid $4 billion for Honey Science, a technology firm that develops browser add-ons that automatically find and apply coupon codes for member shoppers at participating online stores. Honey claims 17 million monthly active users worldwide and an online merchant base in excess 30,000.

The acquisition will solidify PayPal’s position with online merchants and shoppers. More importantly, it signals that PayPal is willing to spend big as it charts a course to “democratize” the shopping experience. The acquisition cost works out to about $235 per active Honey user.

Retaining leadership, branding

Honey’s co-founders, George Ruan and Ryan Hudson, referenced the value of the deal in a blog post. “PayPal’s mission is to democratize financial services and empower everyone to improve their financial health, one that aligns closely with ours,” they wrote. “Together we will be able to build powerful tools that have meaningful financial impact on people’s day-to-day lives.”

Ruan and Hudson will continue to lead the Honey team, which will continue to operate under its brand name within the global consumer product and technology organization, PayPal said in a statement.

Positioning to compete

PayPal reports 275 million active users on its platform, and chances are there is plenty of overlap with Honey’s 30,000 monthly users. But the acquisition isn’t about adding users. It’s about broadening functionality to better compete with tech companies like Apple, which has been making significant inroads into the payments space.

In an Oct. 30, 2019, earnings call, Apple’s CEO Tim Cook reported “record revenues from payment services” for the company’s fourth quarter. Revenue and transaction numbers “more than doubled year-over-year,” he said. In all, Apple Pay logged over 3 billion transactions for the three months ending Sept. 30, “exceeding PayPal’s number of transactions and growing four times as fast,” Cook claimed.

For its part, PayPal reported 3.1 billion transactions for the quarter ending Sept. 30. Total payment value for the quarter was $179 billion, a 25 percent increase over the same quarter of 2018. Merchant services income was up 31 percent, PayPal reported, and person-to-person payments grew 39 percent to $51 billion.

“Honey is amongst the most transformative acquisitions in PayPal’s history. It provides a broad portfolio of services to simplify the consumer shopping experience, while at the same time making it more affordable and rewarding,” PayPal CEO Dan Schulman said of the acquisition.

Driving engagement

The combination of Honey’s complementary consumer products with our platform will significantly enhance our ability to drive engagement and play a more meaningful role in the daily lives of our consumers. And it will help merchants build and retain customers, he added. “The combination of Honey and PayPal adds another significant and meaningful dimension to our two-sided platform,” he said.

Since its founding in 2012, Los Angeles-based Honey has been a major disruptor in the retail space, where retailers traditionally used coupons to drive sales of items they wanted to push. Honey puts shoppers in the driver’s seat, tailoring deals and coupons to each shopper’s unique preferences.

Tailored coupons and offers automatically pop up whenever shoppers view items at participating websites. Plus, users/members can request alerts when the price on an item they’ve been viewing online drops, or when it becomes available elsewhere at a lower price. The company reported that it helped consumers “find more than $1 billion in savings the past year.”

Honey isn’t a public company, so detailed financial statements aren’t available. But PayPal stated in its announcement that “Honey was profitable on a net income basis in 2018.” PayPal also hinted that the deal could weigh on its balance sheet. “The acquisition is expected to be accretive to PayPal’s non-GAAP earnings per share in 2021,” the company stated. The deal is expected to close early next year. end of article

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