Shares of PayPal Holdings Inc. and Pinterest Inc. diverged this week after Bloomberg News reported the legacy payments giant is considering acquiring Pinterest for $45 billion.
PayPal shares were down 9.4% week to date as of Oct. 21, while shares of the image sharing platform soared 16.5%. The drop in PayPal shares reflects investor concerns over PayPal's ability to turn a profit from such acquisitions. PayPal in 2013 acquired Venmo LLC, but the social payment platform has yet to yield significant returns for its parent, despite launching cryptocurrency payment options in April.
If successfully integrated, Pinterest has the potential to strengthen PayPal's value proposition and differentiate PayPal from other checkout options, MoffettNathanson analyst Lisa Ellis said in an Oct. 21 note. However, effective integration of the two platforms may distract the company from expanding internationally or further breaking into digital banking.
"Given the number of (arguably lower risk) growth vectors available to PayPal (e.g., international expansion, digital banking, new payment flows), a $45 B capital allocation to expand into online advertising carries a weighty opportunity cost," Ellis said.
Pinterest makes a majority of its money through advertising, meaning PayPal may invest in gearing Pinterest towards an e-commerce environment, should the deal come to fruition. Still, the stock market's reaction to the potential deal has complicated discussions and could put the deal in jeopardy, The Wall Street Journal reported, citing a person familiar with the matter.
PayPal closed at $243.21 per share on Oct. 21, while Pinterest shares closed at $61.35.
In social media, Facebook Inc. rose during the week as investors gear up for the company's third-quarter earnings Oct. 25.
Analysts will be looking to see whether Apple Inc.'s Identifier for Advertisers, or IDFA policies, impact Facebook's ad revenues. The consumer electronics giant's iOS 14 update that rolled out in April requires apps to seek users' permission to collect and share user data, a move widely expected to impact targeted mobile advertising.
Snap Inc. said Oct. 21 that its advertising business was disrupted by Apple's privacy changes. Snap CFO Derek Andersen warned that the iOS privacy changes would persist as headwinds in the fourth quarter, along with supply chain issues and labor shortages. Snap's news caused many tech stocks to retreat on Oct. 22, including Facebook.
Facebook closed at $341.88 on Oct. 21, up 5.3% week to date — gains that were largely lost with the drop on Oct. 22.
In streaming, Netflix Inc. shares ended Oct. 21 up nearly 4% week to date after the company beat third-quarter Wall Street expectations.
The streaming platform said on its Oct. 19 earnings call that the company has a massive content slate planned for the fourth quarter, with its current crown jewel "Squid Game" already driving viewership and platform adoption.
Some analysts agreed with executives' optimistic forward-looking predictions, but others remain suspicious of the company's valuation as it attempts to expand into gaming and other cross-marketing plans.
Netflix closed Oct. 21 at $653.16 per share.
In communications, Verizon Communications Inc. notched slight gain this week after reporting its third-quarter earnings Oct. 20.
Verizon reported consolidated revenues of $32.9 billion for the quarter ending Sept. 30, just below the S&P Capital IQ consensus estimate of $33.2 billion. Still, analysts were pleased with the telco's wireless and Fios net additions.
"Verizon reported a solid set of results," New Street Research analyst Jonathan Chaplin said in a note, citing not only the company's net additions but also its better-than-expected margins.
"While we think weakness in [average revenue per user] may reflect underlying competition, there is little to quibble with, especially given Verizon has pulled back on its promotions," Chaplin added. He maintained Verizon at a "neutral" rating with a price target of $52.
Verizon closed Oct. 21 at $53.39 per share, up 2% for the week-to-date.
The S&P 500 closed at 4,549.78, up 1.75% for the week-to-date as the U.S. Labor Department reported pandemic-era record low jobless claims of 290,000 on Oct. 21, beating economist expectations.