(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)
By Karen Kwok
NEW YORK, July 15 (Reuters Breakingviews) - Stripe's digital deal wallet is a little light. The financial plumbing enterprise and buyout shop Advent have offered to jointly buy PayPal for $53 billion. It's a welcome lifeline for the struggling owner of Venmo and other payment processing systems, but CEO Enrique Lores can also push the suitors to dig deeper.
At $60.50 a share, the takeover price reported
by Reuters represents a 27% premium to where PayPal stock closed on Tuesday. Stripe and Advent are valuing PayPal at about 9 times the free cash flow analysts expect it to generate in 2026, according to estimates gathered by Visible Alpha.
The bid looks stingy. A broader peer group, including Fiserv, Block and Adyen, trades at about 16 times expected 2026 free cash flow. Stripe, last valued privately at about $160 billion, itself looks far pricier: it generated roughly $3 billion of free cash flow last year, Bernstein analysts reckon, implying a valuation multiple of more than 50 times.
There is room for Stripe and Advent to pay more. Assume the duo raises its offer to $70 per share, or $62 billion in market value. PayPal is on track to generate an estimated $6.4 billion of operating income in 2027. Previous deals involving peers First Data, Worldpay and others have promised cost savings worth about 10% of the target's operating expenses, which would equal some $900 million in this case. Tax the combined $7.3 billion at 20% and the buyers would earn a theoretical return of about 9.5%. PayPal's weighted average cost of capital is 8.9%, per Morningstar analysts.
Although the financial returns look promising, the risks would grow, too. PayPal's balance sheet carries little net debt, making space for the $50 billion of bank financing available, as reported by Reuters. Paying $70 a share, or 15% more than the existing entry, would load the company with debt of over 7 times EBITDA, shrinking the room for error.
It would also accentuate the strategic challenges. Businesses using Stripe processed $1.9 trillion of payments last year, up 34% from 2024. PayPal's volume reached $1.8 trillion, representing only 7% growth. Integrating or upgrading PayPal's legacy technology would take time and money, while acquiring consumer-facing services such as Venmo could irritate Stripe customers like Shopify.
The prospects are nevertheless alluring. PayPal would help broaden Stripe, adding buy-now-pay-later products, debit cards, wallets and stablecoins. It also could improve its chances in agentic commerce, a market Morgan Stanley analysts estimate will reach $385 billion by 2030. Stripe will probably have to shell out more money for the privilege, but it also knows all too well the dangers of financial friction.
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CONTEXT NEWS
Payments company Stripe and private equity firm Advent International have made a joint bid to buy PayPal for $60.50 per share, in a deal that would value the payments company at more than $53 billion, Reuters reported on July 14, citing unnamed sources.
The offer, submitted earlier in July, is backed by about $50 billion in committed financing from banks, one of the sources told Reuters.
The proposal, which has not received a response, follows an initial approach made in early April, according to the report. Stripe and Advent would each own equal stakes in PayPal, it added.
(Editing by Jeffrey Goldfarb; Production by Maya Nandhini)
