PayPal news: why its $4bn takeover of Honey Science may be genius
The e-commerce giant has just paid 20 times revenue for a little-known browser add-on – and it could turn into a cash cow.
It is one of the most significant pieces of PayPal news this year: the acquisition of Honey Science for $4bn (£3.09bn).
Honey Science is a relatively new business that aims to make it easier for online shoppers to use digital coupons. Its tool, which works as an extension to Chrome browsers, automatically scours the internet for bargains – and alerts customers when a deal they that interests them is found.
Since launching in 2012, the privately held start-up says it has amassed 17 million monthly active users, with 30,000 retailers offering discounts and rewards. Over the past 12 months, savvy shoppers have apparently saved more than $1bn. Walmart, Booking.com, Dell, AliExpress and Expedia are among the big hitters partnered with Honey.
By coming under PayPal’s wing, Honey could now branch out into millions of retailers and multiply its user base dozens of times over. So how have analysts reacted to the PayPal investment news?
Honey, I shrunk the cash pile
Immediately after PayPal’s announcement on November 20, the markets were not kind. By the end of trading, shares had fallen by 2 per cent. You could argue that investors were wary of the deal, which is the e-commerce giant’s biggest-ever acquisition – and sceptical over whether the company is worth 20 times revenue.
iZettle had been PayPal’s largest purchase,costing $2.2bn in May 2018. That takeover was a shrewd call, given how the Swedish start-up was a major rival in providing points of sale and card readers to small businesses.
Don’t think PayPal’s main motivation is helping users to save money. As so often these days, this deal has been driven by data. Honey’s browser extension provides a treasure trove of information on users’ behaviour, showing their decision-making process and the sites they visit the most.
All of this can be monetised and used to give shoppers a much more personalised experience. It also helps PayPal play a bigger part in the online shopping process. As the payment processing giant said, the deal “will transform the shopping experience for PayPal’s customers while increasing sales and customer engagement for its merchants.”
What does the future look like?
Some hurdles could stand in the way of PayPal and Honey flourishing when the deal is finalised early in 2020. First off, there are growing concerns about privacy and data use – shoppers are becoming wiser about how their browsing habits are used. Some consumers may be happy to have their data harvested if it means larger discounts on a pair of shoes or a new television, but others might be more cautious. Honey appears to have been careful to ensure its technology doesn’t overstep into the dangerous world of exploitation, and says its Chrome extension doesn’t monitor search engine activity or browsing history.
Second, PayPal faces stiff competition in the payments space. Apple has gobbled up a large portion of the mobile market through Apple Pay, and new entrants pop up all the time. PayPal has been in the business for more than 20 years and must fight to remain technologically relevant and appealing to its base of 295 million users worldwide.
Honey’s user base suggests that it would be a powerful addition to PayPal’s portfolio – giving the e-commerce giant an advantage over rivals. Statistics suggest that 70 per cent of Honey users are millennials (born between 1981 and 1996), 79 per cent women and most based in the US.
Time will tell whether PayPal was right to make a beeline for Honey, or whether it will be stung by the big price tag.
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