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Here's Why I'm Glad the PayPal-Pinterest Acquisition Fell Through

By Matthew Frankel, CFP® and Jason Hall – Nov 7, 2021 at 7:03AM

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Even though Pinterest shares are down, I'm still happy it's staying a stand-alone business for now.

After the news broke that PayPal Holdings (PYPL 2.16%) is no longer pursuing an acquisition of Pinterest (PINS 0.96%), shares of the latter plunged. However, not all investors are necessarily upset about the outcome. In this Fool Live video clip, recorded on Oct. 21, Fool.com contributor Matt Frankel explains to colleague Jason Hall why he wants to continue to own Pinterest shares going forward. 

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Matt Frankel: I will give the Pinterest perspective here. I used to be a shareholder of Slack before it was acquired by Salesforce (NYSE: CRM). I made a quick 30% premium when they announced the acquisition. In that case, I was fine taking the money and deploying it into other opportunities. That's generally how I think of investments if I expect them to do 12% to 15% annualized returns over the long run, if someone wants to come along and buy it out for more than the shares are trading for now, I'm generally happy taking the money and finding other opportunities. There are 10,000 publicly traded stocks I can find somewhere else to put it to work.

I generally don't feel that way when the stock being acquired, I feel like has say 10-bagger potential like I think Pinterest does, when your acquirer does not. PayPal, no matter how successful Pinterest is under its banner, is not going to be a 10-bagger from here. That would be a $3 trillion company. Crazier things have happened but Pinterest on its own could be a 10-bagger within a decade hands down and that's when I don't like when my stocks get acquired, when it's one growth dynamic versus another one.

Jason Hall: I want to point out one other thing, too. Guys, I'm going to, I'm going to share a screen because I think this is one where the image, I think really it says a tremendous amount. It's not like Pinterest is starved for resources. Like I said, you see here in the purple, in the yellow. The purple is operating cash flow $383 million over the past 12 months, $374 million in free cash flow, $2 billion in cash on the books and the company has no debt. This isn't like Pinterest is starved for resources that it needs to try to reinvest in growth. That's the thing to me. That's just so puzzling, it leads me to think, somebody inside's ready to sell the business, somebody's ready to move on. That's the only thing I can figure.

Matthew Frankel, CFP® owns shares of Pinterest. The Motley Fool owns shares of and recommends PayPal Holdings, Pinterest, and Salesforce.com. The Motley Fool recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

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