PayPal (PYPL 3.10%) and Pinterest (PINS 3.91%) earned attention recently for attracting stakes from activist investor Elliott Management. Elliott has a reputation for influencing changes at a company, such as eBay's hiring a new CEO and AT&T's divestiture of DirecTV.
Such strategic adjustments suggest that PayPal and Pinterest investments could bring considerable strategic changes. Still, determining which stock would benefit more from Elliott's interest requires an understanding of the companies and their growth potential.
The latest on PayPal and Pinterest
PayPal stock has steadily fallen over the past year. While one can attribute part of the drop to the Nasdaq bear market, investors reacted negatively when the company announced it would emphasize monetization over new account growth. Although PayPal reported positive revenue and total payment volume growth in its latest quarter, the improvements have not helped boost its stock price.
Perhaps Elliott can help address that problem. PayPal CEO Dan Schulman discussed his relationship with Elliott on the fintech's Q2 2022 earnings call. It likely influenced the company's decision to seek $900 million in cost savings regarding both transaction and operating expenses. Schulman also said that PayPal authorized $15 billion worth of share repurchases, and he revealed that the 2023 investor day would bring more strategic updates.
Pinterest's relationship with Elliott also came after a major change had occurred. Co-founder Ben Silbermann stepped down as CEO, and a former executive at Alphabet's Google, Bill Ready, took over.
Although Pinterest had improved its average revenue per user in recent quarters, the lack of growth in monthly active users seemed to frustrate investors. The company likely hired Ready in hopes of making the visual discovery platform more oriented toward e-commerce.
Ready offered few details on Pinterest's Q2 2022 earnings call except to say it's had a "collaborative and engaged dialogue" with Elliott about long-term value creation.
How such deals may affect investors
Investors may find these purchases intriguing, especially since PayPal had explored buying Pinterest before its shareholders balked at that proposal last year. Elliott's addition to the mix may not bring back the proposed merger, but some alliances could result from this interest.
Also, it remains unclear whether Elliott's involvement helps PayPal or Pinterest investors more.
Despite its stock's slightly larger drop over the last year, PayPal offers a more straightforward path to success. It pioneered the fintech industry in many respects and has processed about $660 billion in total payment volume in the first half of 2022. Also, even after its decline, the company's market cap is just under $110 billion.
PayPal has also grown revenue consistently. It increased 21% in 2020 and 18% in 2021 before slowing to 9% by the second quarter of 2022. Additionally, revenue rose 15% in 2019, so it could benefit significantly by returning to pre-pandemic levels.
PayPal's challenges mostly hinge on getting users to turn to the platform more often. The average number of transactions per PayPal account was 48.7, 12% higher than last year. Still, that comes out to less than one transaction per week, indicating significant room for improvement.
Despite PayPal's struggles, Pinterest faces a more significant obstacle. While it claimed 433 million monthly active users (MAUs) in Q2, MAUs fell by 5% versus the year-ago period. It is also far from being the social media leader as Meta Platforms claimed 3.7 billion family monthly active people in the second quarter.
That said, Pinterest, which maintains a $15 billion market cap, may hold a key advantage over Meta and its other competitors thanks to a deeper understanding of its users. On its site, users "pin" items based on their passions. That means the company definitively knows its users' interests and can tailor ads and purchase suggestions exclusively around those interests.
Pinterest increased revenue by 48% in 2020, and another 52% in 2021, before revenue growth slowed to 9% by the second quarter of 2022. It even grew revenue by 51% in 2019, before a pandemic had boosted online activity. If the company can return to its previous growth numbers, the stock could experience huge gains.
Should I consider PayPal or Pinterest?
If past investments are any indication, Elliott's interest in both PayPal and Pinterest could drive positive returns for both stocks.
However, investors should refrain from changing investment philosophies. Of the two, PayPal holds a stronger relative position in its industry, an indication that more conservative investors should choose the fintech stock.
Pinterest is a comparatively minor player among social media stocks. Still, its 433 million users could have significant potential if management properly monetizes the platform. That gives risk-tolerant investors an incentive to at least take a speculative position.
