PayPal Holdings Inc. will purchase Honey Science Corp., the company's biggest transaction ever, for about $4 billion, introducing a start-up that gathers valuable data on customer buying habits.
Using Honey apps or web browser extensions, about 17 million people find discounts at online shopping sites. PayPal said in a statement that the startup was profitable in 2018. In extended trading, shares of the giant payments were little changed.
Honey is priced at almost double what PayPal charged for its next biggest purchase, iZettle, the Swedish small business service provider it acquired in 2018, which is this year's first big takeover.
Chief Executive Dan Schulman has pointed out that PayPal, with more than $10 billion in cash, is on the hunt for more deals following last year's string of takeovers including Hyperwallet and Simility.
"You can expect us to move forward acquisitively," Schulman said this summer at a conference call with analysts. PayPal looks at hundreds of potential quarterly deals and sees them as a way to expand globally and speed up new product development, he said. Schulman defined acquisitions as "a continuous part of who we are."
Founded in 2012, Honey will retain its base in Los Angeles, and the founders will continue to run the company. The services of the company include a browser extension that applies coupons on e-commerce sites automatically.
PayPal said in a statement that the strengths of Honey will provide its consumers with a better shopping experience and help retailers drive sales, with more timely and customized deals also.
BTIG analyst Mark Palmer said the deal would help PayPal make "significant progress" towards becoming more user-relevant. It could also provide a justification for consumers and retailers to choose PayPal "in the face of increasing pressure from tech firms like Facebook Pay."
Honey has access to large amounts of customer data as a shopping-focused browser extension. Moffett Nathanson analyst Lisa Ellis said PayPal typically uses this data for reasons such as avoidance of fraud. She said that if the combined company had to have a privacy issue with information that restricted its use, certain features could be curtailed, such as personalized promotions.
Meanwhile, PayPal's investments in the next five years might potentially increase. If PayPal can maintain its 20 percent share of a global e-commerce industry which is set to grow by more than 85 percent by the end of 2023, its profits will increase by at least the same amount.
