Five years ago, PayPal was one of Wall Street's favorite companies and a pioneer in digital payments. But since then, its stock has declined sharply, at a time when Apple Pay has come to dominate payment services in the United States, while PayPal now faces an unwanted acquisition offer.

What awaits the company in the next phase?

The company, whose name has become synonymous with digital payments in recent years, received a $53 billion offer this week to go private from its startup competitor Stripe and acquisition investment firm Advent International. PayPal's board is discussing the offer, but believes the price of $60.50 per share is insufficient, according to people familiar with the matter.

That represents a major decline for a company that helped pioneer e-commerce and email payments, and also contributed to the rise of several technology giants, including Elon Musk and Peter Thiel.

The company was founded in 1998 in San Jose, California, and was acquired by eBay in 2002, before spinning off to become an independent company in 2015. Its continued growth pushed its market value to a record high of $360 billion in 2021.

But since then, the company's growth has slowed and competition has intensified, while multiple attempts in recent years to revitalize its business have not achieved the desired results.

Acquisition dealmakers are currently assessing the value of PayPal's extensive payments ecosystem, ranging from more than 400 million consumer accounts to merchant payment services; raising questions about whether the company is worth more as a single entity or as a collection of assets that could be sold separately, such as the peer-to-peer payment app Venmo.

In February, when the company announced the appointment of a new CEO, it acknowledged the need to address its position relative to competitors and the broader industry landscape.

The company said in a statement: "Despite making some progress in a number of areas over the past two years, the pace of change and execution has not been aligned with the board's expectations."

Enrique Lores, who took over as CEO in March, did not comment on whether PayPal would seek to sell the company.

PayPal logo in this illustration (Reuters)

PayPal Misses New Market Opportunities

While larger companies like Apple, Google, and Samsung, along with startups like Stripe and Affirm, have continuously introduced new ways for consumers and businesses to pay for goods and services, analysts say PayPal has been slow to explore opportunities in digital banking and e-commerce, or to offer new options as phone usage for payments grows.

Dan Dolev, senior analyst at Mizuho, said: "Why bother becoming a digital bank if you can be the biggest payment button in the world? I think it was too easy; PayPal was content with reaping returns from its payment platform."

A source familiar with the company's discussions said investors and industry executives are frustrated with PayPal's performance.

PayPal started its business before the iPhone existed, yet Apple Pay's share of the U.S. payments market surpassed PayPal's last year by 10 percentage points, according to research firm Bymnts Intelligence.

PayPal also lagged behind many of its competitors in adopting artificial intelligence and expanding into agent-based commerce, where AI tools negotiate and complete purchases on behalf of the user.

Owen Lau, an analyst at financial services firm Cleer Street in New York, said PayPal focused on gaining market share through competitive pricing, but failed to charge enough fees to generate attractive returns.

Cleer Street initiated coverage of PayPal stock this week with a 'Hold' rating, setting a target price of $61 per share, compared to the stock's closing price of $57.09 on Friday.

Lau added that growth has slowed in key parts of the company's business, including Venmo, while newer products like the 'Buy Now, Pay Later' service have not met expectations.

He noted that PayPal's user base has stabilized, making it more important to focus on increasing profits from existing customers than pursuing growth.

He said: "They just want to win market share. They don't charge the right prices, and they are losing momentum in other parts of their business."

The company has had three CEOs in four years, and in March began a second attempt to restructure its business since former CEO Dan Schulman stepped down in 2023.

Competing Offers Seem Unlikely

A tech executive familiar with the matter said an agreement last year with OpenAI to integrate PayPal's digital wallet and processing services into ChatGPT caused a rift between the board and the executive team led by Alex Chris, the CEO who succeeded Schulman.

Chris left his post after Lores was appointed, following the board's request to postpone the agreement.

However, it is unlikely that PayPal's board would support a $53 billion deal, according to another person familiar with the matter.

The source said some board-level discussions focused on whether the offer was even worth opening negotiations. He added that the board is considering whether the company might be worth more based on its ability to achieve the goals of the latest turnaround plan.

The sources spoke on condition of anonymity to discuss private deliberations.

Wall Street analysts believe Stripe and Advent International have the capacity to pay a larger amount and may raise the offer.

The two companies have raised $17 billion in capital, according to Reuters, and have also secured $50 billion in bank financing, which could give them the ability to increase the offer.

The buyers' decisions on price may be partly influenced by what PayPal announces this month when it releases its quarterly results; a weak report could increase pressure on the company, while a strong report could encourage a higher offer.

Nevertheless, competing acquisition offers for PayPal seem unlikely.

Morgan Stanley analysts said last week that Stripe and Advent International's offer represents 'the most credible path to value realization' for PayPal, which faces strong competition in the digital wallet space and declining customer base growth.