Venmo – PayPal’s crown jewel – built its network on Facebook’s back. Facebook (tkr: FB) ought to move to acquire PayPal (tkr: PYPL).
Venmo is perhaps the most user-friendly Peer-to-Peer (“P2P”) payment service in large part due to its Facebook integration which makes it easy for users to connect and transact with each other. Connect to a Facebook friend on Venmo and you are ready to make digital payments. Venmo users may extend an invitation to connect with some or all Facebook friends with one click. This low-friction user experience has enabled Venmo to become the leading P2P offering to the benefit of parent company PayPal.
Meanwhile, Facebook recently rolled out its Facebook Pay service in mid-November. For the past couple of years we have advocated that Facebook take an aggressive approach toward building a significant payments business. Acquiring PayPal would enable Facebook to quickly gain traction and overcome potential obstacles. The largest obstacle we anticipate regarding Facebook Pay adoption will be convincing users to share even more personal data with the company despite its historically cavalier approach to user privacy.
What PayPal brings to the table:
1.) Were Facebook to acquire PayPal it would immediately become a top Fintech / payments company in both traditional e-commerce as well as P2P.
2.) Facebook would become an immediate threat to traditional depository institutions.
3.) Owning PayPal would make it substantially easier for Facebook to successfully launch its cryptocurrency initiative – Calibra.
PayPal by the numbers:
- $18 billion revenue run rate;
- $4 billion-plus cash flow run rate;
- 295 million active accounts, up 16%;
- 3.1 billion payment transactions in the most recent quarter, up 25%;
- $179 billion Total Payment Volume (“TPV”), up 27% (fx neutral);
- P2P volume up 39% to $51 billion or 28% of TPV;
- Venmo processed more than $27 billion of TPV in the quarter, up 64%.
Our other advice for Facebook? Hire former PayPal COO Bill Ready in an advisory or operating capacity.