Inside PayPal’s Capital Allocation Strategy


Aug. 14 2018, Updated 7:30 a.m. ET

Capital allocation model has three pillars

PayPal’s (PYPL) capital allocation strategy has three main pillars, according to the company’s chief financial officer, John Rainey. These are investing organically, returning cash to shareholders, and acquiring companies that can help drive more growth. In terms of acquisitions, PayPal has been a more active dealmaker in recent months. The company announced four acquisition deals in the second quarter, which is twice as many deals as it inked in all of 2017. The acquisition deals PayPal inked in the second quarter were worth more than $2.7 billion combined, according to the company’s announcements.

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eBay stayed out of deals market

Square (SQ) inked three acquisition deals in the second quarter, while Amazon (AMZN) and Google (GOOGL) inked one deal and two deals, respectively, in that period, according to Crunchbase data. eBay (EBAY), PayPal’s former parent, stayed out of the deals market in the second quarter, but it closed its acquisition of Japanese online marketplace operator Qoo10 in the first quarter.

Balancing merchant and consumer interests

The assets that PayPal acquired in the second quarter are aimed at strengthening the merchant side of the business. However, the company says that it wants to balance its acquisitions, so it could also make acquisitions to strengthen the consumer side of the business as well. PayPal serves about 20 million merchants and over 200 million consumers globally.

PayPal had $6.3 billion in cash at the end of the second quarter after an acquisition spree during the quarter.


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