Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
Why PayPal’s Acquisition of Rewards Platform Honey Is a Big Deal
Fortune | Polina Marinova | Nov 21, 2019
PayPal’s got a lot going on.
It has agreed to acquire Honey, a Los Angeles-based provider of a deal-finding browser add-on and mobile app, for $4 billion. This is PayPal’s largest acquisition to date and the largest acquisition of a tech company in L.A. history.
Just yesterday, we published a Q&A with PayPal CEO Dan Schulman who said his resting heart rate was a cool 48 beats per minute. Not sure I can say mine would be the same if I purchased something for $4 billion, but alas.
Here’s why this deal is interesting:
- Huge exit for small investors: Honey had only raised $49 million in venture funding. That means this exit will provide a massive windfall for its investors.
Santa Monica-based seed-stage firm Mucker Capital, for example, is expected to receive proceeds of $280 million from the $3 million it invested in Honey, according to The Wall Street Journal. Other investors include Citi Ventures, Anthos Capital, Bam Ventures, Plug and Play, Cendana Capital, Ludlow Ventures, and Wonder Ventures. Not exactly a star-studded roster of investors you were expecting to see, right? Wonder Ventures' Dustin Rosen told the WSJ that a lot of prominent VCs passed on the deal because they didn’t understand the value of Honey’s data.
See: Amazon to support utility-bill payments with Alexa
- Honey is profitable!: Say what? Honey brought in more than $100 million in revenue last year, and it was profitable on a net income basis in 2018.
- Data is everything: PayPal could be interested in Honey’s data on shoppers and help integrate it with PayPal’s network of 24 million merchant accounts. “Combining PayPal’s assets and reach with our technology, we can build powerful new online shopping experiences for consumers and merchants,” said Honey co-founder Ryan Hudson in a statement. “We’ll have the ability to help millions of retailers efficiently reach consumers with offers that deliver more and more value to Honey members.”
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Wired | Louise Matsakis | Nov 23, 2019
Earlier this week, PayPal agreed to purchase Honey, a Los Angeles-based coupon finder, for an eye-popping $4 billion. If it goes through, it will be the largest tech deal in the city’s history, and PayPal’s biggest acquisition ever. Why would any company shell out that much for a shopping tool?
PayPal revolutionized online shopping with its payments system two decades ago, but lately more tech companies have been encroaching on its turf. Google, Apple, Amazon, Facebook, and other tech giants are getting into financial services as their next big venture. If shoppers start preferring those options when it comes time to pay, PayPal might be in trouble. Honey offers PayPal, and its other payment app Venmo, a way to get in front of that—or, as PayPal’s press release put it, “to reach consumers at the beginning of their shopping journeys.” In other words, a way to help you find products, not just pay for them.
Founded in 2012, Honey is best known for a browser extension that shoppers can use to quickly find discount codes that apply to items in their shopping carts. The company says it has over 17 million monthly active users, and it works with tens of thousands of online stores. Honey is free to use for shoppers, and for that reason might appear fishy. But it doesn’t make money by selling or analyzing your personal information. Honey’s surprisingly reassuring privacy policy pledges that it won’t track “your search engine history, emails, or your browsing on any site that is not a retail (shopping or service) website.” That’s because it doesn’t need your data to make a profit.
Just like Rakuten, Honey makes money by charging retailers a small percentage of sales made with the coupons it finds. But why would stores pay to let consumers buy their stuff for less? For the same reason they pay credit card companies and payment processors like PayPal: to make your experience as smooth as possible, and to do everything to prevent you from abandoning your shopping cart, even if that means offering you a lower price.
Is that worth $4 billion though? “I’m scratching my head,” says Sucharita Kodali, an ecommerce and retail analyst at the market research firm Forrester. "I don’t know what [PayPal] sees."
There’s a number of different ways PayPal could integrate Honey into its business, like by charging existing PayPal merchants an additional fee to use Honey. But that's an unlikely outcome, argues Kodali. Stores may be unwilling to make coupon codes so easily accessible, and many “already complain about how much PayPal costs them anyway,” she says.
Kodali says one compelling aspect of Honey is its mobile app, where consumers can add items from different retailers to their cart and pay for them all at once. “That has been something that nobody in retail has solved,” she says. “That’s the only thing that I could imagine could take on a $4 billion evaluation.”
Instead of shopping on Amazon, you can use Honey to buy from all your favorite stores at the same time, and automatically apply any available coupons. It’s a valuable service that could help differentiate PayPal from everyone else.
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