Paypal Holdings Inc. (NASDAQ: PYPL) announced its purchase of Swedish startup iZettle for $2.2 billion earlier this month. The new deal will allow Paypal to expand its presence beyond America to Europe and Latin America by helping small businesses. Although shares of companies following acquisitions announcements often fall, the California-based Paypal saw a 3% increase following the report. Paypal CEO Dan Schulman remarked that that the new deal "significantly expands PayPal's in-store presence, strengthening PayPal's platform to help millions of small businesses around the world grow."
The merger with iZettle, a company that helps small businesses conduct card-based payments outside of America, will allow Paypal to expand to approximately 500,000 stores in 11 countries, including Brazil and Germany. Founded in 2010 by Jacob de Geer and Magnus Nilsson, iZettle primarily began with payments through a mobile gadget, but has since developed into a financial services and software company aimed at local businesses. Prior to the deal with Paypal, iZettle announced that it would make a public offering. After speaking to Paypal, de Geer noted that iZettle would continue to grow under Paypal due to the similar goals and desires of both companies. de Geer will remain the leader of iZettle.
In addition to the expansion of Paypal services across the world, the acquisition of the financial payments startup iZettle will allow the company to better compete with Square Inc. (NYSE: SQ). Similar to iZettle, Square Inc. rose in popularity by aiding small businesses, including food trucks, facilitate credit card and mobile payments. Today, Square has become a household name through its creation of financial services and software, as well as its venture into the food business through the acquisition of food delivery company Caviar. Likewise, Paypal will also become a stronger competitor to other companies, such as Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN), who also have plans to expand digital payments.
According to both iZettle and Paypal, the new deal is expected to bring in a revenue of $165 million in 2018. Although the price for iZettle is notably high, some financial analysts still view the new acquisition as a good choice for Paypal. "We see iZettle as another step in PayPal's long journey to offer an in-store/physical POS solution [...] Jefferies analyst Ramsey El-Assal noted. The demand to offer diverse methods of shopping available to consumer, such as online or in a physical store is high, and "iZettle should help with this effort," El-Assal concluded.
The iZettle acquisition reveals that Paypal is still a strong player in the digital transactions market, even after suffering a setback earlier this year when eBay (NASDAQ: EBAY) ditched Paypal in favor of Dutch company Adyen to handle its payment processing.