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ETFs to Win/Lose on PayPal's Denial of Pinterest Acquisition

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Last week, the market was abuzz with the news that PayPal Holdings Inc (PYPL) has reportedly offered to purchase digital pinboard site Pinterest Inc (PINS) for $45 billion. Shares of Pinterest had surged on the news last week while PayPal shares slumped (read: ETFs to Track on Pinterest and PayPal Merger News).

However, PayPal ruled out the acquisition news lately. PayPal labeled the acquisition news as “market rumors”. The vey declaration boosted PayPal shares by 6% before market open on Oct 25 while Pinterest shares declined about 13.7% at the time of writing.

Analysts were not very hopeful about the likely deal amid questions over the deal's structure. It was unclear how much equity or cash PayPal would use to finance the deal. At Mizuho Securities, analyst Dan Dolev had said in his note: "We see several potential concerns including unknown degree of user overlap, rapid deceleration in Pinterest user growth in recent quarters, and the deal potentially signaling that PayPal's organic net new adds in the second half of 2021 may be weaker than hoped," as quoted on investors.com.

Meanwhile, Andrew Jeffrey, Trust Securities analyst, told CNBC last week that he was unconvinced of a PayPal-Pinterest merger. “A move to make another online deal, even in social media, just doesn’t make a lot of sense long term,” Jeffrey said, adding that PayPal needs to monetize in the physical world, as quoted on CNBC.

Notably, PayPal has been striving to boost its e-commerce presence in recent years in an inorganic way. It bought online coupon finder Honey Science in 2019 for $4 billion and Japanese buy-now-pay-later (BNPL) firm Paidy for $2.7 billion earlier this year. It acquired return-service provider Happy Returns in May.

The payments behemoth was among the big winners of the COVID-19-led social distancing, as customers have been choosing digital payments to serve their bills for essential items. Against this backdrop, the denial of the merger news should boost ETFs those are heavy on PayPal while ETFs those are heavy on Pinterest should slump in the near term.

Likely ETF Winners

Invesco NASDAQ Internet ETF (PNQI - Free Report)

The underlying Nasdaq CTA Internet Index is a modified market-capitalization weighted index designed to track the performance of the largest & most liquid U.S.-listed companies engaged in internet-related businesses & that are listed on one of the three major U.S. stock exchanges. PayPal takes 6.93% weight of the fund. The product charges 60 bps in fees.

ETFMG Prime Mobile Payments ETF (IPAY - Free Report)

The underlying Prime Mobile Payments Index provides a benchmark for investors interested in tracking the mobile and electronic payments industry, specifically focusing on credit card networks, payment infrastructure and software services, payment processing services, and payment solutions. PayPal takes 5.19% weight in the fund. The fund charges 75 bps in fees.

Likely ETF Losers

Invesco Dynamic Media ETF (PBS - Free Report)

The underlying Dynamic Media Intellidex Index comprises of stocks of 30 US media companies. Pinterest takes the top spot with about 5.39% weight. The fund charges 63 bps in fees.

American Customer Satisfaction ETF (ACSI - Free Report)

The underlying American Customer Satisfaction Investable Index utilizes proprietary customer satisfaction scores to weight stocks within each sector by their relative customer satisfaction scores. Pinterest takes the second spot in the 36-stock fund. The fund charges 66 bps in fees.