Paypal (PYPL) is trading higher after acquiring iZettle, the leading small business commerce platform in Europe and Latin America, for $2.2 billion.
The acquisition of iZettle significantly expands PayPal's in-store presence, strengthening PayPal's platform to help millions of small businesses around the world grow and thrive in an omnichannel retail environment.
PayPal gains in-store capabilities in Brazil, Denmark, Finland, France, Germany, Italy, Mexico, Netherlands, Norway, Spain and Sweden. PayPal also gains near-term in-store expansion opportunities into other existing PayPal markets, and acceleration of omnichannel commerce solutions in Australia, U.K. and U.S.
iZettle has been dubbed the Square (SQ) of Europe. It also encroaches on the turf of Brazilian PagSeguro (PAGS).
iZettle expects to generate gross revenues of ~$165 million in 2018, with ~$6 billion of total payment volume (TPV) expected to be processed on its platform. That means PayPal acquired the company at 13.3x gross revenue. Square trades at ~17x sales and ~100x earnings. iZettle has grown its revenues at a CAGR of ~60% from 2015 to 2017 and expects to reach EBITDA profitability by 2020 on a standalone basis.
The acquisition will be marginally ($0.01/share) dilutive to PayPal's fiscal 2018 EPS guidance of $2.31-2.34. iZettle's management team will continue running the business.
PayPal is trading at a two-month high following the deal. Investors seem to be encouraged by the company's bold move in to a hot space.
The mobile payment giant has a ~$95 billion market cap and trades at 5.5x sales and 35x earnings estimates.