PayPal just lost its $53 billion safety net

PayPal (PYPL) investors spent much of the summer pricing in the possibility that somebody else will swoop in and fix the company's valuation problem.

A consortium of payment company Stripe and private-equity firm Advent International has withdrawn its bid for PayPal after previously offering $60.50 a share, or about $53 billion. PayPal shares fell 12.7% to $53.66 Friday as the deal premium was quickly sliced out of the stock.

The selloff was pretty vicious. Some 36 million PayPal shares changed hands, more than twice the stock's recent average volume.

But the more important number might be $60.50.

The consortium's original offer was deemed inadequate by PayPal's board. Bernstein analysts told Reuters they believed management was unlikely to accept a price that wasn't "meaningfully above $70."

Now PayPal trades nearly 11% below the $60.50 offer it didn't take .

That puts a much brighter spotlight on CEO Enrique Lores' turnaround. PayPal has to demonstrate that continuing on its own can ultimately create a lot more shareholder value than the deal that just evaporated.

PayPal lost nearly $8 a share in one day

The market reaction helps to put a price on how much takeover optimism was priced into PayPal's valuation.

PayPal ended Aug. 28 at $53.66, off $7.81, or 12.71%. The intraday low was $52.62. Volume was about 36 million shares.

The stock had gained nearly 30% since reports first emerged regarding the Stripe-Advent bid . The buyers were walking away just as word came that PayPal closed at $61.47, Axios reported, actually above their $60.50 offer.

So the failure of the transaction takes away a big support for the shares.

There was also a lot of disagreement behind the scenes on valuation.

Stripe and Advent have offered to buy PayPal at $60.50 per share, valuing the company at about $53 billion. PayPal's board had considered the first offer too low, and analysts doubted the consortium's ability to fund a much higher offer.

There is a remarkable historical parallel lurking in those numbers.

PayPal was worth about $360 billion at the height of the pandemic-era digital-commerce boom in 2021.

The abandoned $53 billion proposal valued the business at about 85% below that peak .

And that's how high the bar has been set for investors' PayPal expectations.

PayPal now has to prove it was worth rejecting $60.50

The problem with PayPal is not that the company has stopped making money.