PayPal's next acquisition target could be Square, Stripe, or Adyen, analyst predicts

Key Points
  • PayPal is expected to soon make a major acquisition, Bernstein's Lisa Ellis wrote in a note Wednesday.
  • She believes one of the largest payment companies, including Square, Stripe, and Adyen, to be among the potential acquisition targets.
  • PayPal's biggest deal took place in 2015 when it spent $890 million on Xoom.
Dan Schulman
Mark Neuling | CNBC

PayPal could make a major acquisition worth billions of dollars in the "coming months," Bernstein analyst Lisa Ellis wrote in a note Wednesday.

Ellis mentioned some of the largest payment companies as potential acquisition targets, including Square, Stripe, and Adyen. Square, which went public two years ago, has been one of the hottest stocks this year and is now worth more than $10 billion, while Stripe and Adyen are each valued at $9 billion and $2.3 billion, respectively, according to Pitchbook.

Why would PayPal want to make a deal that expensive?

Ellis wrote PayPal has been open about its intention to buy growth lately, and has been focused on expanding its geographic footprint and user demographic in order to maintain its mid-20s percent growth rate. The company's also sitting on a huge pile of cash, which Ellis estimates to be roughly $15 billion in total. The recent merger between Vantiv and Worldpay, and Visa's minority stake in Klarna could fuel PayPal's urgency to make a deal happen, as well, she wrote.

But given more than half of PayPal's revenue comes from the U.S, Ellis wrote the acquisition is more likely to be a European company, such Adyen or Klarna.

"We believe a strategic acquisition will most likely be positive for PayPal's stock, particularly if it enables geographic expansion oruser engagement – two critical long-term growth drivers for PayPal," Ellis wrote.

PayPal most recently bought Swift Financial for an undisclosed amount. Its biggest deal in history took place in 2015 when it bought Xoom for $890 million.

PayPal and Stripe declined to comment. Square and Adyen were not immediately available for comment.