Last week, PayPal acquired a Los Angeles-based company called Honey for a whopping $4 billion. While it certainly wasn’t under the radar (PayPal issued a press release, posted a video, and hosted a conference call about it), the media barely (with a few rare exceptions) picked up the story in spite of the fact that it was huge (huge!) news. Four billion is bigger than the totals of PayPal’s other well-regarded acquisitions like Bill Me Later, Braintree/Venmo, and iZettle combined. It’s also bigger than Walmart’s acquisition of (which, to this day, continues to generate endless media coverage and speculation). That PayPal bought Honey for an obscene multiple (Honey’s revenue is reportedly $100 million) will no doubt cause entrepreneurs everywhere to dream dreamy dreams that they, too, can exit a seven-year-old startup with a me-too solution that most people have never heard of, but investors need to scrutinize the value, as there doesn’t seem to be much there.

You may be asking: What is Honey? Honey started as an affiliate marketing publisher that is a desktop toolbar for coupons. That latter part alone should give everyone pause because, as mobile commerce grows, one of the biggest assets PayPal just acquired was a solution for a device that a declining percent of the population is using. Toolbars are also a pain to use in the best of circumstances (ask anyone from the old team at Vendio) and have been subject to lawsuits. Honey isn’t just a toolbar, however. It has a number of other (if unoriginal) features. Since its inception, Honey also launched a loyalty/cash-back/gift card rewards program similar to Ibotta’s solution, RetailMeNot’s cashback solution, and Walmart’s now-dead (but popular) Savings Catcher (more on that later). Honey also has a price tracking tool, like CamelCamelCamel, that gives shoppers price alerts.

PayPal talked about personalization, engagement, and merchant growth in its press release. PayPal also claims Honey will give PayPal an opportunity to be at the top of the shopping funnel, an assertion I say is far-fetched. Honey is an affiliate marketing tool, and anyone who knows anything about digital marketing knows that affiliates are often bottom-of-the-funnel and they struggle with proving incrementality to merchants (which, by the way, are two of the persistent complaints I’ve heard from merchants about PayPal, too).

Ignoring the hype and vague discussions around synergies, let’s talk specifics about how the two companies could work together and why they don’t make sense:

PayPal would integrate Honey assets onto PayPal properties. There are two ways that consumers access PayPal now: either on a merchant’s site at checkout or by going to a PayPal property like its website or mobile app. In the case of the latter, consumers go to PayPal properties to execute peer-to-peer transactions or to change the means of funding one’s PayPal transactions. In those cases, consumers generally aren’t looking to shop or discover new products. Maybe Honey deals can be included on PayPal emails and newsletters, but that seems rather lame and something PayPal didn’t need to pay $4B to acquire. PayPal could try to insert an online shopping mall on its properties, but every comparison shopping engine we’ve known since the beginning of eCommerce (including Google Shopping) hasn’t spun any gold from that idea (I’ll discuss one caveat below). As for inserting Honey’s savings offers into the merchant checkout flow, that’s just unrealistic. Do we really think that any merchant would be happy with a “check for coupons” link in their checkout flow? The last thing that merchants want to do is give customers who are about to purchase any additional discounts. And no merchant in its right mind is going to allow PayPal to show alternative cost savings from another site or product, either. Most merchants haven’t yet integrated marketplaces or even ads on their sites for the same reason.

PayPal would put PayPal on Honey’s properties. That just makes me yawn. PayPal could have easily made Honey another PayPal-accepting merchant, which would have been far cheaper than paying $4B. Furthermore, Honey has a mere 17 million customers, which is not only tiny in the scope of retail but will not move the needle for PayPal, as PayPal has more than 10 times as many users. I should also reiterate my point above that many of these people are desktop toolbar users who can’t even be migrated to mobile devices because the toolbar doesn’t work in mobile shopping.

Two other scenarios make more sense, but even they have problems:

  1. One thing that Honey has that I didn’t mention above is its universal shopping cart, something that companies like have tried unsuccessfully to scale over the years. That said, with PayPal’s theoretical marketing heft, this may be something to watch. Interestingly, PayPal didn’t say a peep about this in the press release (either it was trying to throw us all off or, less likely, because it may not have realized it was an asset of value). While lots of comparison shopping engines have historically been click drivers where the transaction is completed on another site online, Honey does have a unique solution that enables shoppers to complete transactions across different retailers such as Nordstrom and Ulta in one single Honey cart. Not even Google has done that. Maybe PayPal thinks that this could be its Amazon killer? Methinks it’s a day late and a dollar short for anyone to kill Amazon with a universal shopping cart, but maybe I’ll be proven wrong. Honey still has a lot of work to do — for instance, it takes several minutes for Honey to check for coupons in its checkout, which makes for a pretty terrible user experience.
  2. The second possibility is if PayPal creates its own version of Walmart’s Savings Catcher. Savings Catcher was a sleeper hit that trumped Apple Pay in adoption but was ultimately a victim of corporate politics. Nonetheless, it resonated with customers and worked like this: Shoppers would scan receipts, and if Walmart found a better price on an item within several days at a competing retailer, it would refund the customer the difference in the form of a Walmart gift card. Honey could provide PayPal similar savings information, and PayPal could execute a loyalty program where cash-back savings would go to a PayPal account, thereby generating a nice flywheel of shopper engagement for PayPal. (It would have to be more than just the Honey Gold rebate program though, because PayPal could have done that on its own.) While this may be an interesting idea, here is the problem: No merchant wants to pay customers a post-transaction adjustment, certainly not via an intermediary like Honey. Furthermore, PayPal is so darn cheap that I can’t imagine it ever paying to subsidize any loyalty rewards program either, certainly not after dropping $4B on the team at Honey. (If I were PayPal, I think a better use of $4B would have been to fund a bunch of customer gift cards versus buying Honey, but no one asked me for my advice.) And without someone willing to pay for a program like this, it’s unlikely to have legs.

In short, I just don’t see how a PayPal-Honey deal can be lucrative or why PayPal paid as much as it did. Some colleagues have speculated that there was an investor in Honey who also had close ties to PayPal, which would be a logical explanation for a deal that makes no sense otherwise. Others have suggested that with PayPal’s enormous payment volume ($600B), $4 billion in incrementality from a coupon savings tool is completely reasonable over several years. I disagree, because much of PayPal is peer-to-peer transactions, where Honey doesn’t really have a role. Of the rest in commerce, the Honey assets would need to deliver several percentage points of incremental revenue lift across all its merchants. Given that very few tools can generate any lift, much less several percentage points, I am skeptical that Honey will pay for itself. The truth is that both PayPal and Honey suffer from the same problem: They are perceived to be bottom-of-the-funnel solutions that fail to generate incrementality for merchants. How anyone at PayPal thought otherwise is a question investors need to ask the company’s management team. Maybe there is something more to the deal that is under the hood, but from what I see as an analyst, I expect PayPal will write down its acquisition within a few years.