If you regularly consume YouTube content or podcasts, you may be familiar with Honey, a browser extension that purports to scan the internet for coupon codes to find the best prices available for users.
The service was originally created by Honey Science Corporation and is currently operated by PayPal (PYPL) which acquired the company for $4 billion in November 2019.
The core pitch to using the service is that by simply downloading the extension and clicking a pop-up, users can be confident that they’re getting the biggest discount available for online purchases.
Instead of searching for coupon codes or online discounts, Honey claims to do that work for you.
But a recent YouTube video from MegaLag has started gaining traction online and makes a compelling claim that Honey’s promises misrepresent what’s actually happening behind the scenes.
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What Are the Claims Against Honey?
The YouTube video that’s making the rounds is only about 23 minutes long and is straightforward enough on its own (it’s also part one of a three-part series; the other two parts are not yet released), so feel free to watch it for yourself if you’re so inclined.
But, in a nutshell, it provides three criticisms against Honey.
1. Honey is scalping affiliate marketing payments by inserting itself into the transaction. This claim is the clearest but also the most technical. When you navigate to an online store from an outside website that makes money from referrals (social media, YouTube videos, third-party websites, etc.), clicking that link creates a browser cookie (chunk of code) so the online store can tell who sent you.
When Honey pops up to check for better coupon codes online and the user clicks on the pop-up, it replaces that cookie with a different cookie telling the online store that, actually, Honey sent the user to the online store. This allows Honey to claim what is essentially an online commission.
2. Honey doesn’t actually find you the best online deals. The video also alleges that Honey does not locate the best coupon codes for users but instead offers the best discount from a number of pre-selected offers that the company makes available to Honey.
In other words, even if there’s a 25% discount floating around on the internet, Honey may only apply a 10% discount if that’s what’s available in the menu of options agreed upon with the merchant.
3. Honey Gold rewards transfer a small fraction of affiliate marketing payments to users. The free Honey Gold/PayPal Rewards rewards program allows users to earn “Honey” (100 Honey = $1) for using the browser extension.
However, this reward is a small fraction of the reallocated fee that’s generated when Honey claims the affiliate marketing payment. Essentially, it’s a minor incentive for users to ensure that Honey can continue to middleman online transactions as outlined in the first point.
If you’d like a deeper dive into any of the three topics, please take a look at the original video (4.4 million views in the day since it was released).
But, for our purposes, the allegation is that Honey is engaging in deceptive business practices to claim affiliate marketing fees to which it is not entitled.
So, should PayPal shareholders be worried?
In a word, no.
What Does It Mean for PayPal (PYPL) Investors?
The allegations are certainly a black eye for the Honey program and should prompt more distrust among the influencers and affiliate marketing websites whose business model Honey undercuts.
Also, the fact that PayPal has branded the Honey Gold rewards program as “PayPal Rewards” indicates some degree of oversight and may indicate some knowledge of the practices.
But, the consequences of inserting themselves between an affiliate marketer and an online store are likely to be minimal at best.
The best parallel I’ve been able to identify is a case between two online advertising companies Criteo and SteelHouse in which Criteo alleged that SteelHouse was inserting itself between online ads and the destination website via a landing page, effectively changing the attribution of clicks, much like the allegations against Honey.
Criteo faced a countersuit from SteelHouse, but the ultimate result was that both claims were dropped and neither firm faced regulatory action.
And even when we’ve seen enforcement actions for affiliate marketing practices, those have been small fines (single-digit millions, a pittance to PayPal).
More important for shareholders, however, is the relatively minimal impact on PayPal’s business.
When it was acquired in 2019, revenue estimates for Honey were about $200 million a year.
At the time, the program had 17 million monthly active users (MAUs), and that number has almost certainly grown in the intervening five years.
But PayPal’s full-year 2024 revenues were $31.5 billion, making Honey’s contribution a drop in the bucket, even assuming that a combination of user growth and organizational efficiencies have allowed PayPal to earn more than that $200 million estimate each year.
In other words, are the claims against Honey a bad look?
Yeah, sure, maybe.
Does it change any reasonable investing thesis for PayPal as a whole?
Not at all.
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