The companies have discussed a potential price of $70 per share, which would value Pinterest at around $39 billion, according to Bloomberg News. The price would represent a 26% premium to Pinterest's closing price of $55.58 on Tuesday.
PayPal and Pinterest did not immediately respond to Reuters' requests for comment. The source requested anonymity as the discussions are confidential.
PayPal's shares were down about 3.5%, while Pinterest's shares were up over 10% at $61.55.
News of the potential deal comes less than a week after Pinterest co-founder Evan Sharp announced plans to leave the company to join LoveFrom, a firm led by Jony Ive, the designer of many iconic Apple products.
Sharp founded the online scrapbook and photo-sharing platform along with Ben Silbermann, who is the company's chief executive officer, and Paul Sciarra, who left in 2012.