PayPal's IPO Delayed
forbes.com
Penelope Patsuris , Forbes.com, 02.07.02, 11:26 AM ET
NEW YORK - It seems that PayPal.com has at least one foe looking to foil its IPO.
Late Wednesday, the online payment company had to delay its initial public offering after it became known that New York-based Certco is suing PayPal for patent infringement on its electronic transfer payment technology.
There are conflicting reports as to whether the suit will hold up the offering indefinitely or whether PayPal (proposed ticker: PYPL) may actually come to market later today, according to IPO.com market analyst Kyle Huske. The company planned to sell 5.4 million shares at a range of between $12 and $14 to raise about $76 million with underwriter Salomon Smith Barney.
The news of the delay surprised Wall Street, which had watched the offering carefully since it would have been the first dot-com IPO since the flop of Marc Andreesen's Loudcloud (nasdaq: LDCL - news - people) last March. "There was so much momentum behind this IPO," says Gartner Group financial services analyst Avivah Litan. "It was really being looked at as a bellwether. If this one made it, it would reflect renewed investor confidence in this part of the tech market."
Alas this was not to be--at least not yet. Salomon Smith Barney now has to decide whether the news of the lawsuit will create a problem in selling PayPal shares or whether it's still a good idea to push the pricing through, according to Huske. "In this kind of depressed market, delaying your offering puts a real taint on it," she says. "It's a real negative."
PayPal is one of the few small successful dot-coms. The Palo-Alto, Calif.-based outfit is a survivor in the Internet payment business where so many other companies failed. PayPal specializes in person-to-person payments as well as in transactions between consumers and small businesses over the Internet. Shoppers and merchants set up accounts with PayPal using a checking account or credit card and PayPal transfers the money between them for transactions such as online auction sales. Indeed, an estimated 25% of eBay (nasdaq: EBAY - news - people) users employ PayPal to buy and sell goods. Senders can use PayPal for free, while recipients who exceed a certain volume of transactions pay 30 cents per deal, as well as between 2.2% and 2.9% of its value.
The IPO market has of course been notoriously slow. Huske says only three offerings priced this January--equal to the number that priced during January 2001. From Sept. 11, 2001 to Feb. 6, 2002, just 34 IPOs have priced, compared with 87 during the same year-earlier period and 240 for the period that began during the boom time of late 1999.
"It has been slow, but aside from deals actually pricing there has been some increased underlying activity with companies that have filed with the Securities and Exchange Commission moving ahead toward actually pricing," says Huske. "Things will go in fits and starts at least for the first quarter, but we expect the market to improve by the second half of this year."
After all the fuss this week, perhaps PayPal will wisely decide to wait until then to sell its shares to the public. |
