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Pay Pal Suffered A Number Of Setbacks Essay

Pay Pal suffered a number of setbacks and challenges in bringing its IPO to market. The company was attempting to go public after the dot-com bubble had been burst, during a time when the IPO market for tech stocks -- especially those that were not turning a profit -- was terrible. The debut was delayed at the last minute due to a legal challenge from a company known as CertCo, which filed a patent infringement suit. The company had received notice from the state of Louisiana saying that it would not be allowed to do business there until it received a money transmission license (Glasner, 2002). This was seen as a sign that similar challenges could impede its ability to do business in any number of jurisdictions. The IPO was planned with a proposed sale of 5.4 million shares at a price between $12-14, to raise in the neighborhood of $76 million. The IPO reportedly had a lot of momentum behind it, primarily because the service was popular with eBay users, meaning that PayPal had a strong long-term demand growth trajectory if it could overcome other companies with similar product offerings, including Yahoo and Citibank (Wolverton & Kane, 2002). This accounted for the relative popularity of the IPO despite the weak market for public offerings at the time (Patsuris, 2002). This strength allowed PayPal to go public despite the setback. The shares were eventually released at $13, and went to $20.09 on the first day of trading, indicative of the strength that the offering had in the market (Friedman, 2002).

Although the process was ultimately...

The two different issues that arose at the eleventh hour contributed both to a slight delay in the offering and also to pricing in the middle of the range. At the high end of the range, the capital raised would have been $75.6 million rather than $70.2 million. The delays, therefore, were not financially insignificant. There are a few things that underwriter Salomon Smith Barney and PayPal itself could have done to improve the IPO.
The first thing that I would have done differently is that I would have secured more confirmation of PayPal's relationship with eBay. Much of the company's value was tied to its popularity with eBay users, but at the time there was no guarantee that eBay would continue to allow PayPal to use the service to make payments on its website. There were competing services offered by major companies like Yahoo, Citibank and the U.S. Postal Service. An exclusivity deal with any of those companies would have destroyed PayPal's value, and the risk that this might happen would have lowered PayPal's value on the IPO market. eBay had its own payment service called Billpoint, so it had good reason to block out PayPal if it wanted to. More assurance from eBay, perhaps through a partial equity stake or a contractual arrangement, would have gone a long way to increasing the estimated present value of future returns on PayPal.

Another area where the value of PayPal could have been improved would have been to deal with the legal issues prior to the final…

Sources used in this document:
Works Cited:

Friedman, J. (2002). PayPal jumps 55% on stock offering. Los Angeles Times. Retrieved August 12, 2011 from http://articles.latimes.com/2002/feb/16/business/fi-paypal16

Glasner, J. (2002). PayPal: IPO omen or anomaly? Wired. Retrieved August 12, 2011 from http://www.wired.com/techbiz/media/news/2002/02/50461

Patsuris, P. (2002). PayPal's IPO delayed. Forbes. Retrieved August 12, 2011 from http://www.forbes.com/2002/02/07/0207paypal.html

Wolveton, T. & Kane, M. (2002). PayPal delays IPO. CNet. Retrieved August 12, 2011 from http://news.cnet.com/PayPal-delays-IPO/2100-1017_3-830235.html
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