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PayPal Goes Public
fluffhead234 writes: "Looks like IPO's for internet companies can still bring in something. PayPal, the online payment people, raised just over 70 million in their IPO: PPay Pal IPO"
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Why on earth do they need to raise funding through an IPO when they have all those frozen accounts to dip into?? :)
Looks like IPO's for internet companies can still bring in something.
IPOs always bring in something; an IPO just means that the institutions that are underwriting it buy a set amount of stock, then offer it for sale on the market. The company itself risks nothing, as the stock was bought for an agreed-upon price beforehand.
If the stock tanks, they still get 70 million.
Just like Ebay, Paypal is successful (and I mean by # of users and money exchanged, not profit-wise, which only ebay has attained) because they were first. Both charge higher rates than their competitors without any better service or features.
Ebay has a bunch of users because their business model requires that many people come together in one place; Yahoo Auctions, for example, are horrible in comparison if only 1/2 the people use them (and the #'s aren't even that high).
PayPal just basically rode off Ebay's success and Ebay's lack of making any decent alternatives (BillPoint started off way too expensive and full of hassles).
Does anyone remember the LONG period where PayPal gave $5 to each user and $5 for each referral, even if you never used their service? I had a slightly popular website and made nearly $200 off of referrals. I've used PayPal, but only as a sender, so I've never given PayPal a dime back.
I think PayPal is near the peak of its popularity; once ebay's BillPoint starts getting more users (as Ebay is pushing it more on users and the fees are more reasonable for the market) and better alternatives arise (like citibank's c2it for a bad example), PayPal will decline in popularity. They haven't reached anything near a profit yet and I doubt they ever will.
Jeremyf's rating: Sell
There's a an article over at http://www.ipofinancial.com/pow/archive.php?oid=10 4 which has a bit more info, from a financial analyst's viewpoint, but in plain english.
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In fact, there is a growing literature which suggests companies purposely limit the number of shares issued in the IPO. This low supply of shares causes the stock to rise in the ensuing days and months as additional investors purchase the stock and analysts begin issuing recommendations. After the lockup, insiders then begin to sell shares in earnest at these high prices which are at least in part due to the manipulative effects of a small number of shares offerred at the IPO. In short, while there may be short-term gains to be made in the stock, be cautious after the lock-up expires.
Also note that in the past two years the company has managed to lose 1/4 of a billion bucks and is not sure when it will be profitable. That's not exactly the kind of words that bring confidence in this market environment.
Although the market for IPO's was much smaller in 2001 than in years past, those companies that did come public tended to be more profitable and had better business models and a proven record of success; and they performed relatively well. I don't think PYPL fits this mold, however, so LOOK OUT BELOW! (after a short run upwards).
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- 1. They have an excellent group of talented people and an excellent corporate culture. Talented, bright people who are dedicated to their jobs...what else can you ask for. They have excellent management and have the ability to move fast and adapt to change quickly.
I am a fan of their service and a fan of the people who work there, but it saddens me that they may be in a good amount of trouble in the times to come. As a number of people have pointed out, several states are threatening to shut them off for doing business as an unlicensed bank. This causes a number of problems for PayPal and they need to address them soon:2. They've found a business model that works. It seems that anyone making or taking a payment over the Internet these days has a PayPal account. Most importantly, however, if you take a look at their growth rate and their balance sheet, you will see that they are on track to start making some real money very quickly.
- 1. The states are right: PayPal is doing business as an unlicensed bank. You may have noticed that PayPal is not protesting any of the allegations made by the states - that's because they know if it came down to a fight in court, they would lose. They are a bank...no question about it. In fact, they've already had to give in to a few states, as they actually ARE regulated in few (3, I think)
Continue to use PayPal...it's a great service (Yes, there are the stories at www.paypalwarning.com and such, but any service with 1mil+ customers will have some unhappy people). Be cautious, however, if you are thinking of investing in them.2. "So why don't they just get licensed as a bank?", a number of people ask. There are a number of things that make this difficult. First, the license process must occur in each state - this takes a lot of time and money. Second, this may greatly change their internal cost structure, as there are a number of regulated practices that they would have to adhere to if they were considered a bank in all the states they did business in. PayPal's margins are low and their real money is made on volumes - a major change in their cost structure and, particularly, how they hold floating funds may be lethal to their business.
3. The Internet has no boundaries: If PayPal is shutdown by even one state they are in major trouble. If Louisiana, for example, shuts them down, PayPal must ensure that they do not mediate payments between any parties that live or do business in Louisiana. PayPal currently identifies individual's location by verifying (via US Mail) the address associated with a credit card or bank account. This presents a number of problems: What if the billing address of my credit card is a Mississippi address, but I actually reside in Louisiana - how will PayPal know they are performing transactions on behalf of a Louisiana resident? What if the routing number relates to a bank branch in Mississippi, but I reside in Louisiana, where that bank also has a branch (making it possible for a Louisiana resident to do business in Louisiana with a Louisiana bank through PayPal)? This is just a Pandora's box waiting to be opened.
4. The banking lobby is strong: And they don't like non-banks getting into their space. Worst of all, PayPal has proven that this business model will work. A number of "real banks" are salivating to take this space over.