Online payment system PayPal filed for an initial public offering (IPO) on Friday, looking to leverage its rapid growth and close ties with auction giant eBay (Nasdaq: EBAY) to help itself raise as much as US$80 million through a stock sale.
PayPal said that the money it raises will be used in part to provide collateral for the payments it makes. Other intended uses include development of new products and additional expansion.
PayPal’s registration form with the U.S. Securities and Exchange Commission (SEC) did not disclose details of the Palo Alto, California-based firm’s offering, such as how much shares would cost or when the sale would take place.
“We seek to become the global standard for online payments,” PayPal told the SEC.
To date, PayPal has focused largely on enabling person-to-person payments via e-mail. The system is already popular with users of eBay and other auction sites, with about 10 million users signed up in the U.S. and 35 other countries.
Targeting Small Biz
In its IPO filing, PayPal said it also wants to grow its share of the online small business market.
“The small business market presents us with a potentially significant opportunity,” the registration form said.
PayPal cited research showing a significant gap between the number of online merchants and those that accept credit cards directly.
Word of Mouth
PayPal said its growth has come largely through viral marketing because consumers must be registered with PayPal to receive a payment through the system.
However, the firm also acknowledged significant competitive pressures, listing a host of alternative online payment options, including Yahoo’s PayDirect; eBay Online Payments, which is owned by eBay and Wells Fargo; and Citibank’s c2it, which has close ties to AOL and Microsoft.
Other online payment systems, including Flooz.com and Beenz.com, have gone out of business in recent months.
According to IPO.com, PayPal’s registration form makes it the first Internet company to file for an IPO in about three months.
In fact, the filing comes during one of the worst quarters in recent memory for initial stock offerings. No companies went public during September and just 11 went public during July and August combined, according to IPO.com.
Last week, Internet retailer X10.com withdrew its IPO, citing the market’s uncertainty. X10.com makes and sells wireless cameras and video equipment — and made a name for itself with a widespread pop-up online advertising campaign that turned its site, X10.com, into one of the Web’s most-visited sites.
One roadblock for PayPal in winning investor attention is the fact that it has suffered ongoing financial losses. According to its registration form, PayPal lost $169 million during 2000 on about $14 million in sales.
However, the company has made progress recently, losing $27.7 million on $19.9 million in sales for the quarter ended June 30th.
Solomon Smith Barney is listed as lead underwriter of the deal.
>>Other online payment systems, including Flooz.com and Beenz.com, have gone out of business in recent months. <<
I am sure PayPal will have something to say about this – but – neither Flooz nor Beenz were online payment systems. They have nothing whatsoever to do with PayPal’s business. FireCash does, as well as the other competitors you mention.
I think PayPal’s model has a chance of success. They don’t charge senders of payments anything, instead, they charge recipients a percentage of the payment received. This is the same model used successfully by credit cards. The difference is that around 1/2 of PayPal’s payments come from checking accounts, instead of credit lines, so the cost of funding is lower.
Another key advantage for PayPal is their sophisticated fraud management. This is the thing which has driven most of their competitors out of business. PayPal’s fraud rate is currently about the same as that for “card present” credit cards, and much better than that for “card not present” credit cards.
I don’t know whether they’ll have a successful offering, but they will be able to build a successful business. It could be the “real” exit is an acquisition, with the IPO merely a way to market the company.
This is in reply to Ole Eichhorn statement concerning Paypal’s sophisticated fraud management.
Where do you get the information to state that the fraud level is so low? First, you must compare the amount of fraud on Paypal to the amount of CREDIT CARD transactions, compare apples with apples. Then you can compare the checking account transactions to the amount of fraud due to fraudulent checking accounts, etc etc.
The amount of fraud they suffer is one of the biggest losses for the company, that and poor customer service will NOT help Paypal. Why are they going IPO? Simply because they cannot afford to continue business unless they raise some capital, and do so quickly. Keep in mind that as a customer of Paypal, if they choose to go under, you are listed as a creditor and will likely NEVER see your money. They are not backed by any FDIC insurance similar to a bank.
Here are the financial numbers of paypal. Looking at the performance and figures I don’t believe that the company has any financial future.
We are Marc’s Treasures’, the eBay Power-Seller [http://members.ebay.com/aboutme/marcs_treasures/]
The market of recent days has attracted an enormous amount of our cash-flow, so favorable have some P/E ratios been value-priced.
Using PayPal, one important issue stands out. So many incentives are being offered to attract ‘numbers’, that PayPal [while a wonderful concept, application, and service provider] will indeed fall [quickly] to what many more cash-rich and more fully subscribed Nasdaq Mainstays have discovered. People insist on free services in return for the enormous investment of their time spent on the internet. Attempting to charge for these heretofore free services is certain death.
Thumbs down on this offer, and please, leave very few funds parked for long, here. We are Premier Business Account Members, having no axe to grind.