Features

PayPal’s shares gain 55 percent in debut

By Michael Liedtke The Associated Press
Saturday February 16, 2002

SAN FRANCISCO — Shares of PayPal Inc. soared 55 percent in the online payment provider’s stock market debut Friday, signaling investors burned by the dot-com crash might be ready to take another chance on promising — but unprofitable — Internet companies. 

After the company’s investment bankers sold 5.4 million shares at $13 apiece in an initial public offering Thursday, PayPal’s stock closed at $20.09 Friday on the Nasdaq Stock Exchange. The shares sold for as much as $22.44 during Friday’s session. 

At Friday’s price the company had a market value of $1.2 billion. The biggest individual winners Friday were PayPal’s co-founders, Elon Musk, 30, and Peter Thiel, 34. 

Musk, formerly PayPal’s CEO and now a director, held a stake worth $143 million as of Friday. Thiel, currently the company’s CEO, owned stork worth $56 million. 

Besides enriching PayPal insiders, Friday’s robust gain encouraged market observers who hope the rapidly growing company will rekindle investor interest in Internet startups. 

After feasting on dot-com stock during the late 1990s, Wall Street has largely avoided the Internet sector during the past 18 months. Investors have worked to recover from massive losses stemming from the high-tech bust. 

“It feels like 1999 all over again,” said James Van Dyke, an analyst with Jupiter Media Metrix. “PayPal could be like the torch bearer that kicks off the Olympics.” 

The Palo Alto-based company boasts an impressive track record for growth, swelling from 24 experimental users in October 1999 to 12.8 million customers as of Dec. 31. 

The service obtains payments from credit cards and bank accounts before sending them to a designated recipient through e-mail. PayPal generates revenue by charging transaction fees based on the amount transferred and is particularly popular at online auctions like eBay. 

PayPal’s strong IPO performance is bound to lure other privately held Internet companies into the stock market, predicted Kyle Huske of IPO.com. “The market just shook off all the risks associated with this one,” she said. 

Huske and other analysts had been worried that several legal and regulatory hurdles facing PayPal might scare off investors Friday. 

Just before PayPal was set to launch its IPO, New York-based CertCo Inc. filed a patent infringement lawsuit that threatens to shut down the service with a court order. 

PayPal, which is nearly 3 years old, also is embroiled in disputes with various state regulators who believe the company is illegally running an unlicensed bank. 

Regulators in Louisiana were poised to shut down PayPal’s service in that state until company officials negotiated more time to work out the licensing issues. New York regulators this month also reiterated their opinion that PayPal is breaking that state’s banking laws. The alleged violations could expose PayPal to huge fines. 

PayPal also acknowledged its activity is being scrutinized by bank regulators in other states. 

“If you try to balance all the positives and negatives with this company, it looks like there are more negatives right now,” said David Menlow, president of IPOfinancial.com. 

PayPal also hasn’t made a dime yet. 

The company’s losses totaled $283 million through Dec. 31, including a 2001 loss of $107.8 million on revenue of $104.8 million. 

But with PayPal opening an average of 18,500 new accounts per day, investors are betting the company will eventually become profitable. If not for accounting charges absorbed to pay for past acquisitions and stock-based compensation, the company says it would have earned $3.2 million in the final quarter of last year. 

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On The Net: 

http://www.paypal.com