New Troubles for PayPal

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PayPal Inc. could use a few friends right now.

Just days before its likely second attempt at an initial public offering, a filing with the Securities and Exchange Commission revealed that on Feb. 7 Louisiana sent PayPal a letter requesting it stop brokering payments for state residents until it gets a license to do so. New York state also has notified the company that it is running an unlicensed banking business.

PayPal could face fines of up to $5,000 per day in New York and $1,000 per day in Louisiana for the time the company offered residents its services, which those states deem to be in violation of their laws. PayPal began offering its service in New York and Louisiana in October 1999.

The news will test the fortitude of investors who already were jittery when PayPal delayed its IPO last week as the result of a patent infringement lawsuit filed by New York technology firm CertCo Inc. in Delaware on Feb. 4.

Currently, it looks as if PayPal will price its shares Feb. 13 and begin trading Feb. 14.

PayPal, which filed for its IPO in the fall, plans to offer 5.4 million shares of stock. They were expected to begin trading at $12 to $14 each and raise $76 million.

PayPal allows Internet users to make and accept online payments. Its service is probably best known as a way to make and accept payments on auction site eBay.

Many were eyeing the PayPal IPO as an indicator of what other Internet companies that have delayed their IPOs could expect if they proceeded with their plans.

The company reported it has lost $264.7 million from its inception in March 1999 through Sept. 30, 2001. PayPal also reported net losses of $90.6 million during the nine months ended Sept. 30, 2001.

"[W]e anticipate having a net loss from operations in fiscal 2001 and may not be able to reach or sustain profitability in the future," PayPal said in its Monday filing with the SEC.

The Palo Alto, CA, company claims more than 12 million users and that those users spend more than $10 million per day in about 200,000 transactions.

PayPal is heavily reliant on eBay transactions. Auction purchases account for 68.3 percent of the dollar volume of payments made through PayPal, particularly eBay, the company said in Monday's SEC filing.

"If our ability to process payments for purchases made on online auction Web sites, particularly eBay, became impaired, or if these online auction sites took additional steps to integrate their payment services, our business would suffer," the company said.


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