Mark Fletcher's Blog

PayPal’s IPO
The Internet payment service PayPal filed for an IPO this week. There have been no tech IPOs in quite a while; I think LoudCloud was the last major one, and look at it’s share price. If anything, the market is even worse these days for an IPO, especially an Internet company IPO. So why did PayPal file?
There are two reasons why a company files for an IPO. Well, maybe two and a half. First is the obvious, it’s a way to raise money. So maybe these guys are running on empty and figure an IPO is cheaper money than going back to private investors. But in this market, I can’t believe that the uncertainty involved in an IPO would make up for any advantage in raising cash. If you’re going under, you need money quickly, so go for the sure thing. But more importantly, PayPal isn’t running out of cash. They claim to have 24 months worth of cash in the bank. How do I know? I read their S-1 filing at www.freeedgar.com. It’s all spelled out there if you can fight through the legal mumbo jumbo.
So, PayPal doesn’t need the cash for another two years, and the market sucks anyways. Why did they file? I believe it’s because of the second reason a company files to go public, to get bought. If you’re a company looking to be acquired, you want to look as good as possible. One way to do this is to file to go public. It’s a bargaining chip, a way to force your suitor(s) hand. Anyone thinking about buying PayPal now has some pressure to make up their minds sooner rather than later.
So, if I’m correct, look for an acquisition announcement before the end of the year. Regardless, I’d bet money against PayPal’s IPO going out anytime soon.
When a company files to go public, they submit a form to the SEC called an S-1. I mentioned PayPal’s S-1 briefly in a preceeding paragraph. The S-1 tells everything there is to know about the company. It’s a great way to peer inside a company. It’s important to be able to read one of these beasts. I’ll talk more about this in the future.
Oh, and the half a reason a company goes public? So their employees and other stockholders can sell their stock. I believe that’s a big reason why In-n-Out Burger is trying to do an IPO. Hmmmmmmmmmm, double double.