Cybercrime

Legal Darts Won’t Pop PayPal’s IPO Balloon

Uh-oh. That likely was the reaction of just about everyone paying attention — and plenty of people are — when word came that PayPal‘s initial public offering would not take place on Thursday after all.

The company’s much-ballyhooed debut was postponed because of a lawsuit filed Monday by CertCo, which claims to have come up with the same online payment system that PayPal uses before PayPal did.

The lawsuit may or may not have merit. That will be for a court to decide. Frankly, the reason for the delay is far less important than the fact that the offering did not happen as planned.

But this setback is just a bump in the road. PayPal will stay the course. It has to.

Whether it wants to or not, the company is carrying the weight of the dot-com world on its shoulders.

Waiting To Pounce

If nothing else, IPO failure would make for two bad dot-com performances within a year, since Loudcloud (Nasdaq: LDCL), co-founded by former Netscape wunderkind Marc Andreessen, went public and proceeded to go nowhere else last spring.

Then there is the silence and uncertainty. PayPal is in registration with the Securities and Exchange Commission, so it can’t say much. And in these days of Enronitis and accountants taking the Fifth, uncertainty and silence aren’t good omens.

Delaying IPOs is never a good thing. It takes time to get all the forces aligned just right. Investors line up with their wallets open, analysts and reporters with their ears perked up. A company can delay only so long before people grow weary of hearing its story.

But there’s a big difference between delaying an IPO for a few days to talk things over with your lawyers, as some reports say PayPal has done, and putting it off for up to a year — a much bigger red flag.

Time the Avenger

The lawsuit that stopped PayPal from going public should prove to be little more than a temporary setback. Even if it knocks PayPal off course for a while, it shouldn’t undo all the good the company has done already by reminding people that, yes, its still possible for an Internet company to go public.

The problem now is one of perception. PayPal and its underwriters probably worry about whether the patent claims are enough to scare off investors. Maybe they will frighten some of the weaker-kneed ones.

But the history of such lawsuits in the Internet world isn’t terribly volatile. Most are settled eventually, and PayPal can save a few pennies from its IPO for such an eventuality.

No doubt lawyers are huddling somewhere with underwriters, strategists and probably a fortuneteller or two as they try to divine the impact of the news.

Clean Slate

Amid the confusion, one thing seems clear: If a delay of a day or two is bad news, a longer delay is even worse.

Sure, PayPal might be able to go away and settle the suit, then come back with a clean slate and no impediments. The company might be welcomed back with open arms by the market.

That’s fine for PayPal. But to the tech world, it’s not good news. Patience may be a virtue, but there are limits. Except for Loudcloud, it’s been well over a year since a dot-com broke through the IPO barrier.

The PayPal offering itself isn’t even that important. Twelve bucks. Fourteen. A 10 percent first day, up or down. Whatever. The details aren’t important.

Time is, though. A short delay provides an extra shot of suspense, an extension of the dramatic buildup. A long delay — well, that’s something we don’t even want to think about right now.

What do you think? Let’s talk about it.


Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of CRMDaily.com or its management.


4 Comments

  • Legal Darts are the least of Paypal’s troubles. There are thousands upon thousands of anti-paypal websites, chat rooms, and discussion lists out there, and they are growing. Most savvy online shoppers know to steer clear of Paypal which is completely boycotted by an entire generation of computer users. It is a sinking ship. Big time. And they will never be able to do the damage control at this point. check out http://www.paypalsucks.com for starters. Then surf to your heart’s content (there are hundreds more). Some of the stories you’ll find will make even the most hardened investors weary of such unimaginably poor service practices. I even saw a bumper sticker today in the town of Champaign, Illinois with a Paypal logo and a line through it. I wouldn’t put a dollar on that dog.
    –Mark

  • As a full-time auction seller for 4+ years, I’ve used PayPal for almost 2 years. Their product and service has been great. Just like ebay, PayPal customers keep coming back to what works for them. The momentum of 12-13 million satisfied users should carry them through these attacks by the baloon-poppers.

  • Mr. Regan, how come you have no email address listed?

    I want to send you information about PayPal, and I AM

    forced to go to this board to get your attention. Please

    contact me.

  • GO-GO Pay Pal. What a public perception burden to bear. To be the first in a year, it is important however that the IPO dotcom flow be re-established. Even if at the considered pace of prudent exuberence, capital must flow business and applications must grow. Pay Pal has a good business model, the offering should go well.

    [email protected]

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