PayPal investors file to sell shares
Investors and executives file to sell 6 million shares, about 10 percent of the online payments company, in a secondary public offering.
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Separately, PayPal announced news on its legal fronts. While New York's Banking Department concluded that the company was not engaged in illegal banking, two more class-action suits have been filed against the company on behalf of PayPal customers, the company said in its regulatory filing.
PayPal representatives declined to comment, saying that the company was in a quiet period due to the filing.
In other news Wednesday, PayPal increased its second-quarter and full-year forecasts.
PayPal set a tentative per-share price for the offering of $26.95 for the purpose of determining a registration fee. The company's shares were down $1.79 at $23.69 in early afternoon trading on the Nasdaq on Wednesday.
Thiel plans to sell 574,701 shares, or about one-fifth of his stake in the company, according to the document filed with the Securities and Exchange Commission. Following the offering, Thiel would go from owning 4.6 percent of PayPal to about 3.6 percent.
Levchin's stake would go from about 2.9 percent of the company to about 2.2 percent, following the offering. Levchin plans to offer about 419,000 shares, or about 24 percent of his holdings.
Company Director Elon Musk also plans to offer some of his stake in PayPal as part of the offering. Musk, who served as PayPal's CEO from May 2000 to September 2000, plans to sell 1 million of his 7.1 million shares. His stake in the company would decline from 11.7 percent to 10.1 percent.
Other company insiders offering shares include David Sacks, the company's chief operating officer; Reid Hoffman, PayPal's executive vice president; and James Templeton, a senior vice president. They plan to sell about 98,000 shares, 83,000 shares and 45,000 shares, respectively.
PayPal raised about $70 million in its IPO in February, selling about 5.4 million shares of stock. One of the first public offerings by a tech or Internet company in about a year, PayPal's IPO was delayed in early February after a lawsuit was filed against the company. PayPal later settled that suit.
The banking question
The company has faced legal problems in recent months, including questions from state regulatory authorities about whether it is offering an illegal banking or money-transmitter service. Louisiana went so far as to ask PayPal to cease offering its service to state residents. The state withdrew its request after PayPal applied for and obtained a money-transmitter license in the state. PayPal has moved to clear regulatory hurdles in other states, applying for money-transmitter licenses in some 16 states plus the District of Columbia.
Last week, PayPal received a letter from New York's Banking Department saying that the department had concluded that PayPal is not operating an illegal banking business. New York officials had previously indicated that they thought PayPal was operating an illegal bank, and the state can still change its conclusion, the company said in its filing. The state has encouraged PayPal to apply for a money-transmitter license, which PayPal said it plans to do by the end of the month.
In March, the Federal Deposit Insurance Corporation said it does not consider the company to be a bank or savings association because it does not accept deposits as defined by federal law. However, officials at the time cautioned that they do not have the final word on the matter.
New suits
While PayPal's regulatory difficulties seem to be improving, other legal problems have cropped up recently. Already facing two class-action suits, one each in federal and California state courts, PayPal was hit with two more class-action suits earlier this month, filed by the same lawyers who filed the original suit in February, according to the company's regulatory filing.
The new suits are similar to the first two filed against PayPal, charging the company with illegitimate restricting of customers' accounts. One of the new suits, filed in California Superior Court in Santa Clara County, charges PayPal with illegally freezing accounts in their entirety in cases where only a portion of the funds in the accounts was suspected of coming from fraud or where the account owners were not suspected of any fraud at all. The suit also charges PayPal with deducting funds from members' accounts without conducting an investigation.
The other new suit, filed in U.S. District Court for the Northern District of California, was filed on behalf of customers who use PayPal primarily for personal or household purposes. The suit alleges that the online payments company violated the federal Electronic Funds Transfer Act by failing to conduct timely investigations into customer complaints and failing to provide a readily available phone number for consumers to report problems. The suit also charges the company with illegally converting and retaining user funds for its own use.
Both suits seek actual, compensatory and punitive damages against PayPal.
"We believe we have meritorious defenses to these lawsuits and will contest the suits vigorously," the company said in its filing. "However, the ultimate resolution of these matters could have a material adverse effect on our financial condition and results of operations."
Financial forecast
PayPal upped its guidance to investors on Wednesday, saying that it expected its second-quarter revenue to be higher than previously indicated. The company now expects to pull in from $53 million to $54 million in revenue in the second quarter; the company's previous range was from $52 million to $53 million, the company said in a statement. PayPal expects to post pretax net income between zero and $500,000, about zero to 1 cent per share, in the quarter.
On a pro forma basis, excluding noncash stock compensation charges and a charge related to its recent change of headquarters, the company expects to earn $5.5 million to $5.8 million, or about 8 cents to 9 cents per share in the quarter. Wall Street analysts surveyed by First Call had expected the company to earn about 8 cents per share.
For the full year, the Mountain View, Calif.-based company now expects to post $14 million to $19 million--about 23 cents to 30 cents per share--of pretax net income on between $222 million to $230 million in revenue. The company previously told investors it expected its full-year revenue to fall between $220 million to $230 million. PayPal did not provide a net income estimate.
PayPal expects to post pro-forma profits, excluding the stock and moving charges, of between $22 million to $24 million, or 35 cents to 37 cents per share, for the full-year. The company previously told investors it expected to post pro-forma profits of 34 cents to 36 cents per share for the fully year; Wall Street analysts surveyed by First Call had expected the company to earn 36 cents per share on a pro-forma basis.