Underwriters who pinned their hopes for a revived new-issues market on the PayPal ( PYPL) IPO are probably wishing they'd chosen their candidate a little more carefully. PayPal's deal was announced with much aplomb and anticipation after a barren year for technology offerings. The company sells a payment system for online transactions that is popular with users of eBay ( EBAY), and indeed, some speculate that the product's familiarity among potential investors further juiced demand for the shares. But as fast as PayPal's reputation went up, its shares have plunged back to earth, victims of an ill-timed lawsuit, bare-knuckled competitive posturing by eBay and, according to some, haste on the part of deal-starved underwriters.
Menlow, who had been bullish on the stock prior to the revelations, changed his opinion before the debut. "If incorporated into an original prospectus, a risk disclosure statement can be a negative thing," Menlow said. "But it's not nearly as bad as an amendment two days before an IPO filing." Despite the problems, PayPal soared $7.09 on its first day of trading to $20.09, leading some briefly to herald a renaissance for new technology shares. But others said the deal was sold to a bunch of PayPal fans whose enthusiasm was based on something other than the company's financial viability. "There could have had a bunch of people who used PayPal and thought it was the greatest thing since sliced bread," said Marc Baum, chief executive of IPO.com. "And, so, they bought the stock." Whatever the reason for the pop, the shares deflated last week when eBay announced it was paying Wells Fargo ( WFC) $43.5 million to buy back the 35% of its Billpoint online payment service it didn't already own. The agreement was seen as a hostile gesture aimed squarely at eBay's competition, and it knocked PayPal's shares from a close of $17.82 Wednesday to $15.01 Thursday and to $13.21 on Friday, the first session during which it dipped below $13 intraday.