PayPal Turns Out to be A Real Friend

Ratifying its high-flying stock price, online payments service PayPal Inc.
posted its first ever profit, bringing its earnings in at 2 cents a share on
a fully diluted (GAAP) basis for the first quarter of 2002.

The company , which went public just last February, said
that strong payment volume growth drove first quarter revenues of $48.8
million, up from $14 million in the year-earlier period.

PayPal reported $1.2 million of net income for the quarter, or 2 cents per
diluted share on a GAAP basis, compared to a net loss of $29.3 million, or
$5.39 per share, for the same period last year.

“The continued strong growth of PayPal’s global network led to record payment
volume (and) increased revenues … in the first quarter,” said Peter Thiel,
co-founder and CEO of PayPal. “We continue to expand our e-mail-based payment
service, which powerfully leverages the substantial gross margin inherent in
our business.”

PayPal said it estimates second-quarter 2002 revenues could range from $52
million to $53 million, resulting in pro forma after-tax earnings of
approximately 7 to 8 cents per share. PayPal also estimates 2002 revenues
could range from $220 million to $230 million, with pro forma after-tax
earnings of approximately 34 cents to 36 cents per share.

The company said increased revenues in the first quarter resulted from 21
percent growth in PayPal’s total payment volume, from $1.21 billion in the
fourth quarter of 2001 to $1.46 billion in the first quarter of 2002.

Palo Alto, Calif.-based PayPal went
public at $13 a share in mid-February. The stock closed Wednesday at
$25.38.

The stock had been bouncing around between $17 and $19 until earlier this
week, when rumors of a potential takeover by auction giant eBay sent the
price up sharply. It closed Tuesday at $23.89.

The company gets most of its revenue from eBay users; so such a deal would
seem to make some sense.

San Jose, Calif.-based eBay bought
the Billpoint payment service in 1999 and recently repurchased Wells Fargo’s equity stake in the operation.

For all of last year, PayPal lost $2.29 a share; in 2000 it lost $5.54 a
share. PayPal is facing several lawsuits, including one alleging that it is prone to restricting, freezing or
closing customer accounts without good reason.

Earlier this month, PayPal said that it would be leasing a second building in
Omaha, Nebraska, to support an additional 150 customer service and operations
personnel expected to be hired in 2002. The company also plans to move its
California headquarters from Palo Alto to Mountain View in the second
quarter.