PayPal (PAYP.US) raised $880 million in its US IPO: Valuation and strategic considerations behind the price adjustment

SoftBank Group-supported Japanese digital wallet operator PayPay (PAYP.US) plans to price its IPO in the US at $16 per share, lower than the previously recommended range of $17 to $20 to investors. However, considering the global turmoil and uncertainty surrounding the current war in the Middle East, the decision to proceed with the IPO of this Japanese payment group is wise. The IPO raised $880 million at a valuation of $10.7 billion, far below SoftBank founder Masayoshi Son's ambitious $20 billion target. This target has always been seen as a "moonshot" fantasy: to achieve this, the electronic payment and credit card provider's valuation would need to be set at 8.4 times its fiscal year 2026 sales, or five times the price-to-earnings ratio of its US peer PayPal. While the grand plan to create an all-in-one financial "super app" in the $4 trillion Japanese economy may seem daunting, the prospects for its core business still look solid thanks to the rapid adoption of electronic payments in its domestic market. Japan's economic and geopolitical stature also explain why this deal continues to proceed even amidst a war with Iran. The country has around 250 days of oil reserves, helping to alleviate the pressure faced by consumers using PayPay services at gas stations. Furthermore, this IPO is already overdue: it faced significant delays last November due to a government shutdown in the US causing regulatory review to stall; subsequently, the roadshow scheduled to start on March 2 was postponed due to the outbreak of war. However, if they continue to wait for the market to calm down, PayPay may pay a higher price. Investors such as the Qatar Investment Authority (QIA) and the Abu Dhabi Investment Authority (ADIA) have committed over $200 million to the deal. With Iranian missiles landing on their soil, these commitments may now be in jeopardy. Sources reveal that Gulf nations have started reviewing their sovereign wealth deployment strategies to address the severe economic losses caused by the war. At least SoftBank still holds over 90% of PayPay and stands to benefit from any future gains in the secondary market. But if the pace of new funds from oil-dollar sovereign wealth funds slows down, transactions on a global scale will face threats.