The Strategist

Jack Dorsey's Square Is Cheaper Than Expected

11/19/2015 - 15:50

American payment service Square held an IPO with price of $ 9 per share. This was below the lower limit set in the beginning of November ($ 11-13), and almost half, that investors paid for the share last year. Among the reasons are the investors’ incredulous looks on the profitability of payment systems in general, as well as the slowdown in Square’s revenue growth.

On Wednesday, late in the evening, Square announced the final price of the shares for IPO: it was $ 9, which is lower than the previously announced price range of $ 11-13. In the past year, investors paid $ 15.46 per share. Square’s shares are starting trading on the New York Stock Exchange on Thursday under the ticker SQ. The company is offering 27 th. shares. During the IPO, Square raised $ 243 million.

Square was founded in 2009 by Jack Dorsey, the creator of Twitter. Square has become one of the developers of a payment system using bank cards and smartphones via a special small device that connects to your phone through the headphone jack. The customer can pay for services or goods immediately after receipt, and the seller saves money without setting a special payment terminal in the store. The fact that the company intends to hold IPO became known in July. In mid-October, Square formally filed an application to regulators for initial public offering of its shares on the stock exchange. According to preliminary estimates, the company’s value of was $ 6 billion. A few weeks ago, Square announced the IPO price range at $ 11-13 per share. Thus, value of the whole company was estimated at $ 4.2 billion, which is 30% below the pre-assessment. Under the current share price of $ 9, the company’s capitalization is a third lower, being assessed at $ 2.9 billion.

It was investors’ skeptical mood that reduced cost of the company's shares. Many doubt general level of profitability of such payment services. Besides, Square’s revenue growth has slowed.

- This IPO is a test case for companies that have fallen out of investors’ favor. These companies, which spend a lot for the sake of revenue growth, and which path to profitability is difficult, - said Jeremy Abelson from Irving Investors. According to Square itself, by the end of 2014 it processed 446 million payments with 144 million cards totaling $ 23.8 billion. In the first six months of the year, Square revenues was $ 560 million, which is 51% more than the year before. In 2014, revenue was $ 850 million, which is 54% more than in 2013.