Square Inc has priced its shares for its upcoming initial public offering on Thursday at $9, which is close to 25% less than hoped, as it struggled to please investors that are skeptical about its valuation and business prior to trading starting. Seen as a barometer for future market activity, Square’s confident unveiling on Thursday will show other so-called “unicorns”, or private technology companies valued at more than $1 billion, that there is life after an IPO.
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Mobile payments startup Square and Tinder parent company Match have listed publicly in the USA, and both have enjoyed quick gains since opening. But the stock traded within and above that range in its first day on the NY Stock Exchange. “At the end of the day, we can’t be market timers, we can control what we can control, which is focus on our business”. The valuation sent a frisson through Silicon Valley, where there are increasing concerns that the optimistic assumptions about the growth and profitability of many “unicorns”-privately held technology firms valued at over $1 billion-are unfounded”.
“Square priced the IPO to incentivize and leave a good taste in investors’ mouths”, said Josef Schuster, founder of IPO research and investment house IPOX Schuster. Along with a shareholder, Square raised $243 million, and sold 27 million shares at $9 each.
There are millions more “micro-merchants” to recruit-one of the reasons for optimism about Square’s prospects.
Meanwhile, online dating site operator Match Group (NASDAQ:MTCH) also began its first day of trading above its IPO price on Thursday.
“As a public company, they’ll be required to publish quarterly earnings. This time, the companies that are going public have four or five years of a track record, they have actual earnings, actual customers, and they are far more bankable”. It now offers services ranging from loans to invoice software. And public-market investors are also much more aware of global uncertainty, meaning that recent turmoil in the Chinese and European stock markets sends more than a ripple of anxiety through US investors.
Square Inc was started as a platform for small businesses to accept credit card payments through mobile devises, and it has now evolved as a by-way for companies like Apple and Visa.
In 2014, Square generated $850.2 million, compared with $203 million two years prior, according to documents filed with the Securities and Exchange Commission. The partnership generated only $123 million in revenue, so Square essentially lost $28 million on the deal.
The IPO is among the strongest indications yet that valuations set by private market investors can be fleeting.
These bleeding unicorns might be giving us a much better picture of what it might look like when this tech bubble pops, or deflates, or what have you – a process that seems to be ongoing right now.
Tom Donino, co-head of trading at FNY Capital Management, said it is unusual to see a stock trade up so much after pricing below the expected range, as Square’s did.
It posted $131.5 million in losses, up from $117 million the prior year.
Chief Financial Officer Sarah Friar said Square should be able to turn each dollar of revenue into 35 to 40 cents of profit before interest, taxes, depreciation and amortization over the long term.
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I don’t think so.
