On Thursday, his financial-services startup, Square, debuted on the NY Stock Exchange, where the stock price opened at $9 per share and quickly shot up 50 percent.
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There was a lot of hand-wringing on Wednesday night when digital payments startup Square set its initial public offering price at $9 per share.
The developer of a free software app that combines with a small card reader to turn mobile devices into point-of-sale systems claimed in the filing that the foundation of its business model “is the millions of sellers processing payments with Square”. In the private markets, Square was last valued at $6 billion, but the IPO terms implied a valuation of less than half that amount.
A number of tech IPOs have performed poorly over the past year, and mutual fund investors including Fidelity Investments have been marking down the value of their private tech holdings.
Compounding concerns is Square CEO Jack Dorsey’s dual role running Twitter Inc, a social media company struggling for a turnaround. In 2012, Smith says, a company like Match would have sold for a lot more because back then, investors had an appetite and a tolerance for risk.
Square filed its S1 on October 14, and while the stock market volatility of August has dampened down, there has been plenty of debate over public market and private market valuations.
The shares were priced at US$9 after Square was unable to get demand from investors within the US$11 to US$13 range it was seeking, raising US$243 million.
Ken Polcari, director of the NYSE floor division at O’Neil Securities, said he thought the low price of the offering, which cleared the way for the first-day pop, was a smart move in the current market environment.
“Square’s financials leave much to be desired”. While venture capitalists have vied with each to pour money into promising start-ups, which has inflated their values, other investors seem to show a preference for more established companies, with more predictable earnings streams.
Square’s pricing may add to the growing movement for investors to exercise more scrutiny on valuations, especially for companies with large multiples relative to revenue, Wolff said.
It posted $131.5 million in losses, up from $117 million the prior year.
Analysts also obseve that Square’s situation reflects a tough IPO market for tech companies in 2015.
Still, Dorsey does not plan to hold all of the shares he owns now.
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The arrangement puts early stage investors and even early employees at a distinct disadvantage compared to late stage investors, who are guaranteed a payout no matter the outcome.
