The Square IPO is finally approaching.
Yesterday (Wednesday), Square Inc. (NYSE: SQ) filed with the U.S. Securities and Exchange Commission to launch an initial public offering. According to Renaissance Capital, a manager of IPO-focused ETFs, the company filed to raise up to $275 million.
According to TechCrunch, Square is valued at $6 billion following its most recent round of funding.
No IPO date or price range has been set yet, but the company does plan to hold the IPO in 2015.
Square is a financial services startup founded in 2009. The company offers a mobile payment service for phones and tablets. Its Square Reader software plugs into a smartphone's standard headset jack and lets users take credit or debit card payments.
The Square IPO filing came less than a week after company CEO Jack Dorsey was also named permanent CEO of Twitter Inc. (NYSE: TWTR). Dorsey, who co-founded Twitter back in 2006, will be splitting his time and attention between the two tech companies. Dorsey's dual leadership has left investors wondering if he'll be able to head two publicly traded companies.
"This may at times adversely affect his ability to devote time, attention, and effort to Square," the filing said.
During the first half of 2015, Square posted $560.6 million in revenue, up 51% from the prior year. However, the company reported a loss of $77.6 million and admitted it may never become profitable.
"Our business has generated net losses, and we intend to continue to invest substantially in our business," the filing noted. "Thus, we may not achieve or maintain profitability."
Now that we know the initial details of the Square IPO, investors are wondering whether they should buy SQ stock once it hits the market...
Should You Buy Into the Square IPO?
There are three reasons we recommend passing on the Square IPO.
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The first reason is IPOs are usually a bad idea for retail investors. Wall Street often reserves these popular IPOs for hedge funds and big investment banks willing to buy large quantities of a stock. These "VIPs" usually sell the stock off by the time you and I could buy into it.
The second reason to pass on the Square IPO is many of these deals are fueled by hype rather than facts. Many investors run into unprofitable companies like Square without so much as looking at a balance sheet.
"Too many investors hear of a 'hot IPO' and try to get in on the action without doing any homework at all," Money Morning Defense & Tech Specialist Michael A. Robinson said. "That's a recipe for a hefty loss."
And the final reason to avoid the Square IPO is the volatile IPO market right now. According to Renaissance Capital, all 2015 IPOs have seen an average decline of 3.5% from their offer price. The largest IPO of the year, First Data Corp. (NYSE: FDC), priced 11% below its range this week.
Don't miss any Square IPO updates - follow me on Twitter at @AlexMcGuire92.
How to Safely Profit from Any IPO: Investing in newly issued stocks can seem like an exciting way to earn huge profits. But with institutional investors and other Wall Street "VIPs" cheating the market for quick gains, the IPO process is a rigged game nowadays. That's why we've outlined the three best IPO investing rules to follow for any new stock. Check them out here...