Mobile payment company Square Inc. (NYSE: SQ) will make its debut as a public company on Thursday, Nov. 19, and we've been reviewing the Square IPO filing for details.
The Square IPO is one of the most highly anticipated initial public offerings of the year. But there are some serious questions about the company's business, growth prospects, and valuation ahead of the deal.
Here are all the must-know details from the Square IPO filing...
The Square IPO Filing's Most Important Details
- The company will list on the NYSE under the ticker "SQ."
- The Square IPO price range has been set at $11 to $13 a share. That price range is sharply lower than the widely discussed range of $22 to $24 many analysts expected.
- The company will sell 25.7 million Class A common shares. The Start Small Foundation, a charitable fund created by CEO Jack Dorsey, will sell about 1.35 million shares.
- The Square valuation may be as high as $4.2 billion in its trading debut. That's a significant cut from the $6 billion the company sought in its last funding round in 2014.
- At the high end of the Square IPO price range, the company is seeking a premium of about 75% compared with payment-industry peers, according to Wedbush Securities.
- Investors including JPMorgan Chase & Co. (NYSE: JPM) and Rizvi Traverse paid $15.46 a share prior to the IPO. They required that the IPO must price at $18.56 a share or higher, otherwise they are entitled to receive additional common shares, Square's IPO filing shows. Those firms will also get their money back before any other investors in the event the company is sold.
- Square typically charges merchants 2.75% to swipe credit cards through its reader, according to the company's website. The bulk of that money is spent on fees to payment networks, other financial intermediaries, and fraud costs.
- Square faces competition from PayPal Holdings Inc. (Nasdaq: PYPL) and other payment companies. Wednesday, The Wall Street Journal reported Apple Inc. (Nasdaq: AAPL) is in talks with banks about a mobile person-to-person payment service, which would be a rival to PayPal and Square. PayPal shares fell 1.5% on the news.
- Founded in 2009 to give small businesses a way to accept credit card payments through a "dongle" for mobile devices, Square has evolved to offer services ranging from loans to invoice software.
- About 97% of Square's business comes from processing credit card payments, primarily for small businesses. It also offers payroll, scheduling, analytics, and marketing services.
- Although Square's transaction revenue has been growing annually, so have expenses. Square doesn't connect directly to credit card companies and banks. It relies on acquiring processors. When Square pays fees to those entities, it loses about 60% of the revenue. In 2014, Square's revenue was $707 million, but transaction fees ate up $450 million.
- Square reported net losses of $85.2 million in 2012, $104.5 million in 2013, and $154.1 million in 2014. In fact, Square admitted that the company may not be profitable for years. "Our business has generated net losses, and we intend to continue to invest substantially in our business," the filing said. "Thus, we may not achieve or maintain profitability."
- Another concern is how Square will replace lost revenue when its deal with Starbucks Corp. (Nasdaq: SBUX) ends in Q3 2016. Starbucks uses Square to process credit and debit card transactions in most of its stores. That arrangement brought in $123 million in sales in 2014, or 14.5% of revenue.
- Jack Dorsey's dual role as CEO of both Square and Twitter Inc. (NYSE: TWTR) worries some investors and analysts.
- Goldman Sachs & Co., Morgan Stanley & Co. LLC, and J.P. Morgan Securities LLC are among 10 firms underwriting the offering.
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