The Square Share Price Hinges on These Two Factors (NYSE: SQ)

Square Inc. (NYSE: SQ) will start trading on Thursday, Nov. 19, following one of the most anticipated IPOs of 2015.

square share priceThe Square share price range is set between $11 and $13. Square plans to raise $324 million through the IPO, which would place the Square IPO valuation at $4.2 billion after the deal.

Part of the reason for the huge valuation is its rapidly growing industry. The mobile payment industry is expected to reach $142 billion in volume by 2019, according to a report from research firm Forrester. And now, many investors view SQ stock as a long-term investment.

But for those looking to buy Square stock, these are the two biggest factors that will affect the Square share price after the IPO...

Square Inc. (NYSE: SQ) Isn't Profitable

The first major factor that will impact the Square share price is the company's ability to turn a profit.

Square Inc. reported net losses of $154.1 million in 2014 and lost $77.6 million during the first half of 2015.

In fact, Square stated in its IPO filing that it may never be profitable.

"Our business has generated net losses, and we intend to continue to invest substantially in our business," the Square IPO filing said. "Thus, we may not achieve or maintain profitability."

These are Square's net losses since 2012:

  • 2012: $85.2 million
  • 2013: $104.5 million
  • 2014: $154 million

Square also lost a significant source of revenue in 2015, when Starbucks Corp. (Nasdaq: SBUX) chose not to re-sign its contract from 2012. Starbucks accounted for 14% of Square's revenue in 2014.

But losing Starbucks' business may actually end up being a good thing for Square...

Even though Starbucks accounted for 14% of Square's revenue last year, Square has lost $71 million since working with Starbucks in 2012, according to CNN Money.  Starbucks also accounted for 21% of Square's transaction costs in 2015.

Chief Executive Officer Jack Dorsey is under immense pressure to show a path to profitability for the mobile payment company.

And his leadership of the company is the second major factor that will impact the Square share price...

Jack Dorsey: CEO of Square (NYSE: SQ) and Twitter

The Square IPO filing was very upfront about the challenges facing the company.

Square acknowledged that Jack Dorsey's dual roles at Square and Twitter Inc. (NYSE: TWTR) could cause conflict. "This may at times adversely affect [Dorsey's] ability to devote time, attention, and effort to Square," the Square IPO filing stated.

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You see, Dorsey took over as CEO of Twitter on Oct. 2 during a pivotal and turbulent time. Twitter suffers from slowing user growth and stiff competition for advertisers' money from rivals like Facebook Inc. (Nasdaq: FB).

If Twitter was as strong as Facebook in terms of user growth and revenue generation, there would be less worry about Dorsey handling both roles effectively. Since he has to completely turn Twitter around, however, that's where the conflict arises.

As most investors know, Dorsey already had a failed stint as Twitter's CEO in 2008. The then 32-year-old CEO would reportedly leave work early to attend fashion shows and yoga classes, which rubbed his fellow co-founders and board the wrong way.

Dorsey obviously valued his free time, but investors want to see if he has matured enough to handle both roles.

The problem with this is early investors are buying into the stock as if Dorsey has proven he can handle being a dual CEO. Investors need to see how Square's CEO handles his dual role for at least a few quarters before handing over their money.

The Bottom Line: As with any IPO, early Square Inc. (NYSE: SQ) investors are just buying into hype. Square has lost $343.7 million between 2012 and 2014, and the IPO offers a staunch warning that Square may never be profitable. Another concern is that CEO Jack Dorsey is also tasked with turning Twitter around and bringing a new company into the publicly traded market. Potential investors need to sit on the sidelines until Dorsey proves he can make Square profitable.

Jack Delaney is an Associate Editor for Money Morning. You can follow him on Twitter and follow Money Morning on Facebook.