By Diane Alter, Contributing Writer, Money Morning•
Square Inc. is preparing for its initial public offering this week, and the Square stock symbol has been set as "NYSE: SQ."
Square is one of this year's most highly anticipated tech IPOs, and shares will price on Wednesday, Nov. 18.
The company lowers the cost of processing credit cards for 2 million-plus businesses. And since it has only tapped about 15% of its potential U.S. customers and is just beginning to expand abroad, plenty of expansion opportunities exist.
Here are the most important details of the Square IPO, including the Square stock symbol...
The Square Stock Symbol and Other Important Details
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 had expected.
Square stock will hit the market on Thursday, Nov. 19.
At the midpoint, the company would be valued at $3.875 billion. That's lower than the $6 billion valuation Square commanded during its last round of private equity fundraising in 2014.
The company is set to hit $1 billion in sales this year if it maintains its pace from the first nine months of 2015. That means its valuation is less than four times revenue.
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.
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.
Investors including JPMorgan Chase & Co. (NYSE: JPM) and Rizvi Traverse paid $15.46 a share for Square stock prior to the IPO. They required that the IPO 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 like Apple Inc.'s (Nasdaq: AAPL) Apple Pay. Last week, Apple was reported to be in talks with banks about a mobile person-to-person payment service, which would be a rival to PayPal and Square. PayPal shares dropped 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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