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 The mobile payments company said it along with a selling stockholder
would offer 27 million shares, raising $243 million in its Wall
Street debut, about $80 million less than expected.
The San Francisco-based company earlier this month set a price range
of $11 to $13 per share, well below the $15.46 investors paid in
Square's most recent private financing round last year.
The steeper discount to $9 - a 42 percent drop from a year ago -
suggests widespread uncertainty about the profitability of the
payments industry and the future of Square itself, which has seen
slowing revenue growth.
The weaker price puts Square's market capitalization at $2.9
billion, a far cry from the $6 billion valuation it had earned from
private investors.
"The way that Square was valued as a private company is they were
just going to disrupt everything and change payments," said Andrew
Chanin, chief executive of PureFunds, an exchange-traded fund that
includes mobile payments companies. "And the reality is not that."
The IPO is among the strongest indications yet that valuations set
by private market investors can be fleeting.
Fidelity Investments recently cut the estimated value of its stake
in some high-profile private tech companies, including Snapchat,
Zenefits and Dropbox.
Compounding concerns is Square CEO Jack Dorsey's dual role running
Twitter Inc, a social media company struggling for a turnaround.
Investors have criticized Dorsey and Square for not better
communicating how he plans to split his time between the two
companies.
Only on Monday did Square touch on Dorsey's dual roles in an updated
IPO filing that states Dorsey will give his "full business efforts
and time to the company, other than with respect to (his) work with
Twitter Inc."
Founded in 2009, the company started as a way for small businesses
to accept credit card payments through mobile devices. It has
evolved into a suite of small-business services, relying on
partnerships with companies such as Apple and Visa.
The valuation cut triggered a ratchet, or protections investors
wrote into a previous funding round. Investors had expected shares
to price at more than $18, and Square must sell several million
additional shares to make up the difference.
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The company will sell 25.65 million Class A common shares, while the
Start Small Foundation, a charity created by Dorsey, will offer 1.35
million.
Square will begin trading on Thursday on the New York Stock Exchange
under the symbol "SQ".
The company joins Wall Street at a time when dozens of well-funded
banks, credit card companies and big tech firms are expanding into
mobile payments.
"They are competing with Visa and American Express and PayPal, and
more and more with Apple and Google," said James Gellert, CEO of
Rapid Ratings, which rates the financial health of companies. "These
are formidable competitors."
For the nine months ended Sept. 20, Square made $892.8 million in
revenue, a 49 percent increase from the same period in 2014, but
slower revenue growth compared with prior years.
It posted $131.5 million in losses, up from $117 million the prior
year.
"What you see here is a deterioration," Gellert said. "They are
losing more money, and cash from operations continues to be
negative."
(Reporting by Heather Somerville and Lauren Hirsch; Additional
reporting by Mansi Goenka; Editing by Ken Wills, Peter Cooney and
Gopakumar Warrier)
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