Payments startup Square has priced its initial public offering at a level lower than earlier indicated, even as analysts are looking at the company's debut on the stock exchange as a test of how public markets will evaluate high-profile private startups some of whom have seen valuations of over US$1 billion.
Online dating company Match Group also appears to have faced investor jitters, announcing Wednesday that it had priced its IPO of over 33 million shares at $12 a share, at the bottom end of its earlier expectation of $12 to $14 a share. Shares of the operator of Tinder and other dating products are expected to start trading Thursday on the NASDAQ Global Select Stock Market.
Square will be pricing 27 million shares at $9 each, which is lower than the $11 to $13 price it said it was targeting in a filing earlier this month to the U.S. Securities and Exchange Commission. The IPO price also gives Square a valuation of $2.9 billion, which is far lower than its $6 billion valuation when it raised funds privately last year, according to the New York Times.
The shares are set to begin trading on Thursday on the New York Stock Exchange under the symbol "SQ." and the offering is expected to close on Nov. 24.
The developer of a free software app that combines with a small card reader to turn mobile devices into point-of-sale systems claimed in the filing that the foundation of its business model "is the millions of sellers processing payments with Square." The company, which started in 2009, generates transaction revenue as a percentage of transaction volumes through the merchants.
Square also offers other services like its food delivery service Caviar and its cash advance service Square Capital. But profits have eluded the company as it has for many of the new high-profile startups, many of whom are burning cash to invest in technology or to gain market share.
In 2014, Square had, for example, a net loss of $154 million on a total revenue for the year of $850 million. In the nine months ended Sept. 30 it had a net loss of $132 million on revenue of about $893 million. The revenue came substantially from the U.S. though the company also has sellers in Canada and Japan.
Square lost a major customer Starbucks, which in the third quarter of 2012 had signed a deal with Square to process credit and debit card payment transactions for all Starbucks-owned stores in the U.S. That arrangement with the large chain was amended in August to remove Square's exclusivity.
The company said in the filing to the SEC that Starbucks has announced that it will transition to another payment processor and will cease using Square's payment processing services altogether before the scheduled expiration of the agreement in the third quarter of 2016. Starbucks accounted for $123 million of Square's revenue in 2014 and $95 million in the first nine months of this year.
Square is playing in a market where other companies like PayPal are already contenders. Its other big challenge is that it is sharing its CEO Jack Dorsey with another public company Twitter that is attempting to make a turnaround, which will likely raise issues as to whether Dorsey has enough of time to run Square.
Markets could also take a dim view of the Square public offer as already a number of tech companies that had their IPOs recently have been trading below their offer price.