From a second market type broker who trades private tech company shares (Oct 1st 2015):<p>''We have only 4000 shares of Square left at $16.50. I believe Goldman is going to price the IPO well north of $25 and the $16.50 is less than the price that Square is granting stock options to employees!''<p>A good reminder that people are making (and losing) a lot of money behind the scenes of our industry.
A combination of things are responsible - a super old/competitive market (processing), the ever changing risk dynamics and Square's targeting<p>Let me illustrate points 1 and 2 with an example.<p>a) Square earns $2 in revenue per $100 of transaction volume b) $0.5 would be their gross margin accounting for expenses i.e. bank/visa fees c) The next biggest line item to subtract would be risk. If there is a fraudulent transaction of $100, then square has to compensate it with 200 transactions of $100 each. (200 txns *0.5 gross margin). Net effect is not only do they have to deal with low margins, they also have to manage risk very well. And this is not something you accomplish overnight especially as you enter new markets. Personal anecdote: I had $120 or so disappear from my Starbucks wallet a couple of months ago and the merchant had to eat the loss.<p>Lastly, large payment processors get out of this loop because they manage the big (Targets and Walmarts of the world) with the small and over time have fine tuned their risk engine. Square went into it in the reverse order, targeting mom-and-pop stores first (which have low volumes and high acquisition costs) and then trying their hand at large merchants (Startbucks in this case and they lost a ton doing this). In the process they never got risk management right for either segment. And oh, they did not go with an online first strategy which PayPal did in the 90s and the likes of Braintree and Stripe did recently.<p>My 2c.
Is anyone willing to give a contrarian take? I'll give it a shot: Square is an ambitious company with some great engineers, stellar UX and a giant total addressable market. Their business loans are interesting and could grow into something important. Square readers are a fashion accessory for hip businesses. No sooner would a coffee shop be seen without a Square reader and an Edison bulb than its yuppie hipsters patrons would be seen without a MacBook or an iPhone. That brand equity might really be worth something.
This is brutal. I know someone at Square that exercised his options, and I guess he is underwater by a massive amount now. And since VCs are generally move like flocks of birds, this will likely create a massive chill in terms of funding. Either they are going to take a pound of flesh from the founders coming for their next round of funding, or they will just pull away.<p>It looks like 2016 is going to see a lot of unicorns take a massive hit. You can bet Stripe and other payment companies are going to take a hit to their valuation, although Stripe seems pretty well-funded at this point.
With rumors about device to device payment talks[1], Square is in tough spot.<p>[1] <a href="http://www.wsj.com/articles/apple-in-talks-with-u-s-banks-to-develop-mobile-person-to-person-payment-service-1447274074" rel="nofollow">http://www.wsj.com/articles/apple-in-talks-with-u-s-banks-to...</a>
I've always wondered - why was it so easy to replicate Square's scanning device? Seems like about 6 months after they really started gaining traction, PayPal came out with their copycat triangle one, and then a cascade of copycats.<p>It went from not being a thing to there being tons of them overnight. I would imagine there would be somewhat of a barrier to entry, but it seems it's a fairly easy device to create?
I don't really care about Square's investors (sunk costs are sunk, plus ratchets and other protections), but what does this do to employee retention (and hiring ability)?<p>I assume people who joined years ago will still do fine, but what about people who joined in the past 6-12mo? Will they get repriced options? Are cash salaries all people care about? Square <i>has</i> (and still does) have some great people, and it's a "robust job market".
According to crunchbase, they raised money at a $3.25B valuation in 2012.<p>If they are IPOing at $2.66B now, that means a lot of stock options granted in-between are going to be worthless, unless they were granted at some very different price...
Can someone help me understand...<p>Let's say an employee was granted 10,000 stock options at $1/share. They're all vested.<p>Does this mean that each share will be worth $9? So if exercised and cashed out, the employee would essentially earn $80,000 (before taxes)?<p>Trying to understand how the economics of all of this works.<p>Also, does this mean there are 300,000,000 shares? (How many shares do start-ups usually start with before funding rounds and what not? Seems like Square must've started with 100,000,000 or something.)<p>So many questions.
This is the best of all possible worlds for the late-stage investors. They get double the shares from the ratchet and probably a big valuation pop tomorrow too.
> Square Prices Its IPO at 9$<p>Not a very helpful submission title. Without knowing the number of shares or previous share price, this is meaningless. The market capitalisation would be better. Including the previous projection better still.
This thread is awesome. For someone sitting afar and looking to invest in Square, the information on this thread is sufficient enough for me to dig deeper on specific points. I wish Wall St analysts did something open like this, rather than just publish some 'post facto' report.
Why did they agree to go public at such a low valuation when compared to recent rounds? Why wouldn't they wait until a time when the capital markets valued their enterprise more favorably?
Due to a string of bad decisions, including but not limited to the Starbucks deal and the Square Wallet, Square's undervalued. If they can sit up and grow their processing volume, their share price will appreciate greatly and go much higher than $9. They also need to find a way to minimize their losses on low amount payments, since they make losses on some of them. Their small business loans seem like an interesting and propitious part of their overall business going forward.
I think its amazing Square could do an IPO at all - $2.7B is an insane valuation for a company that hasn't proven a scalable business model.<p>Frankly, its sort of irresponsible and short sighted for VCs to take something like Square public. It will have all sorts of repercussions on real businesses that want to go public in the future.