Square proposes IPO pricing that’s less than its private valuation

San Francisco-based Square on Friday proposed terms for an initial public offering of its stock that would value the shares at less than previously calculated private valuations of the digital payments company.

The IPO would offer shares in a range of $11 to $13 each, according to a prospectus for the first-time stock sale that was filed Friday with the Securities and Exchange Commission.

Square’s IPO terms, though, suggest that investors may reckon that valuations for tech startups have peaked or could falter.

At the high-end price of $13 for the Square IPO, the company would have a valuation of $4.2 billion, and at the mid-point of the offering, it would have a value of $3.87 billion.

The highest of those benchmarks would be 30 percent below the value of $6 billion that Square commanded during its most recent round of private venture funding.

Square hopes to raise $403.7 million from the IPO if the shares sell at $12 each. Square filed for an IPO in mid-October, as Queenie Wong wrote.

“We’ve made getting capital as easy as tapping a button,” Jack Dorsey, chief executive officer and co-founder of Square, said in a letter included as part of the prospectus. “We replaced pen and paper accounting with real-time insights into sales patterns and customer trends.”

Square offers point-of-sale software. It also offers a system called Square Register that handles digital receipts, inventory, and sales reports. The Square system also provides analytics and feedback.

“Everything works together seamlessly to help our sellers make smart decisions for their businesses,” Dorsey said.

Revenue is increasing sharply, but red ink is also on the rise.

For calendar year 2014, Square produced $850.2 million in revenue, up 84.2 percent from calendar 2013, the SEC filing shows. Over the one-year period that ended in September, Square produced $1.14 billion in revenue.

During 2013, Square’s losses totaled 104.5 million in 2013, $154.1 million in 2014 and for $168.6 million for the 12 months that ended in September.

Analysts also have some concerns about whether Dorsey can be effective in simultaneously running Square and Twitter, a social blogging network to which Dorsey recently was named CEO. Dorsey co-founded Twitter which is confronting a host of challenges.

Square listed an array of risk factors as a cautionary note to prospective investors. Potential fluctuation in revenue are among those.

“We expect our rate of revenue growth will decline, and it may decline more quickly than we expect for a variety of reasons,” Square stated in the prospectus.

One forbidding challenge: Starbucks has announced that it will transition to another payment processor and will cease using the Square payment processing services altogether prior to the scheduled expiration of the payment processing agreement with the beverage retailer in the third quarter of 2016.

“As a result, our total net revenue may decrease meaningfully going forward,” Square stated.

 

Photo: Square CEO and co-founder Jack Dorsey (Bay Area News Group)

 

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