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Square Prices Its IPO at $9, giving it a $2.7B valuation
- gatsby 11y agoWow, that's priced at ~2.8x 2015 revenue. So low.
- mey 11y agoNot going to go dig for the SEC filing, but transaction revenue is not something look at, as that is basically booking money they are moving on behalf of someone else. I would suggest looking at EBITA, fraud loss, avg transaction fee schedule and transaction number volume.
- CyrusL 11y agoSquare uses "Gross Payment Volume" to describe that, not revenue. GPV is ~$30 billion. You can search for GPV in the S-1 to see the specifics: https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm https://www.sec.gov/Archives/edgar/data/1512673/000119312515...
- jamiequint 11y agoBraintree was doing $12B in GPV when they sold for $0.8B and are now doing ~$50B in GPV. Square is actually doing around $35-45B now (8.8B in most recently reported quarter). Growth is relatively slow though so will be interesting to see what happens in the IPO.
- pyrrhotech 11y agothe average P/S ratio of the S&P 500 is at a historic high around 1.8 (http://www.multpl.com/s-p-500-price-to-sales http://www.multpl.com/s-p-500-price-to-sales) with long term average at 1.4, so this is still double the long term average. Square's gross margins are very thin in comparison to many other "household name" tech companies, so it deserves a much lower P/S. I've also heard growth is really slowing. This multiple doesn't surprise me at all, and I still won't be buying any of the stock.
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- danielpal 11y agoIf you look at gross profit (164.4 million for the first semester 2015) it's a much more comparable metric to what SaaS revenue would be. The problem with overall revenue in this market it that it's a low margin and more that half of it goes to the credit card companies. With ~328 profit per year, they are getting about 8X multiple - very comparable to Hubspot, Zendesk which are doing terrific in the public markets. For anyone getting stock options, expect as much as 6X-8X multiple on revenue if your gross margin is >60% and your year-to-year growth is >70% - the 10X-14X days are gone. Else, if year to year growth is below 70%, or gross margin less that 55%, expect 2X-4X.
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- Scaevolus 11y agoIt's "$9", not "9$".
- theseatoms 11y agoDoesn't it make more sense to type it as it's read?
- econner 11y agoWhy would they price it at such a low multiple of revenue? Massive liabilities or something?
- jsprogrammer 11y agoNo one feels like subsidizing more of Starbuck's' transaction costs?
- toomuchtodo 11y agoStarbucks is almost done moving away from Square for CC processing.
- InclinedPlane 11y agoTransactions are not revenue.
- geoffwoo 11y agoVery low margin business. As a multiple of net revenue, it's at the high range of comparable payment processors.
- theseatoms 11y agoAnd revenue growth prospects aren't all that high?
- toomuchtodo 11y agoNot when you're competing against every other payment processor.
- theseatoms 11y agoWhat were supposed to be Square's differentiating features? What competitive edge is being hyped?
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- msoad 11y agoWith rumors about device to device payment talks[1], Square is in tough spot. [1] http://www.wsj.com/articles/apple-in-talks-with-u-s-banks-to-develop-mobile-person-to-person-payment-service-1447274074 http://www.wsj.com/articles/apple-in-talks-with-u-s-banks-to...
- hn9780470248775 11y agoConfusingly, my browser renders that symbol () as a... square.
- deleted 11y ago[deleted]
- delish 11y agoChrome, it's a 't' surrounded by italicized parentheses. Unsuccessfully searched for unicode lookup to find the text description of the character. Edit: at http://www.fileformat.info/info/unicode/char/search.htm?q=%EF%A3%BF&preview=entity http://www.fileformat.info/info/unicode/char/search.htm?q=%E... I found: <Private Use, Last> Not sure what to make of it. Apple decided to assign to a Unicode character their logo. Does anyone have context?
- chc4 11y agoIn firefow it's a w with two dots over it. Is it just some unicode point that is unstandardized, and so overloaded somewhere with the Apple logo?
- joelwilliamson 11y agoMy Firefox renders it as an apple with a bite taken out of it. Probably depends on your font.
- nostrademons 11y agoChrome Mac renders it correctly.
- TazeTSchnitzel 11y ago> Square Prices Its IPO at 9$ 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.
- jdoliner 11y agoIt's not really the submitters fault though. In keeping with HN etiquette they posted the title of the article. I'd be criticizing TC here.
- TazeTSchnitzel 11y agoYeah, I can't blame them for following the usual rules.
- jrbedard 11y agoJust added your suggested figures.
- bpodgursky 11y agoAccording to crunchbase, they raised money at a $3.25B valuation in 2012. 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...
- jdoliner 11y agoIn my experience incentive stock options that companies give to employees normally are heavily discounted.
- SeoxyS 11y agoThat, plus they've probably been granting RSUs for a while, which do not require being exercised and which cannot be underwater,
- x0x0 11y agoWhile they cannot be underwater, they were granted with a target comp in mind and a low enough IPO can put people well below the targeted value.
- SeoxyS 11y agoSure. I think that's fine; as long as people aren't losing money on taxes or exercise price. Equity compensation should always be viewed with the appropriate grain of salt—it's an investment, and most likely won't pan out. When the company kills it (Facebook, Apple), it turns everyone into millionaires. Square isn't there yet, though I'm sure a lot of people will have some very nice "bonuses" out of this.
- x0x0 11y agoI wouldn't underestimate, if nothing else, the mental impact of being sold on a company with a major piece of comp being RSUs at a price, almost certainly derived from the last round raised, that are then worth a lot less. Obviously nobody will be out-of-pocket on them, but they got a salary much less than they were sold on. This can't work wonders for retention, and makes golden handcuffs more like paper handcuffs.
- calcsam 11y agoThis 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.
- heydenberk 11y agoIs 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.
- chx 11y agoErm, nope. So nope. I see how many transactions the lemonade stand on the beach right below my balcony does on Square -- it's an awful lot. Runners, bikers do not need to carry cash just a card. I went with a friend to Burnaby Mountain and between the two of us we would've had problems to buy ice cream from a truck showing up for the three of us for cash but he had Square. It's not "hipsters" it's another nail in the coffin of cash. I hate cash. (And no, I do not have a Macbook or an iPhone, I am a stout believer that Apple should be boycotted for being the leader on the "sanctioned apps only" road)
- pragone 11y agoNot sure where you're living, but I lived in Rochester, NY and just outside Pittsburgh, PA the last two years. The last time I saw a square reader was when I lived in Manhattan, 3 years ago. I'm not sure if I'm just not frequenting the types of places that would use square readers, or if where they're popular is isolated geographically.
- ZanyProgrammer 11y agoI've always used them at Rage Salon, Campbell, CA.
- zimbu668 11y agoIf you're worried about Apple screening the apps you can buy on your phone maybe you should check out what Square doesn't want you to buy: https://squareup.com/help/us/en/article/5089-prohibited-goods-and-services-with-square-register https://squareup.com/help/us/en/article/5089-prohibited-good...
- josephjrobison 11y agoI'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. 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?
- chasing 11y agoThere are magnetic stripe readers everywhere -- I can't imagine they're that hard or expensive to produce.
- therein 11y agoI don't imagine they are as straightforward as buying a magnetic reader and putting it in a shell. The interface is somewhat unique after all. It connects through the audio jack. The processing on the software side need to be somewhat custom as well.
- Johnie 11y agoYup, it's as simple as putting a magnetic stripe reader and putting it into a shell. These are a commodity on Alibaba now [1]. The idea of using headphone jack for data transfer has been around since the Commodore PCs [2] The software side is pretty standard too [3]. It's a standard analog to digital conversion. [1] http://www.alibaba.com/showroom/headphone-jack-magnetic-card-reader.html http://www.alibaba.com/showroom/headphone-jack-magnetic-card... [2] http://www.zimmers.net/anonftp/pub/cbm/crossplatform/transfer/transfer.html#wire-tape-audio http://www.zimmers.net/anonftp/pub/cbm/crossplatform/transfe... And https://en.wikipedia.org/wiki/Commodore_Datasette https://en.wikipedia.org/wiki/Commodore_Datasette [3] http://www.slideshare.net/ShipengXu/data-transmission-through-audio-jack-on-ios http://www.slideshare.net/ShipengXu/data-transmission-throug...
- nathancahill 11y ago
- american158931 11y agoCan someone help me understand... Let's say an employee was granted 10,000 stock options at $1/share. They're all vested. 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)? Trying to understand how the economics of all of this works. 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.) So many questions.
- genericresponse 11y agoI'll answer what I can: First, you're correct on the valuation. If they are exercised and cashed out at the IPO price, the employee would earn $80k pre-tax. However, historically most IPOs are priced to get a "bounce" on opening day also there are usually restrictive covenants around the number of insider shares that can be cashed on IPO day. (This is meant to give investors warm fuzzy feelings about the stock.) In all likelihood the employee will have to wait some more time and will probably cash out closer to $10/share. The Pricing and Valuation implies 300M shares. However there can be many classes of stock, both common and preferred that grant different rights and ownership. If they have different classes they could have a different number of shares, but the different share types are valued differently. Shares are just objects granting different rights around the company within certain legal limits. (Ownership, Governance, Profit share, etc.) If you have agreement from the controlling body you can instantiate, remove, or restructure shares at any time. The point is that they could have decided with their bankers that 300M was a good number of shares to have at an IPO and decided to split or reverse split as part of the transaction. It has no bearing on the number of shares today or a year ago.
- american158931 11y agoI guess what I'm getting at is something like this: If you're given 1% of the company in the form of stock options as an employee, how can one get a grip on what that's worth should a company IPO? Like, if I came in as a high-level hire at Square. Early in the game. Jack gave me 1% of the company in the form of employee stock options. Now I'm vested. What would that mean to me now, after an IPO? How does one even begin to pick that apart if shares can be created or destroyed whenever? Maybe I'm asking stupid questions. I'm just trying to understand since in my I'm constantly hearing numbers thrown around and, as a non-finance person, it can be hard to know what's really going on. (Which makes it easy to feel like I'm being taken advantage of.)
- jgalt212 11y agoWhy 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?
- throwaway2048 11y agomaybe they were afraid that time is never comming.
- deleted 11y ago[deleted]
- nugget 11y agoFrom a second market type broker who trades private tech company shares (Oct 1st 2015): ''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!'' A good reminder that people are making (and losing) a lot of money behind the scenes of our industry.
- omarchowdhury 11y ago$9 is a good psychological price. This is going to pop tomorrow.
- andirk 11y agoJust opened at 11.20, already up to 13. The company who helps small businesses accept Visa, Mastercard, Apple Pay at 2.75% of all those transactions. This company makes too much sense to me. Going to the Blue Bottle coffee downtown SF in front of their office if anyone wants to join me. Pat them on the back.
- rdl 11y agoI 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)? 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 has (and still does) have some great people, and it's a "robust job market".
- jackgavigan 11y ago> As recently as September, the company [Square] handed out stock options to staff — one of the main perks of jobs in the Valley — valuing it at $15.39 a share, or more than 50 per cent above what the shares were deemed to be worth only six months earlier. Source: http://www.ft.com/cms/s/0/6ad992e6-8792-11e5-9f8c-a8d619fa707c.html http://www.ft.com/cms/s/0/6ad992e6-8792-11e5-9f8c-a8d619fa70...
- deepGem 11y agoThis 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.
- ogezi 11y agoDue 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.
- anupmm 11y agoA combination of things are responsible - a super old/competitive market (processing), the ever changing risk dynamics and Square's targeting Let me illustrate points 1 and 2 with an example. 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. 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. My 2c.
- lakeeffect 11y agoI'm pretty sure Starbucks, the merchant, would have to cover the costs not square as the processor. I used to work at MBNA and when there was fraud on an card the retailer was responsible.
- machinshin_ 11y agoI suspect it's not quite that simple. Square has a lot of small-to-medium businesses, who's risk profile is higher; which has to have a increased risk on Square, no?
- anupmm 11y agoIn this case Starbucks paid for it. But something similar could happen with a Square transaction where they may be held responsible. Was just making a point that there are costly lessons to be learnt in the world of processing.
- product50 11y agoDoes Square compensates employees in stock options or RSUs? If options, aren't the employees you joined post Series D completely screwed?
- sawthat 11y agoIt really depends on the way the shares are distributed. I suspect they aren't "screwed" but they aren't exactly going to get rich from this.
- steven2012 11y agoThis 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. 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.
- brwnll 11y agoI assume you are referring to follow up rounds when you refer to a chill? Or do you expect angel/seed funding to be reduced because they are going to lower guesstimated valuations? Will be Interesting to see if this pattern has an effect of pushing tech companies to IPO sooner. Is this behavior being replicated cross sector? It seems commonplace for a tech company to write down a valuation of a purchased company (eg every company MS has ever bought), I don't hear about it in health, finance, retail, etc sectors.
- chkuendig 11y agoYou might not have heard about it, but most companies write down the value on acquisitions to some degree. IANAL, but legally you can be forced to realize tome deprecation on goodwill payments... https://en.wikipedia.org/wiki/Goodwill_%28accounting%29 https://en.wikipedia.org/wiki/Goodwill_%28accounting%29
- outside1234 11y agoI 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. 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.
- chmaynard 11y agoAgreed. It looks like Square will soon be competing head-to-head with Apple. Both companies want a big slice of the payments business, and they're going to be competing for the same customers. Any investment in Square is very risky, public or private regardless of the price.