4 ms·

Unicorn Fears and Stopping Stops

54 points by Amorymeltzer 11y ago

PaulHoule 11y ago
My view on Square is that it does not have unique differentiation. I mean yeah, they have cute little readers that plug into your phone or tablet, but there are a large number of other payment vendors which are very similar and no sign of a "moat". Square does not even have the two sided market moat -- the one thing that is certain is that using Square makes Mastercard, Visa and American Express rich. Banks have been fighting back against smartphone-based systems by pushing contact chip cards instead of NFC cards (out of all the cards I've had replaced this year, all of them are contact chip cards)
- rjsw 11y ago
  The chip and pin cards have been in use outside the US for a fairly long time now, NFC ones for several years too, Square won't be able to match the economies of scale of the standard systems if they need their own reader hardware.
chollida1 11y ago
The one thing I'll say about Square is that this is the first tech IPO in the last 5 years where the investment banks are literally begging hedge funds to take stock. In an IPO process as a hedge fund you find out just where you stand with the banks by how many shares you get issues at the IPO. In squares case there I haven't heard of any one getting cut back on their allocations. I"m not sure if that's a good or bad sign, but its out of the ordinary. One interesting note that bloomberg just popped up: > 11/19 10:01 Market makers (Barclays) still indicating $11. That's an unofficial indication at this point, and above the $9 IPO price. So I guess it could pop Side note: Burred near the bottom of Levin's daily letter is an interview with Cliff Asness. If you are interested in quant finance, check out his blog that he hosts on AQR's site. He's one of the stars of "The Quants" and started one of the giant quant funds AQR out of Goldman. https://www.aqr.com/cliffs-perspective https://www.aqr.com/cliffs-perspective
mojuba 11y ago
Funny read. Got me thinking that at any given point in recent history, at least I can vouch for the past couple of decades, there's something terribly wrong in the money industry. At least one thing at any given time. This industry seems to be just hopping from one terribly wrong thing to another. Is it because there's too much money in the hands of mostly random, clueless people?
- hellbanner 11y ago
  Yeah. http://www.amazon.com/gp/product/0393338827 http://www.amazon.com/gp/product/0393338827
- tacos 11y ago
  Or too much technology in the hands of people who have no idea how to run a business. Cut a deal to process payments for Starbucks and manage to lose nearly $100,000 a day? Every day? For three years?
  - detaro 11y ago
    Didn't Starbucks also invest in them as part of this deal, so they got money and then undercharged Starbucks by roughly the same amount, basically trading part of their company for visibility?
    - tacos 11y ago
      Starbucks gave them $25 million. Square lost $71 million on the deal so far and it won't be done for another year. So Starbucks got discounted payments, plus equity in Square, plus a board seat. (Looking at it another way: Square got a loan at nearly a 100% annual interest rate plus loss of equity.) As for "visibility" they tried to promote the Square app to pay at Starbucks, nobody used it, and they killed that in 2014. "This is an epic partnership" - Jack Dorsey, 2012.
- lmm 11y ago
  I think it's the finance industry's version of the hype cycle. Every time a new financial instrument is invented it gets used, overhyped and oversold, there's a crash, and then it becomes a boring/useful tool in the toolbox. E.g. options and the dutch tulip bubble, derivatives in the '80s, CDS in the '00s.
jusben1369 11y ago
It's risky to draw too many conclusions from Square. Jack Dorsey's situation is unique; it's hard to think of an example before (or ever again?) where a CEO decides to take on another CEO position of a struggling company weeks before an IPO. Think what you will about his capabilities but it was always going to create real drag on their IPO; if only because there wasn't enough time to know if he can pull it off. One thing that is rarely discussed is how bubbles burst. Stock markets have incredible visibility and liquidity so they'll burst in a matter of days (minutes?) and weeks. Housing markets have strong visibility but less liquidity so they're measured in weeks and months. Private valuations have poor visibility ("show me a valuation and I'll tell you the terms") and very poor liquidity; IPO'ing, being acquired are rare and difficult events. So if there was indeed a bubble it was in the private capital markets and the only way we'd know is when those companies leave that market for another market (public market/acquisition by company) There are so many variables but right now Square is telling us that the private markets were overinflating prices by at least 50%. That's bubble stuff. The thing is it'll be a slower/gentler correction due to the above issues.
deleted 11y ago
[deleted]
logicfiction 11y ago
I worked for a startup in the mobile payments industry for a while. While I wanted to hope it would work out, deep down I never felt mobile payments at the register (vs. credit card) was enough of a value proposition to the consumer. I mean, I never felt like I would want to use this even though I was working on it. I think the industry over-emphasizes the minimal hassle of having a physical card. Mobile payments are not that much easier. And unless you research how the platforms are protecting your information and identity, I also imagine the average consumer trusts a physical card more than a 3rd party vendor app on their phone. Finally, the mobile payments vendors are just one more middleman in the payments game that needs to make a cut on transaction fees. Someone is paying that fee somewhere and if a mobile payment platform becomes sustainable over the long term that cost will likely trickle down to the consumer if the platform hasn't already directly built in a consumer fee.
nickbauman 11y ago
This is hysterically funny. Anyway don't do any of this. Don't say "sodomy" unless you're sure you mean it, don't call yourself a sapiosexual even if you get the word right, don't give interviews during an IPO quiet period, don't found Tinder, all of it, just don't. Rad is such a fatuous, unhinged pinhead I think he needs his own Sheenesque TV show.
- weeksie 11y ago
  The most amazing thing in that article is "an even weirder move". Not often you see a Professor Brothers reference in a Bloomberg business column.
- Cowen 11y ago
  If you'd asked me a few years ago, I never would've thought I would be interested in a financial newsletter. But Matt Levine's really are the best. Hilarious and insightful five days a week.
- gmarx 11y ago
  That has to be a joke (the sodomy thing, I mean)
- deckard1 11y ago
  > The unicorn massacre continues. Lyft is having a rough tyme I feel this is the article all writers wish to write one day.
  - nickbauman 11y ago
    Or not write!

54 points by Amorymeltzer 11y ago

My view on Square is that it does not have unique differentiation. I mean yeah, they have cute little readers that plug into your phone or tablet, but there are a large number of other payment vendors which are very similar and no sign of a "moat". Square does not even have the two sided market moat -- the one thing that is certain is that using Square makes Mastercard, Visa and American Express rich. Banks have been fighting back against smartphone-based systems by pushing contact chip cards instead of NFC cards (out of all the cards I've had replaced this year, all of them are contact chip cards)

rjsw 11y ago
The chip and pin cards have been in use outside the US for a fairly long time now, NFC ones for several years too, Square won't be able to match the economies of scale of the standard systems if they need their own reader hardware.

chollida1 11y ago

The one thing I'll say about Square is that this is the first tech IPO in the last 5 years where the investment banks are literally begging hedge funds to take stock. In an IPO process as a hedge fund you find out just where you stand with the banks by how many shares you get issues at the IPO. In squares case there I haven't heard of any one getting cut back on their allocations. I"m not sure if that's a good or bad sign, but its out of the ordinary. One interesting note that bloomberg just popped up: > 11/19 10:01 Market makers (Barclays) still indicating $11. That's an unofficial indication at this point, and above the $9 IPO price. So I guess it could pop Side note: Burred near the bottom of Levin's daily letter is an interview with Cliff Asness. If you are interested in quant finance, check out his blog that he hosts on AQR's site. He's one of the stars of "The Quants" and started one of the giant quant funds AQR out of Goldman. https://www.aqr.com/cliffs-perspective https://www.aqr.com/cliffs-perspective

mojuba 11y ago

Funny read. Got me thinking that at any given point in recent history, at least I can vouch for the past couple of decades, there's something terribly wrong in the money industry. At least one thing at any given time. This industry seems to be just hopping from one terribly wrong thing to another. Is it because there's too much money in the hands of mostly random, clueless people?

hellbanner 11y ago
Yeah. http://www.amazon.com/gp/product/0393338827 http://www.amazon.com/gp/product/0393338827
tacos 11y ago
Or too much technology in the hands of people who have no idea how to run a business. Cut a deal to process payments for Starbucks and manage to lose nearly $100,000 a day? Every day? For three years?
- detaro 11y ago
  Didn't Starbucks also invest in them as part of this deal, so they got money and then undercharged Starbucks by roughly the same amount, basically trading part of their company for visibility?
  - tacos 11y ago
    Starbucks gave them $25 million. Square lost $71 million on the deal so far and it won't be done for another year. So Starbucks got discounted payments, plus equity in Square, plus a board seat. (Looking at it another way: Square got a loan at nearly a 100% annual interest rate plus loss of equity.) As for "visibility" they tried to promote the Square app to pay at Starbucks, nobody used it, and they killed that in 2014. "This is an epic partnership" - Jack Dorsey, 2012.
lmm 11y ago
I think it's the finance industry's version of the hype cycle. Every time a new financial instrument is invented it gets used, overhyped and oversold, there's a crash, and then it becomes a boring/useful tool in the toolbox. E.g. options and the dutch tulip bubble, derivatives in the '80s, CDS in the '00s.

jusben1369 11y ago

It's risky to draw too many conclusions from Square. Jack Dorsey's situation is unique; it's hard to think of an example before (or ever again?) where a CEO decides to take on another CEO position of a struggling company weeks before an IPO. Think what you will about his capabilities but it was always going to create real drag on their IPO; if only because there wasn't enough time to know if he can pull it off. One thing that is rarely discussed is how bubbles burst. Stock markets have incredible visibility and liquidity so they'll burst in a matter of days (minutes?) and weeks. Housing markets have strong visibility but less liquidity so they're measured in weeks and months. Private valuations have poor visibility ("show me a valuation and I'll tell you the terms") and very poor liquidity; IPO'ing, being acquired are rare and difficult events. So if there was indeed a bubble it was in the private capital markets and the only way we'd know is when those companies leave that market for another market (public market/acquisition by company) There are so many variables but right now Square is telling us that the private markets were overinflating prices by at least 50%. That's bubble stuff. The thing is it'll be a slower/gentler correction due to the above issues.

deleted 11y ago

[deleted]

logicfiction 11y ago

I worked for a startup in the mobile payments industry for a while. While I wanted to hope it would work out, deep down I never felt mobile payments at the register (vs. credit card) was enough of a value proposition to the consumer. I mean, I never felt like I would want to use this even though I was working on it. I think the industry over-emphasizes the minimal hassle of having a physical card. Mobile payments are not that much easier. And unless you research how the platforms are protecting your information and identity, I also imagine the average consumer trusts a physical card more than a 3rd party vendor app on their phone. Finally, the mobile payments vendors are just one more middleman in the payments game that needs to make a cut on transaction fees. Someone is paying that fee somewhere and if a mobile payment platform becomes sustainable over the long term that cost will likely trickle down to the consumer if the platform hasn't already directly built in a consumer fee.

nickbauman 11y ago

This is hysterically funny. Anyway don't do any of this. Don't say "sodomy" unless you're sure you mean it, don't call yourself a sapiosexual even if you get the word right, don't give interviews during an IPO quiet period, don't found Tinder, all of it, just don't. Rad is such a fatuous, unhinged pinhead I think he needs his own Sheenesque TV show.

weeksie 11y ago
The most amazing thing in that article is "an even weirder move". Not often you see a Professor Brothers reference in a Bloomberg business column.
Cowen 11y ago
If you'd asked me a few years ago, I never would've thought I would be interested in a financial newsletter. But Matt Levine's really are the best. Hilarious and insightful five days a week.
gmarx 11y ago
That has to be a joke (the sodomy thing, I mean)
deckard1 11y ago
> The unicorn massacre continues. Lyft is having a rough tyme I feel this is the article all writers wish to write one day.
- nickbauman 11y ago
  Or not write!