- An e-payment company, Square was supposed to go public in 2015 as part of a list of prominent tech IPOs.
- Square faces an increased competition not only with its traditional competitors, but also with Apple and Google, which is expected to impact the company’s market share and revenues.
- Moreover, the instability of the CEO position can impact the IPO process and make it difficult for the company to raise funds.
At the beginning of the year, Square's e-payment service, had been one of the prominent IPO candidates to go public in 2015, among many other tech firms. In an earlier article published in January this year, I covered Square's financials and potential IPO offering and expected an IPO price range of $45-$50 with a P/S ratio of 14.7 to 20.8. However, since the time the article was published, the company has faced many new challenges as Apple (NASDAQ:AAPL) Pay gained popularity, and Google (NASDAQ:GOOGL) introduced Android Pay – its electronic payment service. Jack Dorsey, Square's CEO, has also stepped up to be Twitter’s (NYSE:TWTR) interim CEO. All these events either force Square to launch its IPO soon or drive the company to abandon that idea.
As mentioned previously, the competitive landscape in the e-payment market is rapidly changing. Most e-commerce companies have launched an in-person payment service to allow brick-and-mortar stores to accept credit and debit cards: Amazon (NASDAQ:AMZN) launched Amazon Register, eBay (NASDAQ:EBAY) launched PayPal Here, and even the niche crafts marketplace Etsy (NASDAQ:ETSY) launched Etsy Direct Checkout.
Tech giant rivals Apple and Google also joined the party when they released their Apple Pay and Android Pay services, which enable consumers to purchase items in stores and pay with a swipe of the smartphone. As the competition intensifies, and giants like Google and Apple enter the market, Square’s share is likely to decline and, therefore, requires the development of new revenue streams to offset the reduction in payment revenues. As I mentioned in the previous Square article, the company is trying to monetize the massive amount of data it has to create pattern analyses that advertisers could use to improve their campaigns. Such pattern analyses may include outputs like revenue generation per type of business, geo impact on revenue, type of merchandise purchased in stores from the same sector, number of inventory days, and more.
Square raised $150M in series E last October to fund the necessary investment for the data analysis business; however, in order to promote the new business line, Square has to maintain its central position in electronic payments and should invest further in its core business to stay competitive in that area. To raise an additional amount of money, Square could either seek another private funding round or seek public financing and go public. If Square chooses to seek private funding, investors might get a bit impatient as companies after seven funding rounds usually go public, and by staying private, Square delays investors' IPO bonanza.
Last week, Jack Dorsey, Square’s CEO and Twitter’s co-founder, agreed to step up and replace Dick Costolo as Twitter's CEO. That might have been an interesting story about a CEO leaving a small start-up (Square) to lead the company he once founded (Twitter). However, Mr. Dorsey did not leave Square, and he maintains the role of the company’s CEO as well as Twitter's CEO. Both companies are in very competitive markets that change rapidly these days: Square faces the competitive difficulties I mentioned above, and Twitter faces increased competition from a large number of social networks. Twitter’s biggest rival, Facebook, is exploring new business initiatives, and so it is left behind, which has also impacted its stock price (which dropped 35% in the recent 6 weeks).
On top of the organic problems, going public is an extremely painful process for every company that requires all its executives in place to deal with the legal requirements, accounting requirements, and investors' roadshow. Missing such a central character like Mr. Dorsey in these events might make a Square IPO impossible, at least until they replace Mr. Dorsey as the CEO.
The unclear situation around the company’s management makes it very problematic for potential investors and could make it almost impossible to IPO. Jack Dorsey was the dominant executive at Square,and probably attracted some of the current investors. Once he’s gone, the company will need to bring in an experienced CEO that could manage with getting this $6B business to Wall Street.
E-payment company Square was one of the prominent tech IPOs of 2015 up until just a few months ago. However, intensified competition from Android Pay and Apple Pay could push the company to seek further funding to invest in its core business and emerging revenue streams. That funding might come from the raising of private funds or public offering, but it is imminent for the company’s success. In Jack Dorsey’s absence, Square seems unstable and not yet ready to go public. In the case the company would want to proceed with an IPO, it would have to solve Dorsey’s unclear status and form a clear strategy of how to compete in the e-payment market.
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