Has Square gone pear-shaped?

Ronny Kerr · October 16, 2015 · Short URL: https://vator.tv/n/40bc

Mobile payments startup aims to raise just $275 million in its IPO

If your private company had raised at least $590 million in venture funding, with the latest round giving a $6 billion valuation, how much would you try to raise in the IPO?

$275 million, answers Square, the mobile payments unicorn which officially filed to go public earlier this week.

Seems a bit low given the data around recent tech IPOs. Over the past year, the median deal size for IPOs in the U.S. has hovered just over $100 million, according to Renaissance Capital. In the second quarter of 2015, there were five deals that surpassed $500 million. In the third quarter, two companies completed IPOs with deal sizes over $300 million: Blue Buffalo, a healthy pet food company, and Terraform, a clean renewable energy firm.

On the other hand, Renaissance Capital has also noted a slowing IPO market, as about 36 percent fewer IPOs were priced this year versus last year. And in the third quarter, for the first time since 2011, "average IPO returns were negative (-4%) and more IPOs ended the quarter below their offer price than above it."

With no profitability and a poor IPO market, one wonders why Square doesn't simply follow the course of its unicorn peers, including Airbnb and Uber, and stay private for the time being. Given Square's low ambitions for its own IPO, combined with the stresses of having to share its CEO with Twitter for the time being, why not focus on growing the business?

At a glance, here are Square's key financials for the first six months of 2015:

  • Revenue: $560.6 million, up 51% from previous year
  • Gross profit: $164 million
  • Net loss: $77.6 million

For comparison, here are the financials (for the first three months of 2015) from the S-1 filed by Fitbit, which eventually went on to raise $841 million in its IPO from earlier this year:

  • Revenue: $336.8 million, 3X growth from previous year
  • Gross profit: $169 million
  • Net loss: $48 million

Photo courtesy of Fredo.

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