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Square Prices Its IPO at $9, giving it a $2.7B valuation

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Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#111

Post by zimbu668 »

chx wrote: post #73
heydenberk wrote: post #69

Is 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 patr…

Erm, 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…

If 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-good...

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#113

Post by tadfisher »

throwaway2048 wrote: post #81
heydenberk wrote: post #69

Is 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 patr…

Are people really going to care if their joint of choice changes payment providers? Do people care how cool their bank and credit card company is? Id almost certainly guess not.

> Do people care how cool their bank and credit card company is?

The company I work for has built a business based on applying this predicate, and so far we have been successful.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#114

Post by anupmm »

geoffwoo wrote: post #16
econner wrote: post #5

Why would they price it at such a low multiple of revenue? Massive liabilities or something?

Very low margin business. As a multiple of net revenue, it's at the high range of comparable payment processors.

A combination of things - 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.

My 2c.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#115

Post by abalone »

american158931 wrote: post #93
genericresponse wrote: post #83

Earlier quoted context omitted.

I'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 a…

I 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 beg…

You would have been given an option to purchase an absolute number of shares, not a percentage. Let's say 10K. That may have been worth 1% when you were granted them, but as more shares are issued in subsequent funding rounds / IPO, your 10K will constitute a smaller percentage of the bigger pie. This is called dilution. You still have 10K shares, though, and they will still be worth $9/share at the moment the company IPOs. (And maybe significantly more or less after that moment. Typically employees have a wait a bit after an IPO before they can sell.)

They cannot be "destroyed" (under normal circumstances) once you are fully vested, although with certain types of options you may need to exercise (purchase) them if you were to leave the company, if you don't want to lose them.

The proceeds from your 10K options is easy to calculate once the company goes public: it's simply the stock price, minus what you have to pay to exercise the option (the strike price). Perhaps the trickier thing to calculate is taxes because of things like capital gains.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#116

Post by ghaff »

singsong wrote: post #105
throwaway2048 wrote: post #81

Earlier quoted context omitted.

Are people really going to care if their joint of choice changes payment providers? Do people care how cool their bank and credit card company is? Id almost certainly guess not.

Hmmm interesting.... I have had in depth conversations about this, and I strongly feel that you are missing something. Sure, in certain areas having a ipad/square reader combo is not necessary. It may actually be detrimental I would imagine. I am not talking about some random small town in Missouri, I am talking about less trendy districts of a city or a coffee shop with a more old school vibe. BUT in large cities an…

Cut me a break. As a customer, I want to buy something and pay for it as easily as possible. If a taxi driver wants me to pay by Square because that makes them more money, I'm cool with that so long as it's straightforward. Whatever. But I absolutely have zero interest in how "cool" a given payment system is.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#117

Post by tadfisher »

zimbu668 wrote: post #111
chx wrote: post #73

Earlier quoted context omitted.

Erm, 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…

If 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-good...

Those are things Square doesn't want merchants to sell. The difference is meaningful here, because many of those services are regulated and the goods listed are prevented from sale across state lines. Square has an MSB license in all 50 states and are under scrutiny from federal regulators, so they have to abide by the rules.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#118

Post by joelwilliamson »

chc4 wrote: post #29
delish wrote: post #27

Earlier quoted context omitted.

Chrome, 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=%E... I found: Not sure what to make of it. Apple decided to assign to a Unicode character their logo. Does anyone have context?

In 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?

My Firefox renders it as an apple with a bite taken out of it. Probably depends on your font.

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#119

Post by jonknee »

zimbu668 wrote: post #111
chx wrote: post #73

Earlier quoted context omitted.

Erm, 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…

If 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-good...

Have you ever read any merchant account agreement? There are always a whole host of things you're not allowed to sell because it puts you in a different risk category. There are other processors who specialize in being able to handle higher risk categories (say, adult content).

Re: Square Prices Its IPO at $9, giving it a $2.7B valuation

#120

Post by potatolicious »

singsong wrote: post #105
throwaway2048 wrote: post #81

Earlier quoted context omitted.

Are people really going to care if their joint of choice changes payment providers? Do people care how cool their bank and credit card company is? Id almost certainly guess not.

Hmmm interesting.... I have had in depth conversations about this, and I strongly feel that you are missing something. Sure, in certain areas having a ipad/square reader combo is not necessary. It may actually be detrimental I would imagine. I am not talking about some random small town in Missouri, I am talking about less trendy districts of a city or a coffee shop with a more old school vibe. BUT in large cities an…

I disagree - I live/work smack in the middle of Manhattan and I'm not really seeing a Square dominance in coffee shops around me.

Yes, every coffee shop needs their cool iPad credit card processing machine, but anecdotally I'm seeing more non-Square ones than Square ones.

The choice here isn't between "usable iPad thing made by Square" vs. "crappy 90s POS terminal", it's "usable iPad thing made by Square" vs. "other usable iPad thing made not by Square".

I think a huge issue here is that merchants care about the bottom line, and it turns out Square does not have a lock on producing reasonable hardware/software around payment processing. Square may have invented the category but from where I stand they don't look like they own it.

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