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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

#121

Post by dangrossman »

Jormundir wrote: post #100
ksherlock wrote: post #80

Earlier quoted context omitted.

That's a great example. For contra-contrarian reasons: If your coffee is less than $7.75 (debit card) or $4.00 (credit card), square loses money (cf Starbucks).

Their contract with Starbucks is ending soon. Going forward their reader fees will be profitable to the company.

It's not just Starbucks. He did those calculations based on the interchange fees Square pays to Visa/MasterCard/AmEx compared to the flat 2.75% it charges merchants.

To swipe a debit card, Square has to pay at least $0.21 + 0.05% per transaction. 2.75% of any amount less than $7.75 doesn't cover the $0.21 fixed cost. They lose money.

Same deal with credit except it's $0.10+ (and 1-3.5%) instead, so they're only losing money on every swipe under $4.

There's also some amount of markup over interchange going to their underwriting banks (JP Morgan Chase and Wells Fargo) which makes the minimum charges at which there's any profit even a bit higher than that.

Basically, coffee shops are loss leaders for Square.

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

#122

Post by abalone »

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…

Coffee shops like Square because it offers one of the lowest rates for tiny under $10 purchases, not because it's "hip". It's a flat 2.75% without any additional $0.10-0.30 fee like some other processors. So a $4 coffee costs the merchant just 11 cents to charge.

Unfortunately this is because Square actually loses money on these sales, which you can confirm by looking at the public available interchange rates for Visa/MC.[1] Credit transactions start at around $0.11-12, and debit is a whopping $0.22.

There's other reasons too like maybe they find their bundled software easy to use or their signup process has less hassles, but they are practical reasons.

[1] https://usa.visa.com/dam/VCOM/download/merchants/visa-usa-in...

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

#124

Post by potatolicious »

SeoxyS wrote: post #14
jdoliner wrote: post #10

Earlier quoted context omitted.

In my experience incentive stock options that companies give to employees normally are heavily discounted.

That, plus they've probably been granting RSUs for a while, which do not require being exercised and which cannot be underwater,

Square was granting options as recently as 2-3 months ago for senior eng roles, I don't think many people at Square are hanging on to RSUs.

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

#125

Post by elsewhen »

harryh wrote: post #58
gohrt wrote: post #53

Earlier quoted context omitted.

I thought they were priced at the last round price (which is usually a discount if you interpolate the prce between rounds)

Nah, there's a big discount because preferred shares have downside protection (as well as a few other valuable things general) so common stock is valued lower. Generally a 70% discount or so.

the discount varies by investment round. common shares for early stage companies come with a huge discount. or perhaps it is clearer to say that preferred shares come with a huge premium primarily because the liquidation preference (LP) is so valuable at that stage). preferred shares in later rounds have a much lower premium, because investors don't value the LP as much.

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

#126

Post by rdl »

I 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".

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

#127

Post by pbreit »

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…

Oh, Square definitely could grow out of its current malaise. I think its biggest problem has been a lack of focus on payments. It basically ceded online payments to Stripe when pretty much all of its merchants need it. It has been extremely slow expanding internationally and bringing out an chip/ApplePay terminal. Instead it has been expanding into various mediocre businesses like scheduling, payroll, food delivery. I'd reluctantly let it keep going on lending since that's hot right now but I don't like it as a core part of its payments business.

I think Jack is capable of leading both companies but I don't think the part-time roles are helping the stock price of either at the moment.

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

#128

Post by pbreit »

dangrossman wrote: post #121
Jormundir wrote: post #100

Earlier quoted context omitted.

Their contract with Starbucks is ending soon. Going forward their reader fees will be profitable to the company.

It's not just Starbucks. He did those calculations based on the interchange fees Square pays to Visa/MasterCard/AmEx compared to the flat 2.75% it charges merchants. To swipe a debit card, Square has to pay at least $0.21 + 0.05% per transaction. 2.75% of any amount less than $7.75 doesn't cover the $0.21 fixed cost. They lose money. Same deal with credit except it's $0.10+ (and 1-3.5%) instead, so they're only losin…

This is a non-issue. Square has 30-35% margins on its core processing business which is exceptional. The 2.75% rate with no fixed portion was a smart way to attack its core market of small business, low value transactions.

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

#129

Post by pbreit »

josephjrobison wrote: post #75

I'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?

Which is why Square's growth has been so impressive. It totally dominates the "dongle" market despite, as you note, the ease in copying it by well-resourced competitors.

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

#130

Post by pbreit »

kethinov wrote: post #88
calcsam wrote: post #79

Earlier quoted context omitted.

"The Shakespearean model holds true today. Consider the Square card reader. Square was the first company to do mobile handset credit card processing right. It did the software piece and the hardware piece, and built a brand with the iconic white square device. Then there was a proliferation of copycat readers. PayPal launched one. They shaped it like a triangle. They basically copied the idea of a simple geometric-sh…

Intuit's actually predates both Square's and PayPal's: http://venturebeat.com/2009/05/21/intuit-gopayment-lets-you-...

That article just says you type in the credit card number into a web page. Very different.
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