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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

#161

Post by machinshin_ »

lakeeffect wrote: post #154
anupmm wrote: post #153

A combination of things are responsible - 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 trans…

I'm pretty sure Starbucks, the merchant, would have to cover the costs not square as the processor. I used to work at MBNA and when there was fraud on an card the retailer was responsible.

I suspect it's not quite that simple. Square has a lot of small-to-medium businesses, who's risk profile is higher; which has to have a increased risk on Square, no?

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

#163

Post by sawthat »

product50 wrote: post #162

Does Square compensates employees in stock options or RSUs? If options, aren't the employees you joined post Series D completely screwed?

It really depends on the way the shares are distributed. I suspect they aren't "screwed" but they aren't exactly going to get rich from this.

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

#164

Post by steven2012 »

anupmm wrote: post #114
geoffwoo wrote: post #16

Earlier quoted context omitted.

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,…

Their net revenue should be about 100 bps, and their loss is 16 bps, at least for 2015.

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

#165

Post by abalone »

jes5199 wrote: post #142
abalone wrote: post #122

Earlier quoted context omitted.

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 Vis…

Square does high enough volume to negotiate better rates than you'd expect.

Your source, or is this pure speculation? Even Walmart can't negotiate Visa/MC interchange fees.[1] And they do ~400X Square's volume. It's not just a matter of merchant/processor size. Once enough consumers have adopted it as their primary/only card, the card network has an extremely strong position. (This is why AmEx rates are more negotiable; it's usually an alternate card.)

[1] They do lawsuits instead. http://www.reuters.com/article/2014/03/27/us-walmart-visa-la...

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

#166

Post by steven2012 »

This is brutal. I know someone at Square that exercised his options, and I guess he is underwater by a massive amount now. And since VCs are generally move like flocks of birds, this will likely create a massive chill in terms of funding. Either they are going to take a pound of flesh from the founders coming for their next round of funding, or they will just pull away.

It looks like 2016 is going to see a lot of unicorns take a massive hit. You can bet Stripe and other payment companies are going to take a hit to their valuation, although Stripe seems pretty well-funded at this point.

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

#167

Post by abalone »

genericresponse wrote: post #132
abalone wrote: post #115

Earlier quoted context omitted.

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 compan…

What I was saying with the "destroyed" was something like a reverse stock split. (Your proportional ownership stays the same, but your number of shares reduce.) The idea I was communicating that the number of shares itself is not a meaningful judge of anything unless you understand what those shares represent. If covenants are not in place, you could also "destroy" the proportional ownership of shares by diluting dow…

Stock reverse splits don't "destroy" value anymore than exchanging four quarters for a $1 bill. You do not have less value just because you own 1 unit instead of 4, because the value of the unit increased proportionately.

You can dilute proportional ownership, but there you just shifted the meaning of the term "destroy" and are using it in a funny way. Dilution does not decrease value. The reason your percentage of the pie decreases due to dilution is because the pie is getting bigger. You still have the same absolute amount of pie on your plate. Nobody destroyed any pie.

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

#168

Post by jdross »

anupmm wrote: post #153

A combination of things are responsible - 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 trans…

Square's fraud loss from their prospectus is 0.1%, which compares favorably to industry based on this Economist article: http://www.economist.com/node/21554743

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

#169

Post by apapli »

jes5199 wrote: post #146
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…

Square has a habit of wasting a bunch of energy on bad ideas: half the company worked on Square Wallet, which was a dead-end. Half the company worked on the Starbucks integration, which is now known to be a money pit. I sort of think this means that they're undervalued . All they have to do is stop throwing time and money away and they'll be a lot more productive and profitable.

I sort of agree. Clearly they have some good technical folks. But based on the numbers and the Starbucks deal their management appear to have limited experience in strategy and how to build business cases. So even though the "team" on paper might be good they haven't been able to prove themselves yet.

This isn't helped by having a founder who seems to split his time equally with another large and basically unproven business (Twitter) when you are looking from a financial perspective.

My read on the situation is that the private equity funding options are all exhausted and the company's last option is to IPO otherwise they are a dead duck. That's not a very compelling sales pitch.

I'll bet the share price falls a lot further once they are listed. Perhaps at that time it will present a good buying opportunity if one wants to speculate on the team coming up with the next big thing, but that will be a race against the clock before their bank account runs dry.

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

#170

Post by jessedhillon »

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…

A quick survey of the SOMA neighborhood cafes in SF suggests that about half are using some other competitor. The most popular one I see is called Reveal, I think. Your analysis relies too much on cycnicism, IMO.
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