The digital-mobile-payments company Square began trading on the New York Stock Exchange today, and the company has a lot riding on the move.
Founded in 2009, the company developed an easy, convenient way for small businesses and individuals to accept credit and debit card payments through small mobile devices. It has since evolved into a company that offers a number of services for small businesses - while relying on collaborations with companies such as Visa and Apple.
And while Square’s first round of private investing last year resulted in a share price of $15.46, the new initial public offering (IPO) values the share price at $9 - about 25% less than what the company had hoped.
The company said that in addition to one selling shareholder, it will offer 27 million shares and will raise $243 million - approximately $80 million less than originally expected.
While last year’s private round of investing valued the company about $6 billion, the new IPO will set an initial value of the company at only $2.9 billion.
The steep valuation discount indicates that there is significant investor concern regarding the growth and profitability of the payments industry in general and the future of Square specifically.
If Square fares well and has a successful public trading debut, it could ease the tension for other tech companies valued at $1 billion or higher to go public, even if that means using lower valuations.
Phil Haslett of EquityZen, an investor marketplace specializing in startup companies, stated that, “If Square trades stably or continues to increase in value, I think what it’ll do is it will provide some confidence to other [such] companies that they can actually tap the public markets even at a price below what they might have last raised in the private market - and the world won’t implode. If Square is a big success, there’s not necessarily going to be a flood - but a big increase in companies tapping the public markets for further financing.”
On the flip side, if Square does not fare well in its IPO, the CEOs of other similarly situated startups will have reason to worry. About 140 of these types of companies currently exist.
Haslett added that, “You’re going to have about 130 really nervous CEOs and founders wondering what their exit strategy is in the near term if they can’t continue to meet the goals of their aforementioned billion-dollar valuation.”