Back in 2013, Square (SQ) was one of the game-changing companies I was watching that I believed could go public and present some interesting opportunities. Two years later, the company finally joined the IPO crowd and Square stock can now officially be bought by investors.
But, its entry price was a surprise. CEO Jack Dorsey priced Square stock at $9 per share, far below the projected offering range of $11-$13 per share, and further below the $15.46 per share the company raised from private investors last year — cutting SQ’s valuation by $3 billion.
In fact, the company will now have to give some investors additional shares valued at $93 million due to the valuation slash. $9 is pretty cheap, but does that make the Square IPO an even better buying opportunity now?
I don’t think so. SQ is certainly a decent company, but it’s a bad sign that management lowered the price, and I don’t like this morning’s additional baggage. If this is the best deal SQ could come up with in an increasingly crowded space, that’s not good.
And, as Apple (AAPL) gets serious about retail point-of-sales systems, the kind of customers that Square is capturing (technology-forward, hipper shoppers) will now have a more complicated decision to make: stick with the swipe or embrace Apple Pay.
Phone-as-wallet is finally here (there are commercials for Apple Pay everywhere now), and chain retailers are updating POS systems to support it. That’s a real problem for companies such as Square, which initially had nothing but blue sky to exploit in situations more technologically sophisticated than conventional “debit or credit” cash register set-ups (stores that skipped the register and bought tablets running SQ checkout systems).
What to Expect From Square Stock
I believe it’s going to get pretty competitive in this space, and from the number of Apple Pay systems going into stores now, the growth opportunity for SQ is looking a lot less open-ended than it did a year ago. That leaves a company that’s doing $1 billion per year in transaction fees and has yet to turn a net profit. Management needs a lot more scale to make the business work.
However, I think Square could be a takeover target for a larger company one day, especially since $1 billion per year is a decent installed user base. I wouldn’t be surprised if the Square IPO timing wasn’t a way back into a smooth takeover.
A year ago, Square could have been a standout in the sector, but with AAPL now hogging up the space, I think the company missed the boat on timing; whatever window it had to be a hot IPO has passed.
Even though the stock opened at the lower end of its projected range, popping over 52% in early-morning trading, I just don’t see Square stock as a long-term investment here. However, it could make for a good short-term trade, once we can confirm whether Square stock is in an established bullish or bearish trend.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
