Mobile payments startup Square (SQ) made its official stock market debut today. SQ stock was initially priced at $9 per share, well below previous expectations of $11-$13. But, with hopes to sell 27 million shares, the Square IPO still has the potential to value the company at $2.9 billion.
Square is what I (and many other analyst) sometimes call a “unicorn” on Wall Street — a privately-held company with an extremely high valuation. (Check out my Smart Talk article for more on these unicorns.) Many of these companies aren’t even making money, yet they’re still able to come to market valued at unheard of levels. That’s exactly the case with the Square IPO.
Square is relatively well-known company at this point, as it provides businesses with little credit card reading gadgets that attach to smartphones and tablets. But, simply being well known isn’t everything. There is a lot of competition in this space already, and that will likely only increase in the future.
And, while sales are certainly growing rapidly — up nearly 50% in the first nine months of the year compared to last year — SQ is losing money, and nobody knows how much longer that will continue.
Until there’s more concrete evidence as to when SQ stock will become profitable, I’m not buying. But, that isn’t the only reason I’m staying away from the Square IPO.
I’ve never been shy about expressing my feelings on unicorns: I’m not a fan of privately pumping up value and then dumping it on the unsuspecting public in the form of an IPO. There was once a time when companies invited the public for their ride to glory, but now investors are only seen as dupes.
You can see this in the way several of the more recent big-name IPOs have fared. Box (BOX), for example, made its debut earlier this year. The stock was priced at $14 per share, made its first trade at $20.20, and hit a high of $24.73 on the first day of trading. But, it’s been all downhill since.
A lot of the big names that average investors might buy (as opposed to the more Wall Street-centric names) have been disappointing.
While I’ve always said it’s best to buy what you know, I’m thrilled to see that people are actually rejecting that notion now. In this case, and in many others, the game has changed.
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