Square, the mobile payments company helmed by Twitter (TWTR) CEO Jack Dorsey, filed documents with the Securities and Exchange Commission that outline the specifics of its plans to go public.
Unfortunately for some of its most recent investors, the Square IPO is already turning out to be a loser.
The company plans to sell 27 million shares in the Square IPO, at a price point between $11 and $13 per share. That gives the company a valuation of $4.19 billion at the very top of its range.
What’s surprising about this is that the $13/share IPO price of Square stock would be less than what the most recent private funding round called for, at $15.46 per share.
That’s definitely not a good sign, and taking a look at its financials, you can see why Square had to lower its price.
Still Deep in the Red
When Square’s first financials were released to the public last month, giving some context to the Square IPO, there wasn’t a ton to be impressed with.
Revenue growth wasn’t too shabby, admittedly — it grew by 50.7% from $371.9 million in the first six months of 2014, to $560.6 million in the first half of 2015 — but huge losses remained. Square lost $79.4 million in the first half of 2014 and $77.6 million in the first half of this year.
A few weeks later, Square released third-quarter numbers. This is where private Square investors got hit. Square, which plans to list on the New York Stock Exchange under the ticker “SQ”, showed slowing revenue growth and expanding losses.
It lost $53.9 million on $332.2 million in revenue last quarter.
Retail investors should be wary of investing in Square, which risks following the same path as Box (BOX), a cloud-based enterprise collaboration and storage company that’s had a rough go on Wall Street since its IPO earlier this year. After jumping 66% on its first day of trading, BOX stock is off more than 40% since its January debut.
Another red flag for potential investors in the Square IPO is the company’s relationship with Starbucks (SBUX). While you’d think rolling out its mobile card-readers en masse to the largest coffee chain in the world would be good for business, it actually lost the company money: SQ lost $14 million in the first half of 2014 as a result of the relationship, and another $14 million in the first half of 2015.
Thankfully for shareholders, that relationship will soon be discontinued. But that raises a larger question for Square’s growth prospects going forward, as InvestorPlace Executive Editor Jeff Reeves recently pointed out:
“Should Square find a similar deal with the likes of a retailer like Target (TGT) or another eatery like Chipotle (CMG) that’s willing to partner with it, is that a good thing or just another money-losing proposition based on SBUX figures?”
Given its filing today, Square will likely go on a road show next week to sell the stock to large institutional investors. Then, the week before Thanksgiving, we should see the Square IPO.
But before you become entranced by the hype, remember that Square is a long ways from being profitable … and that its charismatic young leader, Jack Dorsey, is pulling double-CEO duties, taking valuable time and energy away from his focus on Square going forward.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
