Jack Dorsey's payment company Square's underwhelming IPO leaves a lot to ponder

Shares in payment company Square surged by more than 60% at one point on the New York Stock Exchange yesterday, wiping out much of the underwhelming effect of its IPO pricing strategy the previous evening.
Jack Dorsey's payment company Square's underwhelming IPO leaves a lot to ponder

The company co-founded by Twitter chief executive, Jack Dorsey found itself in the midst of a storm of negative coverage Wednesday evening when it priced shares in the company at $9 (€8.38), far below the previously stated $11- $13 range.

The company’s initial public offering raised $243m at the $9 per share price on Wednesday.

The unusual decision to price its shares at a level below the that of its most recent private funding round effectively halved the valuation of the company from $6bn in October last year, when it sold shares at $15.50, to less than $3bn.

The ropey start to its flotation was somewhat reversed during trading yesterday, however, when shares touched $14.78 in early trading.

With shares climbing to such heights, the company’s value recovered to north of $4.7bn.

If, as some analysts have suggested, Square reduced its valuation (with the $9 share price) as a result of concerns over Mr Dorsey’s ability to juggle his roles as chief executive of both the payments company and Twitter, it would appear investors were less concerned with the issue yesterday.

The topsy-turvy nature of Square’s IPO will give other so-called unicorns, or highly valued startups, plenty of food for thought as they consider going public.

The likes of Airbnb and ridesharing app Uber, which recently opened an Irish office in Limerick, have continued to attract private investment rather than floating on the stock exchange.

Irish FinTech expert Garrett Cassidy said the lower valuation is proof that late stage venture capital markets are overvalued compared to public markets which were now “rebasing” the Square valuation.

“Over the last while companies have been delaying going public because of the level of funding available from private equity and mutual fund investors without any public market benchmark.

"These funding rounds have been termed ‘quasi-IPOs’ by some. Square, Uber, Dropbox and Snapchat are key examples,” he added.

Square, which enables businesses using its mix of hardware and software process credit card payments using a smartphone or tablet, has serious competition in its field.

Major companies like Apple and Google are joining existing competitors while start-ups such as Stripe are an increasingly important player in the market.

The San Francisco-based payments company founded by Irish brothers Patrick and John Collison recently announced that it is aiming to double its 320 person workforce in the next 12 months.

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