Hip to be Square? Not for this IPO

Thu Nov 19, 2015 7:26am EST
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By Heather Somerville and Lauren Hirsch

SAN FRANCISCO (Reuters) - Square Inc priced shares at $9 for its initial public offering, about 25 percent less than it had hoped, as it struggled to win over investors skeptical about its business and valuation before trading begins on Thursday.

The mobile payments company said it along with a selling stockholder would offer 27 million shares, raising $243 million in its Wall Street debut, about $80 million less than expected.

The San Francisco-based company earlier this month set a price range of $11 to $13 per share, well below the $15.46 investors paid in Square's most recent private financing round last year.

The steeper discount to $9 - a 42 percent drop from a year ago - suggests widespread uncertainty about the profitability of the payments industry and the future of Square itself, which has seen slowing revenue growth.

The weaker price puts Square's market capitalization at $2.9 billion, a far cry from the $6 billion valuation it had earned from private investors.

"The way that Square was valued as a private company is they were just going to disrupt everything and change payments," said Andrew Chanin, chief executive of PureFunds, an exchange-traded fund that includes mobile payments companies. "And the reality is not that."

The IPO is among the strongest indications yet that valuations set by private market investors can be fleeting.

Fidelity Investments recently cut the estimated value of its stake in some high-profile private tech companies, including Snapchat, Zenefits and Dropbox.   Continued...

Jack Dorsey, interim CEO of Twitter and CEO of Square, goes for a walk on the first day of the annual Allen and Co. media conference in Sun Valley, Idaho, in this file photo taken July 8, 2015.   REUTERS/Mike Blake/Files