Dorsey's Square jumps in market debut, offering hope to tech startups

Thu Nov 19, 2015 7:07pm EST
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By Heather Somerville and Rachel Chitra

(Reuters) - Shares of Square Inc, the mobile payments company co-founded and still run by Twitter Inc Chief Executive Jack Dorsey, soared as much as 64 percent in their market debut, following a marked-down initial public offering, countering the negative sentiment that has nagged at Silicon Valley startups in recent weeks.

The steeply discounted IPO price, at less than 60 percent of the company's last private valuation, had raised questions about the prospects of other so-called 'unicorns' - startups worth at least $1 billion - that might want or need to go public.

A number of tech IPOs have performed poorly over the past year, and mutual fund investors including Fidelity Investments have been marking down the value of their private tech holdings.

Dispelling some of the gloom, Square's shares jumped to a high of $14.78 in early trading on Thursday and closed at $13.07, booking a 45 percent gain.

The stock pop came after the IPO priced at $9 late on Wednesday, well below the expected range of $11 to $13 and even farther below the $15.46 price of Square's last private financing in 2014. It bucked a difficult stretch for IPOs, which are trading down about 5 percent for the year.

Investors wary of Square's valuation likely waited until the shares landed on the public market to buy, analysts said, and the weak price set on Wednesday created a pile-on Thursday morning that drove the stock higher.

"The IPO buyers have very healthy skepticism about unicorn valuations," said Chris Bulger, managing director of Bulger Partners, a tech advisory firm in Boston.

Despite Square's 42 percent valuation drop from its last private financing round, most backers scored a payday. Investors who bought shares a year ago were protected by a 'ratchet', ensuring they would get a 20 percent return, and some early-stage investors bought Square at less than a dollar a share.   Continued...

Jack Dorsey (L), CEO of Square and CEO of Twitter, Jim McKelvey co-founder of Square (2nd R) and NYSE President Tom Farley (R) watch as Mac Riley rings a ceremonial opening bell on the floor of the New York Stock Exchange for the IPO of Square Inc., in New York November 19, 2015. REUTERS/Lucas Jackson