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Square IPO in 2014?

Posted on Tuesday, Jun 18th 2013

According to a recent Gartner report, worldwide mobile payment transactions are expected to grow 44% over the year to $235.4 billion this year. Gartner estimates the market to be worth $721 billion by 2017, translating to a compounded annual growth rate of 35% over 2012-2017. By 2017, more than 450 million users will conduct mobile payment transactions, compared with 245.2 million this year and 200.8 million last year. Growth will be driven by Asia Pacific countries, which will contribute $74 billion in transactions during the year. By 2016, the region should become the largest by transaction value at $165 billion.

Square’s Financials
San-Francisco–based Square is making it big in this fast-growing mobile payments market. Named after its small square card reader, Square processes electronic payments through a mobile device for millions of businesses and individual vendors. More than 4 million vendors process payments through Square’s device. Square charges a processing fee of 2.75% per transaction or a flat fee of $275 from each of its vendors per month. According to latest reports, the company processes an average of $15 billion in transactions per year. A year ago, it was processing an average of $10 billion in transactions.

Square remains venture funded, with investments of $341 million from investors that include several individuals and funds such as First Round Capital, Khosla Ventures, Greg Yaitanes, Sequoia Capital, Visa, Kleiner Perkins Caufield & Byers, Tiger Technology Global Management, Starbucks, CrunchFund, Citi Ventures and Rizvi Traverse Management. Last year, Starbucks also invested $25 million into its business and partnered with Square by enabling 7,000 of their stores to accept mobile payments through Square’s reader.

Given the company’s potential, analysts are waiting for Square’s IPO. Square confirmed that it will go public when it is ready to do so and has a “sustainable” product. In August 2012, the company was valued at $3 billion-$4 billion.

Square’s Expanding Market Reach
Recently, Square announced the release of Square Stand, a point-of-sale system that also uses its payment processing technology. Square Stand is made of molded white plastic and holds an iPad that becomes a counter-top point of sale system. Priced at $299, the Stand can not only to swipe cards and connect with Square’s software, but it is also able to connect with other hardware, including a cash register and a receipt printer as needed. Square’s pricing of Stand has been called aggressive, and the company seems to be using the product to expand their market reach from mobile businesses and service providers to brick and mortar businesses.

Square is not only expanding its market reach within the country, it is also growing internationally. It released its card reader in Canada in October 2012 and has been pleased with the response seen in the country. Square noted that in Canada, it has seen an increased adoption by retailers such as Best Buy, Future Shop, and the Apple Store, locations which have helped create a healthy average transaction size of $120 within five months of launch.  In the U.S., over a similar time period, the average transaction size was $70.

Early last month, to address the fast-growing Asia Pacific market, Square began operations in Japan as well. Square released its product in Japan in partnership with Sumitomo Mitsui Card Corporation.

The company is a likely 2014 IPO candidate.

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