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Billion Dollar Unicorns: Square Post Its IPO

Posted on Monday, May 16th 2016

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According to eMarketer, mobile payments in the US are estimated to grow 210% to $27.05 billion in 2016 from $8.71 billion in 2015. The number of people in the US using proximity mobile payments is expected to grow 61.8% to 37.5 million by 2016. Square became a Billion Dollar Unicorn raising funds on ridiculously high valuations, but it recently went public that halved its valuation to a more realistic level.

Square’s Financials

For the first quarter, Square (NYSE: SQ) had processed $10.3 billion of Gross Payment Value (GPV), up 45% y-o-y. It reported total net revenue of $379 million, up 51% y-o-y beating analyst estimates of $343.6 million. Adjusted revenue, excluding Starbucks Transaction revenue and transaction costs, was up 64% y-o-y to $146 million. Net loss doubled to $96.75 million or $0.29 per share missing analyst estimates of loss of $0.14 per share.

Operating expenses nearly doubled to $207.3 million driven by the surge in General and Administrative as well as Product Development expenses even as Sales and Marketing expenses remained flat at $38.5 million.

By segment, Transaction revenue grew 42% to $300.5 million and Starbucks Transaction revenue grew 33% to $38.8 million. Revenue from the Starbucks arrangement, which is expiring this year, accounted for 10% of total revenue. Software and Data Product revenue grew 197% to $23.8 million driven by launch of new services. Hardware revenue grew 634% to $16.2 million due to growth in sales of the $49 Square Reader for Europay, Mastercard, and Visa (EMV) and near field communication (NFC) following its launch in the fourth quarter of 2015. Hardware revenue accounted for 4% of total revenue up from 1% a year ago.

For the second quarter, Square expects adjusted revenue to be within the range of $151 million to $156 million and adjusted EBITDA to be in the range of negative $4 million to breakeven. The second quarter is seasonally its strongest in terms of sequential growth.

Based on strong growth and improvements in operating leverage in its business, the company raised its full year guidance for 2016. It now expects adjusted revenue for 2016 to be in the range of $615 million to $635 million and adjusted EBITDA to be positive $8 million to $14 million.

Square’s New Offerings

Square has launched a new platform called Build with Square that allows developers to integrate apps with Square’s APIs. Merchants would be able to build their own point of sale (POS) using Square’s hardware and payment stock. For instance, they can use the new Square Reader to create a POS and accept Apple Pay. This could help Square attract more sellers into their ecosystem and suite of products. Do small businesses have the wherewithal to adopt? Time will tell.

Investors, however, are worried about its continuing losses and the leadership of CEO Jack Dorsey, who also leads Twitter. In November 2015, Square went public under the ticker SQ on the NYSE exchange. It raised $243 million by selling 27 million shares at a price of $9. This was much below its expected price range of $11 to $13.

Its stock is currently trading at $9.28 with a market cap of $3 billion, half the valuation that it last raised venture funding at—a valuation of $6 billion that always seemed too high to sustain. It touched a high of $15.81 in April after hitting a low of $8.34 in February this year.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns.  Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

Photo credit:  Pieterjan Grobler/Flickr.com.

 

 

This segment is a part in the series : Billion Dollar Unicorns


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. Workday's Ramp to Multi-Billion Valuation
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 1)
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. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 2)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 3)
. Gaurav Dhillon, Founder of Informatica and SnapLogic (Part 4)
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