Square Inc. officially filed for its $275 million initial public offering in October. It’s expected to make its public debut the week before Thanksgiving, according to CNBC.
Square will be the highest-valued U.S. tech startup to go public since Twitter (NYSE: TWTR) in 2013. However, the IPO market for venture-capital-backed tech companies has been cooling down. Will Square prove to be a worthwhile IPO to jump on? Or will the dual-CEO fail to meet expectations?
When considering the Square IPO, Jack Dorsey’s name is front and center as a major concern. On Oct. 5 the Square CEO was also renamed CEO of Twitter.
Dorsey has been given two difficult tasks: Take one company public and turn another public company around. Can he be a successful CEO of both Square and Twitter?
Dorsey quickly began making big decisions for Twitter’s turnaround when he announced just days after being named permanent CEO later that he was laying off 8% of the staff.
Then just weeks later in a morale-boosting effort he announced that he’s giving $200 million of his own stock back to the company and its employees. Dorsey just keeps making headlines.
In its prospectus filed with the SEC, Square noted Dorsey’s dual roles, saying it “may at times adversely affect his ability to devote time, attention and effort to Square.”
Are There Dual-CEO Success Stories?
Investors have every reason to worry. While there have been CEOs that run two companies, each one says it is extremely difficult and draining. Dorsey has been compared to Steve Jobs, who was running both Pixar and Apple (NASDAQ: AAPL) when he was first asked to return to Apple. In the Jobs biography by Walter Isaacson he discusses this period as one of the most difficult times, draining him of all his energy.
Currently Elon Musk is leading both Tesla Motors (NASDAQ: TSLA) and SpaceX. He is known to sleep for only six hours a day and to work 100-hour weeks. He doesn’t recommend that most people try to run two companies.
The question is if Jack Dorsey can successfully lead the two companies through both a turnaround and an IPO. While it has been done before, it is unlikely that the situation could last for very long. Burnout seems inevitable.
More Than a Payments Company
While the prospectus invoked doubt in Dorsey’s ability as a dual-CEO, it also contained a key reason to have hope for a successful offering.
Square was founded in 2009 with the ambition to reinvent payment processing for small and midsize businesses. Square distributes payment hardware in the shape of a small, white square to millions of sellers for free. It then charges a 2.75% fee for each credit card transaction through the service. More than 2 million sellers account for 97% of Square’s payments volume.
Of that 2.75% a big portion of it goes to credit card networks. Many criticize the company’s core business as not generating enough revenue to justify its $6 billion valuation from private investors.
The prospectus states that generating revenue from payment processing is not the end goal, nor will it be the primary revenue generator for the company. Square continues to release new analytics features for small businesses to own their data. Using Square for payment processing is the first step in capturing a customer base that will then use premium features through Square for all their financial needs, including invoicing, accounting and more.
A Pot of Gold at the End of the Unicorn Rainbow?
Last month Fortune magazine revealed that a number of venture capitalists keep a “dying unicorns” list, which includes the startups valued at more than $1 billion that they believe will go under. There has been a growing concern for the health of these high-valued private tech companies. Accounting, business practices and technology have all been called into question.
Among unicorn IPOs, the last startup to go public was Pure Storage (NYSE: PSTG), which had its IPO in early October. The results of the IPO did not invoke confidence, as shares fell during the first full day of trading even after pricing below its range.
Should you go for the Square IPO? In short: no.
Its primary business has failed to prove it is sustainable, and it’s still seeking to expand into an already crowded market of invoicing and financial services for small and midsize businesses.
Square will also likely suffer from having a CEO who cannot commit his full attention to the business.
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