As Square’s Profitability Shrinks, So Do Its Options

What's Next In Payments®
5:37 AM EDT April 21st, 2014

Facing shrinking cash reserves and increasing losses, Square could be being pushed by market forces into a sale with a deeper pocketed mWallet player.

Square took a loss of about $100 million in 2013, an increase over 2012’s loss. Additionally, the five-year-old company paid roughly $110 million more in cash last year than it took in. Over the last three years, Square has gone through about half of $340 million it raised in four rounds of equity financing since 2009.

As PYMNTS has previously reported, Square has been linked to many high profile Silicon Valley players as a potentially valuable asset, particularly among competitors in the race to become the world’s dominant mobile wallet. The five-year-old startup’s Square shaped mobile reader essentially renders mobile phones and tablets into POS, as well as offering relatively inexpensive credit card processing services.

Square has received a lot of attention from investors and media figures, and the design-oriented company is informally valued in billions by analysts. However, Square’s profit margins are razor thin in it largest area, which is payments processing.

Square has been considering diversifying its option by offering more services layered on the payments system. Google remains the most speculated about potential partner for Square,since the companies real-world tie compliments Google’s effort at launching its mWallet.

However, Square denies acquisition rumors, particularly about Google.

“We are not, nor have we ever been in acquisition talks with Google,” said an unnamed insider, reports the Wall Street Journal.

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  • JT

    After constantly hearing them and all the other SV startups hyped….

  • inthebiz

    Normally companies which have a chance at succeeding have their profitability improve as revenue grows. Looks like Square follows the old adage that they lose a little bit on every transaction but make it up on volume!
    You have to wonder what Square has that is actually valuable to anyone. They are the market leader in a segment that has been proven time and time again to be unprofitable and they have earned the loyalty of their clients by offering them free services.

    • Pablo Job

      That is the question right? When Jack Dorsey co-founded twitter the conversation was “how do we monetize it”. Think about Twitter. Ads. BUT, when you create a twitter account you don’t have to put anything real in there. You can have a bogus name, etc etc. With Square you have to put your most valuable information in… The TOS? You have to agree that you can be marketed to AND your info can be sold. So what did we learn? Twitter I get a basic bit of info…Square I get all your info in the form of your business, yourself, etc and I can mine that data until I find gold.

  • Michelle Graff Wagner

    Square is a huge aggregator, claiming >1 million merchant customers. Not sure who will want to buy them given the recently announced changes to Visa’s FANF that will impact aggregators who will now need to report individual tax ID info for merchants rather than use a Master Tax ID. From a recent article in Digital Transactions:

    “This change is also likely to require considerable system work for aggregators and their processors, which starting next April will have to track volume and compute fees for merchants individually rather than collectively.”

    • inthebiz

      Aggregators are supposed to be doing this now.

  • Tom Cannon

    Payments leaders are long on making money…on every transaction. Sometimes ‘the new great thing’ runs out of steam because they are not making profits or more importantly cannot make cash flow NOW. Lots of e wallets over 18 years, they can garner lots of attention with cuteness but also consume vast piles of investment capital. In the end ‘consumers’ alone decide success in payments and consumers grade with a sharp pencil. Because of this, the only salvation to make money is in diversification into the payment ‘stream’. If you stand alone you are slaughtered.

  • Sean Murray

    Anyone can disrupt an industry if they sell their product or service on a mass scale below cost.

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