In Depth

Square Hits The Road(show)

With a video that spans nearly 40 minutes, Jack Dorsey and crew expounded on all things Square ahead of an IPO that could be bumpy. Will investors take the bait?

Square took its roadshow — traditionally the province of PowerPoint and private investors — to the masses Monday (Nov. 9).

In a video that spans about 40 minutes, the company — and notably, Cofounder Jack Dorsey, CFO Sarah Friar and a host of happy small business owners — makes its pitch as a game-changing payments platform and, by extension, a worthy investment when the shares come to market.

There was lots of exposition about how the company got its name (people went to the dictionary and saw Square could also mean, colloquially, “square up,” which means to settle, as in transactions, and “fair and square,” which means, well, to be fair) and testimonials about how the reader that spans across all payments has helped coffee roasters, local crafts merchants and bakeries. No surprise there.

But a few numbers got repeated and, in some cases, expanded upon, and these are the tidbits that will make the sharp-penned (and sharp-tongued?) sit up and take notice.

Dorsey’s philosophy is engaging: “If we focus on making it [payments] easy, people will love it.” And indeed, thus far they have, as CFO Friar noted, ticking off a number of numbers: $38 billion in annualized GPV, an installed base of 2 million customers, a GVP loss ratio of a relatively paltry 0.1 percent and a 95 percent approval rate for sellers that use risk management tools and analytics that apparently help the company choose wisely.

The runway itself seems to be a long one, too, says the company, with 30 million businesses in the United States alone and a staggering number of them — 20 million — without the ability to accept credit card payments. A few merchants profiled in the video, notably the owner of a car service, touted the positive benefits of now being able to accept credit cards as a new avenue to grow business.

One nascent Square business line that got a fair amount of attention in the video was Square Capital, perhaps in an effort to show the potential of brand and product line extensions beyond payments and POS, from which the firm gleans almost all of its revenue, or 95 percent, at present. Square Capital has sown $300 million in loans across more than 50,000 advances through the end of the third quarter of 2015. And that certainly helps the segment known as “software and data product” revenue unit, at $35 million, more than doubling from the previous quarter.

And yet, it is still the transaction that makes or breaks the company at present and where each 2.75 percent cut of a payment makes its way onto Square’s top line. The growth rate is slowing, from a hefty 70 percent year on year just a few quarters ago to a still hefty, but markedly slower, 57 percent in the third quarter of this year. That begs a question about the longer term growth rates of 20 percent to 25 percent, along with a targeted adjusted EBITDA margin of 35 percent to 40 percent (itself a huge boost, rocket-like, from an adjusted EBITDA line that just recently wound up in the black).

By the end of this month, we’ll likely find out how investors liked the video and the stats therein. When the storied IPO happens, as Bette Davis said, “Fasten your seatbelts, it’s going to be…” … ah, you know the rest.

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