For Square Shares, Round Trip Looms?

It looks like the Square IPO was priced conservatively after all.

Coming on the heels of what could only be termed a disappointing, marked-down, public offering at $9 — a number that shocked Wall Street — shares rocketed higher, much higher, to end the day at $13.07.

That was up an impressive 45 percent on the day, and intraday trading was even more sanguine, where shares were up 64 percent at one point. So, with a $13 handle at 4 p.m., the stock wound up being just above the high end of an already watered-down effort to come public.

Many are the pundits who will say that the heady double-digit gains on the first day of trading will do much to dispel the gloomy sentiment that has been surrounding the viability of the unicorn and its mythical peers.

And there is the implication that since Square priced relatively well, the door’s been opened — perhaps a crack and certainly not flung open — for more FinTech issues to come to market.

But wait a moment. The folks who made out best from the first day of trading were those who had what is known as a “ratchet” in place, which guaranteed a 20 percent return on the shares they had gained during capital raises, because that had been codified in a contract. The 45 percent gains on Thursday (Nov. 19) do not mean that people who bought into the IPO (think retail investors) piled in and garnered that headline number.

By gathering up $243 million through the IPO, Square gets at least some of the cash it needs to help offset a cash drain that comes with the heavy expense load that has kept the bottom line bogged down in red ink. The losses have been mounting, as the firm reported a loss through the first nine months of the year of $131 million, up from $117 million last year through the comparable timeframe — not impressive given a 49 percent gain in sales over the same basis to $893 million.

Add in the fact that there’s only going to be more competition in the payments arena, ranging from Apple Pay to Stripe, and it becomes small wonder that the pricing had been so conservative as of Wednesday night. Square did not have all that much to lose sticking a toe into tepid waters by pricing so low; after all, the roughly 26 million class A shares sold represented a rather meager 7 percent of the company. Rest assured that had it been a significantly larger stake being floated to Wall Street, the IPO may have been pulled rather than propelled forward.

It may have been a smart springboard to gauge investor sentiment to price at $9, but for Square, one day does not a trend make.


Featured PYMNTS Study: 

With eyes on lowering costs to improving cash flow, 85 percent of U.S. firms plan to make real-time payments integral to their operations within three years. However, some firms still feel technical barriers stand in the way. In the January 2020 Making Real-Time Payments A Reality Study, PYMNTS surveyed more than 500 financial executives to examine what it will take to channel RTP interest into real-world adoption. Here’s what we learned.