It looks like Square slipped into the red last quarter.
And that is not theory — that data comes from Square itself and its internal measure of adjusted earnings before interest, taxes and depreciation (Square called this “a key measure” in its IPO prospectus) and reveals that in Q3 the firm booked itself a loss.
All in, based on adjusted EBITDA, Square was down $15.8 million in the period between July and September 2015. The firm further reported that after-tax loss — based on formal accounting rules — that number increased to $53.9 million (a big jump from the $29.6 million in Q2). Square also saw revenue growth slow to 46 percent, down from an average quarterly growth rate of 50–52 percent for the rest of the year. In 2014, the firm reported revenue growth of 54 percent.
Those losses, incidentally, could have looked a lot worse. Square excluded Starbucks-related losses since the partnership is set to end.
The bad news comes at an inopportune time for Square. The firm is heading toward an IPO, and its CEO, Jack Dorsey, is being intensely scrutinized for his dual CEO roles at both Square and Twitter.
Now the firm will find out exactly how much enthusiasm Wall Street (as opposed to private investors who have funded Square’s unicorn valuation range) has for loss-making tech startups when they hit the public markets.
The company is currently valued at around $6 billion, but its last round of funding came with downside protection for those late investors who threw in for the valuation-pumping last round. If Square doesn’t clear $7.2 billion by the time of its IPO, those investors will be given extra shares to assure a return on investment.