The market has spoken. At least as of Wednesday night. At least as of the pre-open Thursday. And at least for Square. And it wasn’t a pretty thing to hear if you were Jack Dorsey or Square’s investors.
As the world knows by now, after hours of waiting on Wednesday (Nov. 18), Square’s shares priced at $9 each, which can only be termed dismal given the fact that a) the roadshow had been looking for $11 to $13 and b) that haircut just mentioned in a) was itself a big letdown from the $15 and change that some investors had ponied up during the last valuation round.
So now the IPO will fetch less than $3 billion, assuming the $9 holds — which it may not — and that is a different order of magnitude from the $6 billion that seemed so long ago in the Valley, when private equity and big-pocketed investors came calling.
Yes, Square is still a unicorn — but a hobbled one. And it may be only a matter of time before the unicorn becomes a stalking horse of sorts, testing the market’s appetite for companies that do not turn profits and may not for a long time. And have revenue growth prospects that depend on markets not necessarily getting too crowded or swept up in new technology. And whose stellar business (in this case, Square Capital) is too small to really make much of a difference on margins (and is itself seeing much more competition on the horizon alongside a fickle consumer).
To add injury to IPO insult, dilution is looming, which will be triggered by the fact that some of the investors that ponied up during the private equity stage will get additional shares, enough to bring them at least a 20 percent return. They may be among the only ones smiling, although in muted fashion (one thinks they dreamed of making far more), for quite a while after the IPO.
The most alarming reality? The fact that Wall Street and PE funds have a huge gulf between what they think a company is worth. And neither may be right.
The movement toward the IPO was, and is, for thousands of companies, a dream and an exit strategy. Enough business models have been waylaid by the public markets that, as Doug Bergeron — former CEO of Verifone, founder of Opus Global and executive chairman of Hiperos — told MPD’s Karen Webster, Square may be one day viewed as the Pets.com of payments.
To put it another way, bubbles pop, and everything goes down the drain.
