Square discounts stock to $9 a share to complete IPO

Excluding Square, a total of 6 out of 19 tech companies including First Data and Baozun that went public this year with a minimum deal size of $20 million have priced their shares below their expected filing range, according to data from Ipreo on Wednesday.

In a litmus test for the cooling tech IPO market, mobile payments service Square slashed its IPO price to $US9 a share on Wednesday night, giving it a valuation of about $US2.9 billion.

The sources asked not to be identified ahead of an official announcement.

A representative for Square did not immediately respond for comment. It’s a signal that Square will face a challenge when it finally goes public.

“It’s an all-or-nothing market, and investors right now are looking at putting more of their dollars to work in scale companies”, Tony Ursillo, portfolio manager for technology at Loomis, Sayles & Co., told the Wall Street Journal. It said it had net revenue of $332 million in the third quarter, while in the same quarter a year ago, the company had net revenue of $227 million and a net loss of $37.7 million.

Investors have criticized Dorsey and Square for not better communicating how he plans to split his time between the two companies.

Square’s forthcoming IPO could have significant implications for the IPO market and for so-called unicorn companies that flaunt valuations north of $1 billion, according to one IPO expert.

Goldman Sachs & Co, Morgan Stanley & Co LLC and J.P. Morgan Securities LLC are among 10 firms underwriting the offering.

Square, which started in 2009 by providing financial transactions software for smartphones or tablets along with free “dongles” that plug into devices for reading magnetic strips on payment cards, is among prominent unicorns in startup rich Silicon Valley.

The payments service had tried to sell the shares to investors at a conservative $US11 to $US13 this week, before settling for well beneath the range.

By that measure, the company would still trade at nearly eight times 2015 adjusted revenue, which is about twice as much as traditional payment processors Heartland Payment Systems Inc. and First Data Corp., according to Gil Luria, an analyst at Wedbush. But, they wrote, “the company is yet to prove it can turn the business profitable”. So the price was set by institutional investors like mutual funds.

Square itself is forecasting long-term future profit margin of 35% to 40% excluding interest, taxes, depreciation and amortization. And there are lots of them out there.

Mobile payments startup Square will make its stock market debut on Thursday priced lower than expected in a sign that soaring values of tech startups may be coming back down. “If this kind of burns the IPO investor, this will be written about as the thing that made everybody pause”.