Square bursts out of the gate in first day as public company

The IPO pricing for Square valued the company at $2.9 billion.

Tech companies Square and Match surged in their first day of trade on Wall Street yesterday. As the public gets a chance to inspect and value all those unicorns, the tech bubble might go out with a whimper, not a bang.

The high-flying executive is also trying to run Twitter, another company with substantial obstacles to growing profits. Square recently priced its initial public offering at a lower than earlier indicated level. Armed with a respectable fan following, and supporting investors, Mr. Dorsey’s confidence has more than likely kept Twitter hanging in there. “While the first day euphoria looks good, public investors are still wary of the many one day wonders that have gone on to break their IPO prices”, says Kathleen Smith, principal at Renaissance Capital, which manages several IPO-related funds.

Square celebrated its public debut by hosting a Square Market beneath the NYSE facade, featuring a few of the best local vendors, which are also Square sellers. “The market rebuffed Square at higher prices for an IPO, then rejected the range of $11 to $13, and finally Square had to price at $9”.

In the case of Square, there were three big problems. Its biggest corporate partnership with Starbucks turned out to be a bust, resulting in a net loss of $28 million previous year and continues to be unprofitable.

Match priced its IPO late Wednesday at $12 a share, the bottom of its expected range of $12 to $14 per share. It’s been trading up since opening, rising to $11.20 by midday.

“The market is rapidly correcting”, Mark Suster, the managing partner of Upfront Ventures who authored the report, said in an interview. That round valued the company at $6 billion. Put simply, tech firms and governments want us to move more and more payments online, because it means our transactions can be tracked. By the end of the day of trading on Thursday, Dorsey’s shares were worth $929.6 million on paper.

Expectations for Square’s IPO were all over the place. But it takes a long time to recoup the marketing costs involved, given such firms’ low turnover and high chance of going out of business, points out Karim Ahmad of Bain and Company, another consultancy. “The time felt right, the momentum felt right”. We should note that investors who place their business with the particular discount house that we used aren’t actually REQUIRED to hold an IPO for 31 days.

Square, however, faces additional challenges.

But Canaccord Genuity analyst Bob Liao said traditional investors on Wall Street appear “increasingly sceptical” of the lofty price tags being placed on private companies.

Over the past 18 months alone, the number of technology unicorns has almost tripled to more than 80 companies.

“We are offering an end-to-end technology platform”.

“That’s why we are largely without a lot of vigor in either direction today”, said Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management. “When you tie that all together, what you have for all our merchants is the payments data, we have the inventory data and we have the customer data and no one else can offer them yet”. Besides running Square, Dorsey is serving as CEO of Twitter at a time that the short messaging service is struggling to expand its audience and produce the first profit in its nine-year history.

“Square has a billion dollars in revenue”, Wallace said. “It’s a real company”.