
Square files for IPO - nikunjk
https://squareup.com/news/sq
======
myth_buster

      We generated net losses of $85.2 million, $104.5 million, and $154.1 million 
      in 2012, 2013, and 2014, respectively. As of December 31, 2014, we had an 
      accumulated deficit of $395.6 million. For the six months ended June 30, 2015, 
      we generated a net loss of $77.6 million. As of June 30, 2015, we had an 
      accumulated deficit of $473.2 million. 
    

Could someone explain the motive to go public while operating in the losses?
Isn't the public market more averse to companies operating in the negative.

Also wouldn't the timing act more as a distraction for Jack?

~~~
ChuckMcM
Basically there are three reasons to IPO, one you are "forced" into it because
the number of individual investors has crossed a predefined threshold of 499,
second you are scaling the business and this gives you access to the public
markets for capital, or third you are running low on cash on hand and nobody
is willing to lead a new round with your current structure.

Given the wailing and gnashing of teeth this time last year [1] when Square
raised $150M on a $6B valuation, it is entirely possible this is their last
change to raise capital. If it doesn't work, and they can't cross the line
into operationally cash flow positive they will become one of the larger
unicorns to die this season. I really hope it isn't the case because I love
their product and their service, but the S-1 doesn't paint a picture of hope.
Doing some back of the envelope calculations I can't see any scale where they
are profitable given their current fee structure.

[1] [http://www.theverge.com/2014/10/6/6918211/square-funding-
sin...](http://www.theverge.com/2014/10/6/6918211/square-funding-singapore-
struggle-valuation)

~~~
mattkopecki
> Doing some back of the envelope calculations I can't see any scale where
> they are profitable given their current fee structure.

“We lose money on every sale, but make it up on volume”

~~~
themartorana
That's some funny math right there.

~~~
DarthMader
Welcome to Silicon Valley

------
kzhahou
> All executive officers and directors as a group (13 persons) .... 61.5%

LOL 13 people in the company own more than half. The thousands of employees
get to split what's left after investors.

13 people will become BILLIONAIRES and centi/multi-millionaires, while the
rest of the company that toiled for years gets (maybe) a down payment on a
1800sqft house on the peninsula.

Meanwhile everyone rails against wall street inequity and the Walton family
and whoever else...

~~~
retube
How much of their own capital did the employees risk?

~~~
yabatopia
A few years of their lifes, an extremely limited and finite resource.

~~~
adventured
Since we're talking about specific sums of money, how much is that time worth?
You have to put a number on it one way or another.

If we wanted to be arbitrary about it, we could pretend that a janitor's time
is worth a trillion dollars per hour because said janitor's time is a finite
resource that can never be recovered. However that doesn't do much for you
when you have to actually decide how to pay a janitor.

~~~
meric
The trick is he never mentioned what that time is worth. All he said was those
few years of life was worth a few years, which were limited and finite.

 _If we wanted to be arbitrary about it, we could pretend that a janitor 's
time is worth a trillion dollars per hour because said janitor's time is a
finite resource that can never be recovered. However that doesn't do much for
you when you have to actually decide how to pay a janitor._

It sounds like as a serial entrepreneur you like to decide how to pay
janitors, because you can buy a few years of their time for a relatively low
cost that you can turn into wealth for yourself.

When a janitor is working, he isn't working for $4 an hour or whatever it is
you pay him. He's working for the rent & the food that will keep him alive, so
that he will have time to continue to living, and that time is valuable to
him. That's what he's getting paid, and that's why he's willing to work for
you for $4. Just because it costs you nearly nothing to hire some people for
an hour doesn't their time is worth only $4. It's worth a lot more than that.
$4 can buy enough calories to last for days, and that time will be spent with
his friends, family and his children(? possible if in India), and that's
called "intrinsic goods", something money alone can never buy, because money
only buys you time to acquire those goods.

------
tinkerrr
> In the third quarter of 2012, we signed an agreement to process credit and
> debit card payment transactions for all Starbucks-owned stores in the United
> States. The agreement was amended in August 2015 to eliminate the
> exclusivity provision in order to permit Starbucks to begin transitioning to
> another payment processor starting October 1, 2015. Under the amendment,
> Starbucks also agreed to pay increased processing rates to us for as long as
> they continue to process transactions with us. We anticipate that Starbucks
> will transition to another payment processor and will cease using our
> payment processing services prior to the scheduled expiration of the
> agreement in the third quarter of 2016, and, in any event, we do not intend
> to renew it when it expires.

In addition to the $150 million loss in 2014, looks like the revenue side
doesn't look too good either. From their operating data,

Total revenue = $707.8 million

Starbucks revenue = $123 million

So they would likely lose > 17% revenue very soon.

~~~
2bluesc
> So they would likely lose > 17% revenue very soon.

It looks like they loose money on every single Starbucks transaction. Sounds
like a good thing.

~~~
roymurdock
At this stage it's not about profit...it's about volume. They need to become
so big that their scale takes care of profit problems. So it's terrible that
they're losing such a huge customer.

~~~
mikeryan
At which stage? They're going public, they're not a startup anymore. If
they're still high growth they'd be going after another funding round instead
of an IPO.

~~~
roymurdock
At the stage of still being unprofitable. Just like Twitter and Amazon, which
are also both public companies.

Filing for an IPO does not mean you're slowing growth...it's just an alternate
form of fundraising that allows a different mix of investors to join in on the
fun.

~~~
mikeryan
Twitter is pretty much a counter example. They have a terrible time being
profitable despite their size and their stock is getting hammered for it.

Amazon is a different beast because they live at the razor's edge of
profitability and have for years. Square is not close not to mention they're
competing with entrenched competitors.

------
uptown
"I believe so much in the potential of this company to drive positive impact
in my lifetime that over the past two years I have given over 15 million
shares, or 20% of my own equity, back to both Square and the Start Small
Foundation, a new organization I created to meaningfully invest in the folks
who inspire us: artists, musicians, and local businesses, with a special focus
on underserved communities around the world. The shares being made available
for the directed share program in this offering are being sold by the Start
Small Foundation, giving Square customers the ability to buy equity to support
the Foundation. I have also committed to give 40 million more of my shares, an
additional 10% of the company, to invest in this cause. I’d rather have a
smaller part of something big than a bigger part of something small.

We intend to make this big! Thank you for your support and potential
investment in Square.

Jack"

~~~
econner
These were probably given as options and at the current market price rather
than Jack's super low strike price.

How do you make something valuable? Convince others it has value, and do it
with only 20% of your stake.

~~~
mikeyouse
Come on..

Jack already gave 15 million shares which represented 20% of his own equity
back to the option pool and to a foundation to help underserved communities,
and he's committed to giving an additional 40 million shares to the
foundation..

He's going to give away ~75% of his ownership in the company he founded to
employees and entrepreneurs in underserved communities. Whatever the price is
on IPO day, this will surely amount to him giving away at least a billion
dollars.

I can't fathom why people are so cynical, this is amazing.

~~~
adventured
Envy, greed, and or the general dislike of seeing other people succeed is
almost always the explanation. That's why the same reaction happens over and
over again, regardless of who it is that is getting rich. It's common believed
that to get rich, you must take that wealth away from someone else (or
otherwise do something dastardly); the limited pie of wealth fallacy.

------
pnathan
Square is _incredibly_ common these days at farmers markets and coffeeshops.
This class of products has a lot of win going for it; I don't know if Square
is going to own that market, but they have a huge advantage right now. I look
forward to reading their financials.

edit: a roundup from the WSJ, Fortune, and other random news places suggests
strong concern over the CEO situation. That seems fair. I would definitely
discount the value of a non-profitable company with a part-time CEO. :-/

That said, having a "stupid simple and ubiquitous payment platform" should be
a really easy way to print money. Why hasn't it? I think that story is the
interesting one.

~~~
davidcelis
This is anecdotal, but I feel like I see Square's competitors just as much as
Square at coffee shops and other small businesses these days. I wonder if
there are some easy-to-find numbers for how many businesses use Square vs.
Flint or others?

~~~
jonesb6
Furthermore Stripe is highly visible in places like the Bay Area, where I
believe many HN members are located. I wonder what the numbers are for Stripe
adoption outside of major tech hubs.

~~~
runako
Stripe doesn't do POS systems. You're not likely to see a lot of Stripe POS
systems in the Bay Area or elsewhere. Their prominence in the Bay Area is
because they cater to developers who build stuff that uses credit cards.

Square primarily does POS systems. I don't believe the two companies really
compete in any real way yet.

------
jasondc
Jack Dorsey still owns close to 25% of Square, pretty incredible:

[http://www.sec.gov/Archives/edgar/data/1512673/0001193125153...](http://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm)

------
lquist
Fuck. Seriously. Fuck.

This could be the IPO that ends the party. One of the top candidates for first
Unicorpse (see also Evernote).

~~~
rokhayakebe
_This could be the IPO that ends the party._

What is your rationale?

~~~
VLM
[https://en.wikipedia.org/wiki/Flooz.com](https://en.wikipedia.org/wiki/Flooz.com)

------
iamleppert
Look at those numbers! And for those to say that Square is innovative...their
reader was basically all they had back in the day. Now that everyone has
created a Square clone, payment processing is a race to the bottom and all
about brokering deals with large merchants and hope that the banks and
processing networks don't eat your lunch.

Throw in all the regulatory hassle of dealing with money and its transfer, as
well as liability for fraud, and competing in an industry as exciting as
refrigerators...

~~~
sremani
I have to agree, even Intuit is in the game. Unless Square has a unique
payment processing system that is some how oh so better than the rest of the
processing world, there is nothing much here.

~~~
jackgavigan
Actually, Intuit came up with the idea for using mobile phones to accept card
payments in 2007 - long before Square.

They ran trials in the Bay Area in summer 2008, launched GoPayment properly in
early 2009 (with a Bluetooth reader supporting various feature phones), and
launched an iPhone app in August 2009.

Square announced their card reader in December 2009 and didn't actually launch
until the following May.

------
kochb
Quick link to Square's full S-1 filing:
[https://www.sec.gov/Archives/edgar/data/1512673/000119312515...](https://www.sec.gov/Archives/edgar/data/1512673/000119312515343733/d937622ds1.htm)

------
misiti3780
So apparently Square and Box have both raised about the same amount of money,
roughly $550-600MM [1][2], but somehow Jack Dorsey still holds 25% and Aaron
Levie wound up with ~ 4% - Does anyone else find that surprising?

[https://www.crunchbase.com/organization/box#/entity](https://www.crunchbase.com/organization/box#/entity)

[https://www.crunchbase.com/organization/square#/entity](https://www.crunchbase.com/organization/square#/entity)

~~~
austenallred
No. Jack was a co-founder of Twitter, so it was a completely different game
for him. Levie was a nobody with an idea, and had to raise at almost egregious
terms at times to stay alive.

------
gsibble
Their pace of losses are increasing at about 50% more per year. Most companies
that file to go public are at least losing less money over time with a path to
profitability. I don't see how this bodes well for a strong IPO.

~~~
meatysnapper
because the future looks worse, and they want to make some money while they
still can?

------
austenallred
How many people have simultaneously been CEO of two separate public companies?
The list has to be pretty small. No wonder Twitter waited so long to make Jack
the official CEO.

~~~
colinbartlett
It must mean he committed to stepping down there. Maybe he just agreed to see
it through the IPO then walk away? As another user said here, how many people
have been the CEO of two public companies at once? (Would actually really like
to know.)

~~~
uptown
The Two-Company CEO, Exotic but Not Extinct

By Marc Hogan

[http://thirdcreekadvisors.com/wp/wp-
content/uploads/2013/10/...](http://thirdcreekadvisors.com/wp/wp-
content/uploads/2013/10/TCA-Agenda-10.14.13.pdf)

------
gmisra
Does anybody else get the feeling that the primary goal of large scale venture
capital these days is to pump-and-dump IPOs, regardless of the actual
stability/validity of the underlying business?

~~~
prostoalex
Choosing between public stock with certain price at the end of any given day,
and private stock with a dubious price that has not been "marked to market",
LPs prefer the former. Who can blame them?

------
jgalt212
It is really disheartening that a company with such horrible numbers thinks
they can go public. It's one thing to lose money before going public, and it's
entirely another thing to lose money at increasing rates of speed and think
you can find an audience for those shares.

------
hamburglar
Yow, from their filing: "Transaction and advance losses for the six months
ended June 30, 2015, increased by $13.9 million. We incurred a charge of
approximately $5.7 million related to a fraud loss from a single seller in
March 2015."

I bet March 2015 was not a fun month at Square.

------
rpedela
I like Square's product but the growing net losses concern me.

------
qopp
Isn't this good for startups in general?

Every time a startup IPOs the investors now have a chance to exit and re-
invest in other startups with the fresh capital.

~~~
stanleydrew
It's a little more complicated. This will likely mean a good return for the VC
funds that invested early. But VC funds to my knowledge don't reinvest returns
directly. Rather they raise another fund, often from the same LPs. And note
that this usually happens multiple times before the return on the first fund
is known.

So it will likely take some time for VCs to liquidate their position, return
the capital to LPs, and then have the LPs reinvest in the same or other future
VC funds.

All that said, a good return on a single investment will be seen positively by
LPs and will make it easier for a VC to raise future funds, which is generally
good for startups.

My only real point is that the money made directly from the Square IPO will
likely not be deployed for quite awhile, and other events can turn momentum
against startups in the meantime.

------
dsugarman
doesn't the roadshow require an enormous amount of time for the CEO? Can you
really do this _and_ anything else?

~~~
xal
Yes, it's morning to evening every second booked during the roadshow. You can
get it done in a single (7 day) week if you really want to take that risk.

------
spike021
Would it make more sense for a larger company to buy Square before it goes
public? I thought I'd heard people saying Apple or Google should but I'm not
sure how much benefit there would be since they have payment systems now.

~~~
psophis
I don't think there would be any benefit. Square was revolutionary when they
were the only one with mobile card reader technology. Now everyone has it. The
only thing they have going for them is their _brand_. Apple historically
hasn't bought anything that they can easily do on their own. Google much the
same.

~~~
Laaw
Counterpoint: Beats.

------
marincounty
Does anyone know, off hand, if Square has any important patents? I did a
little searching, but couldn't find much.

I do like the company. Just curious if they have any patents that will prevent
competition?

~~~
krschultz
Patents are far from the only thing that prevents competition. Brand is
arguably more important, and Square's brand is decent. I'd argue their biggest
risk is that many merchants get frustrated with the swipe reader.

------
sjg007
The money in credit card processing is in high interest loans fronted to the
merchant that are paid back as a percent of the transaction. SquareUp for
instance.

------
rokhayakebe
Jack, the Roger Bannister of his field.

------
thadjo
What on earth did Lawrence Summers do for his +1M shares? HT Felix Salmon.

------
goodcjw2
does this come actually faster than expected? will jack actually leave?

------
curiousjorge
November 2016: Square files for Bankruptcy. Do the simple math, they lose
money year after year in bigger amounts.

This will buy Square some time while it shops around for a buyer but that's
assuming the capital market is still liquid and happy and there's no market
downturn.

------
manchco
I don't know how he does it.
[http://imgur.com/QfNiUz3](http://imgur.com/QfNiUz3)

