Square bounced back in its stock market debut Thursday after the once-hot mobile payments service slashed the price of its initial public offering to get the deal done.
The six-year-old company’s shares gained US$4.07, or 45 percent, to close at US$13.07. The surge helped ease the pain of a mortifying markdown in Square’s initial public offering (IPO) price. The San Francisco company sold 25.7 million shares at US$9 apiece after money managers leery of Square’s unprofitable history refused to pay US$11 to US$13.
The concession appeared to attract bargain hunters betting that Square is worth the price that its management team had been demanding in the IPO. Even with Thursday’s rally, Square’s stock remains below the US$15.46 per share price that the company fetched a year ago when it raised US$180 million as a privately held start-up.
Most of the investors who participated in last year’s fundraising are to be issued additional shares to compensate them for the reduced IPO price.
Another technology company, Match Group Inc, the owner of dating sites and apps Match.com, OkCupid and Tinder, gained 23 percent to close at US$14.74 Thursday. It had priced its IPO at the low end of its anticipated range
Investors’ skittishness toward Square, known for its debit and card readers that plug into mobile devices, reflects uncertainty about the direction of the global economy as the US Federal Reserve prepares to raise short-term interest rates for the first time in nearly a decade, said James Gellert, chief executive officer of the research firm Rapid Ratings.
“Large, institutional investors taking a risk on technology want a discount now,” Gellert said. “There is a lot of concern about more market volatility in the year ahead.”
Square has been rapidly growing as millions of merchants have processed US$32.4 billion in credit and debit cards through its readers and terminals during the year ending Sept. 30.
The company’s cut from the payment processing fees generated revenue of US$893 million during the first nine months of this year, a 49 percent increase from the previous year.
However, Square has never turned a profit, accumulating losses totaling US$527 million since its inception.
Some investors are also worried about the distractions and demands facing Square’s co-founder and chief executive officer Jack Dorsey.
Besides running Square, Dorsey is serving as chief executive officer 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.
Dorsey, who turned 39 Thursday, has most of his wealth tied up in Square. His stake in Square is worth US$930 million and his Twitter stake is to be worth about US$400 million after he turns over 6.8 million shares of his stock in that company to its employees.
The drop in Square’s market value over the last year could signal trouble ahead for other technology start-ups.
With interest rates hovering near zero, venture capitalists and other investors have been pouring tens of billions of US dollars into start-ups involved in transportation, data analysis, security, home rentals, finance and a wide assortment of other mostly mobile applications.
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