Square’s IPO filing shows Dorsey is top dog

Square’s IPO filing shows Dorsey is top dog

15 OCT 2015

US mobile payments firm Square’s SEC registration reveals revenue rose 54 per cent in 2014 to $850 million, but losses increased at a similar rate to $154 million last year. The filing also reveals that CEO Jack Dorsey (pictured) is, by some measure, the payment firm’s largest shareholder with a 24.4 per cent stake.

Dorsey was recently appointed CEO of Twitter which, when taken with his Square stake, emphasises what a powerful figure he is in the US tech industry.

Square’s recognisable dongle enables smaller business to transform a smartphone or tablet into point-of-sale terminal. Once a business signs up for the dongle then Square processes its payments, its core business.

The second largest stake in Square is held by investment firm Khosla Ventures with 17.3 per cent.

The company has yet to set a price range for its IPO or how many shares it intends to offer, although the filing does reveal it wants to raise a maximum of $275 million.  It has no immediate plans for how it will spend the proceeds.

Payments processing is a high volume, low margin business which explains why Square has attempted to bolt on additional value-added services to its basic proposition.

However, so-called transaction revenue still accounts for the vast bulk of  revenue, which has risen steeply since 2012, the filing reveals. But so have transaction costs, which include fees to payments networks (Visa, MasterCard, for example), as well as other financial intermediaries. Transaction costs rose 62 per cent to $451 million in 2014.

In the bucks with Starbucks?
The filing breaks out separately a figure for how much revenue Square makes from processing payments for Starbucks, its most high profile customer.

Transaction revenue from the coffee chain grew eight per cent to $123 million in 2014, meaning it accounted for 14.5 per cent of Square’s total revenue.

However, the agreement with Starbucks ends in Q3 2016, leaving the payments firm with a gap that it will have to fill.

Another cost faced by Square is fraud. The filing reveals it was undone by a single seller, costing it $5.7 million in this year’s first quarter, another potential area of concern.

Another entry under Risk Factors refers to Dorsey himself, and his dual role with Twitter, which has raised eyebrows in some quarters. “Jack Dorsey, our co-founder, President, and Chief Executive Officer, also serves as Chief Executive Officer of Twitter. This may at times adversely affect his ability to devote time, attention, and effort to Square,” the filing notes. A similar thought might also occur to potential investors in the payments firm.

Author

Richard Handford

Richard is the editor of Mobile World Live’s money channel and a contributor to the daily news service. He is an experienced technology and business journalist who previously worked as a freelancer for many publications over the last decade including...

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