The anticipated initial public offering by payment processor Square was filed on Wednesday and plans to use the symbol “SQ.” While the company highlighted astoundingly fast-growing revenue, Square also confessed to increasing losses, high debt and the loss of Starbucks as a customer.
Square was started in 2009 with the idea to enable anyone with a mobile device to accept credit card payments, anywhere at any time. Small business owners who appreciated its ease of use quickly adopted it. The company gets 95 percent of its revenue from payments and point of sale services, but it is extending its offerings to financial and marketing services. In 2014, sellers using Square processed $23.8 billion of gross payment volume, which was generated by 446 million card payments from approximately 144 million payment cards.
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In 2014, total net revenue grew to $850.2 million, up 54 percent from the prior year. Considering the company only had revenue of $203 million in 2012, the growth is impressive. Unfortunately, one of its biggest users, Starbucks, is going to transition to another payment processor and will cease using Square in the third quarter of 2016. In the filing the company stated, “As a result, our total net revenue may decrease meaningfully in the future.”
Losses have grown each year with net losses of $85.2 million, $104.5 million and $154.1 million in 2012, 2013 and 2014, respectively. For the first six months of 2015, Square has had net losses of $77.6 million. As of June 2015, the company had an accumulated deficit of $473.2 million.
Also, beginning this month businesses that can’t process EMV (Europay, MasterCard and Visa) technology chip cards are financially responsible for fraudulent charges, which could increase charge-backs for Square. Square doesn’t hold any money in reserves from its customers to cover fraudulent charges and could hurt the company.
Twitter chief executive officer Jack Dorsey is the largest shareholder with 24.4 percent of the stock, followed by Vinod Khosla with 17.3 percent. In a note in the filing Dorsey said that he has given 15 million shares back to the company and the Start Small Foundation to invest in artists and local businesses. He says he is also committed to give another 40 million shares to the foundation, saying “I’d rather have a smaller part of something big than a bigger part of something small.”