Square Files for IPO as CEO Dorsey Juggles Twitter Revamp

  • Transactions business processed $23.8 billion in 2014
  • Company expanding into areas including cash advances, payroll

Square Inc.'s mobile-payment technology.

Photographer: Jin Lee/Bloomberg

Square Inc., the mobile-payments company founded and led by Twitter Inc. Chief Executive Officer Jack Dorsey, filed for an initial public offering as competition in the transactions business heats up from technology heavyweight Apple Inc. and stand-alone PayPal Holdings Inc.

Square filed with an initial size of $275 million, a placeholder amount used to calculate fees that will probably change.

While the filing shows Square’s revenue is growing at an impressive rate, its continued losses will limit the amount of money the company will be able to fetch in its IPO, said Gil Luria, an analyst at Wedbush Securities in Los Angeles.

“Their net revenue is better than expected and growing faster than expected,” said Luria, who has been following the company for three years. “The losses they are generating are big and it will take them a long time to scale."

Transaction revenue surged 63 percent to $707.8 million last year. Most of the company’s expenses are related to product development and sales and marketing.

Modern Register

The company, known mostly for its square-shaped dongle that converts mobile phones into credit-card readers, started in 2009 when co-founder Jim McKelvey couldn’t accept a credit-card payment for his art. In 2014, millions of mostly small merchants using Square devices processed $23.8 billion in credit-card payments. That is about 10 percent of the payments volume processed by market-leader PayPal the same year.

Square seeks to be the modern cash register for small businesses, offering a range of solutions including payments processing, merchant cash advances, marketing and payroll.

“What Square has done successfully that its competitors have not is introduce new services,” said Brendan Miller, an analyst at Forrester Research Inc. “If Square can service small merchants successfully, they have a long runway ahead of them.”

Dorsey, who is also Square’s CEO, is proceeding with a public offering after being named Twitter’s chief executive Oct. 5. That means he’ll have to juggle the roadshow for Square while the social-media company is undergoing a reorganization and refocusing of its main services -- the website that lets people send and share 140-character messages and updates.

Square plans to use proceeds from the IPO for general corporate purposes and may also use the funds for acquisitions, among other things, the filing shows. Goldman Sachs & Co., Morgan Stanley and JPMorgan Chase & Co. are leading the offering.

It filed confidentially for an IPO in July, under the Jumpstart Our Business Startups Act. That allows companies with less than $1 billion in annual revenue to start the process of going public and work out details with the U.S. Securities and Exchange Commission outside the public eye.

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