Square CEO Jack Dorsey probably won’t feel like celebrating the initial public offering (IPO) of the mobile payments processor that he founded in 2009.
Word came late Wednesday that shares of the San Francisco-based company were priced at $9 a share, well below the expected range of $11 to $13. Though the financial press is treating this like a shocking development, it perhaps should make watchers feel optimistic that the markets finally have come to their senses.
Though the Square IPO had been hyped for months, the company was been a disaster waiting to happen. For one thing, it loses money. According to the Square S-1 filing, it finished the six months ended June 30 more than $77 million in the red. It has lost more than $300 million between the years 2012 and 2014.
There are many reasons why Square is struggling. First, the payment processing market is fiercely competitive. The company also made an ill-fated partnership with Starbucks Corp. (NASDAQ: SBUX) Sure, it started off with promise. Starbucks invested $25 million in Square in 2012. Howard Schultz, the CEO of the coffee chain, even took a seat on Square’s board. Dorsey even called the partnership “epic.”
The marriage, though, didn’t work out. Schultz left the Square board after a brief tenure. Perhaps things got awkward when Square realized it was losing money on processing Starbucks’ transactions, some $71 million over three years. Square now expects its relationship with Starbucks to come to an end within the next 12 months.
Unfortunately for Square, it needs Starbucks. The coffee chain accounts for about 11% of its sales.
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Of course, Square’s biggest problem is that its CEO recently took a second job as chief executive of Twitter. Running one public company is more than a full-time job. Managing two simultaneously is an impossibility. It strains credulity to think that Dorsey can run both companies well. Investors have to wonder why the board allowed this to happen.
Then again, this is the same bunch that gave the green light to the most disastrous IPO in years, so anything is possible.
By Jonathan Berr
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