How a Confidential IPO Could Help Square Frame Its Long-Term Strategy

Square Inc.’s future may include public ownership if reports late last week that it filed for a confidential initial public offering are correct.

Both BloombergBusiness and The Wall Street Journal reported the filing, permitted under the Jumpstart Our Business Startups (JOBS) Act, which enables companies with less than $1 billion in annual revenue to explore investor affinity for them. Square declined to comment.

Founded in 2009, San Francisco-based Square initially catered to the micro- merchant market with a swipe reader that attached to a smart phone, but has since added services that larger merchants would use, such as cash-advance services, a dashboard app to track sales data, payroll, and peer-to-peer money transfer for businesses.

Now, it may be trying to feel out its strategy for the long term future. If the reports are accurate, “Square may have gotten to a point where they want to investigate the value of the company to both buyers as well as the public market,” Gil Luria, managing director and analyst at Los Angeles-based Wedbush Securities, tells Digital Transactions News by email.

“The new type of JOBS Act process allows them to investigate both at the same time without having to divulge all their financial information publicly,” Luria says. “If Square goes public, we would find out if the market values them as a merchant acquirer or a high-growth technology company. As a merchant acquirer, I would expect a much lower valuation [than was implied by] the last private round Square raised ($6 billion).”

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Square, should it proceed with an IPO, would not be the only payments company to venture into the public sector this year. PayPal Holdings Inc. became a publicly traded company July 20, and First Data Corp. filed an IPO that same day.

“Competition in this space is intense and increasingly visible, and payments companies are hot right now,” Thad Peterson, senior analyst at Boston-based Aite Group, tells Digital Transactions News by email.  “It’s a good time for Square to generate capital to move to the next level and to benefit from the value that they have created over the past few years.”