Is Square the Next Twitter?
Could an upcoming Square IPO be another dud like Twitter, Inc. (NYSE:TWTR)? It’s certainly possible if founder Jack Dorsey doesn’t play his cards right.
A few years ago while I was on the West coast, I came upon a really cool device at a outdoor market that allowed me to buy something through the mobile phone of the merchant linked up to the credit card company. That innovative product was the Square Reader co-founded by Twitter co-founder Jack Dorsey.
In my assessment, it was another innovative product by Jack Dorsey, who is now also trying to turn around and launch ailing Twitter and regain its earlier promise. Of course, you can blame Facebook, Inc. (NASDAQ:FB) for some of the hardships at Twitter.
With the announcement Square has filed its initial public offering (IPO) with the SEC. Dorsey will now be faced with another major undertaking at the helm.
The SEC filing for Square is currently set to price 27 million shares at between $11.00 and $13.00 apiece, equating to a market value of between $3.6 billion and $4.2 billion. While the valuation looks pretty good for a company that has yet to turn a profit, keep in mind it is also below the value based on recent issues to private equity. Part of the reason could be the nervous stock market climate for new issues—especially those in the technology sector burning through cash.
The reality is this is not a good time for the IPO market.
Consider mobile security solutions company Good Technology Corp. which was planning a $100.0 million IPO on the NASDAQ but decided against it and instead sold itself to BlackBerry Limited (NASDAQ:BBRY) for $425 million.
For Successful Square IPO, Jack Dorsey Needs to Escape Apple’s Shadow
Dorsey will quickly find out that running Square concurrently with Twitter will not be easy and will pose two major problems.
We all know about the lack of subscriber growth ailing Twitter. In the case of Square, Dorsey will quickly discover that the market for mobile payments, especially with the major merchants, is being rapidly dominated by Apple Inc. (NASDAQ:AAPL) and its Apple Pay solution.
Square may still have success with the smaller businesses, which could be its niche, but it will be difficult to fend off the scope and dominance of Apple with the major merchants. In a major blow, Square lost the business of Starbucks Corporation (NASDAQ:SBUX) to Apple starting in 2016. This is a major coup for Apple and reinforces my view for why it’s one of the top technology stocks to hold.
Apple Pay will also be available for KFC and Chili’s next year. And if you know the predatory nature of Apple, it wants to dominate the transaction space. I wouldn’t be surprised to see other major companies such as McDonald’s Corp. (NYSE:MCD) jump on board.
What Square Should Do
For Square, fighting Apple for the major merchants may not prove to be the correct strategy. Perhaps focusing on the small to medium-sized businesses may be the way Square can build its own business and avoid being taken out by Apple. Just ask Nokia Corporation (NYSE:NOK), Samsung, BlackBerry and others who have been forced to be role players.