Square Inc. was founded in 2009 and is a merchant services company that allows small and large businesses to accept debit and credit card payments from customers. The company offers point-of-sale solutions with Square Register and mobile payment solutions that are compatible with cell phones and tablet computers with Square Reader. Square charges a fee of 2.75% per sale and provides electronic payment processing to over 2 million business customers in the United States, Australia, Canada and Japan. The company has partnerships with Apple (AAPL), MasterCard (MA) and Visa (V) that leverage its advanced technology. Square also offers business owners the option to sell gift cards, establish a customer rewards system and pay employees with a simple payroll system.

Square held its initial public offering on November 18, 2015. The company sold 27 million shares at $9 per share, priced below the initial pricing range of $11 to $13 per share on due to a perception that Wall Street’s appetite had weakened for loss-making tech IPOs. At $9 per share, Square was valued at about $2.9 billion, well below a valuation of $3.9 billion at the midpoint price of $12. Just a year ago, Square received a valuation of $6 billion, or $15.46 per share, from venture capital investors.

Square generated $243 million in gross proceeds from the offering and underwriters have a 30-day option to purchase an additional 4.1 million shares.

Square began trading on the New York Stock Exchange under the ticker symbol “SQ” on November 19, 2015. Shares opened at $11.20, about 24% higher than the IPO price, and climbed as high as $14.78, about 64% higher than the IPO price. Square ultimately ended its first day of trading with shares closing at $13.07, up 45% from the $9 IPO price. On the company’s second day of trading shares opened at $13.29 and climbed as high as $13.98 in the early morning but settled at $12.85 as the market closed. Despite the fall in price, shares were still up 43% from the IPO price.

For the nine months ended September 30, 2015, Square had total net revenue of $892.8 million. The increase in revenue was led by the company’s core business transactions which saw revenue growth of 50%, and smaller contributions from the hardware and software segments. Square had gross profit of $260.9 million and total operating expenses of $387.6 million that resulted in an operating loss of $126.6 million. For the nine month period, Square reported a net loss of $131.5 million.

In late 2014, Square launched several new products for business owners and individuals to improve the buying and selling process. The company launched Square Capital, a financing service for businesses with over $250,000 in annual revenue seeking funds for growth initiatives such as increasing inventory, equipment purchases and location expansion. Payments for the loan are taken directly as a percentage of topline sales so borrowers pay less during slower revenue periods and more during higher sales periods.

Through an acquisition, Square enhanced its Square Order service with Caviar, a startup that enables delivery services for companies that do not otherwise regularly offer delivery to their customers. Initially, Square Order allowed customers to place and pay for orders on any device, then pick up their orders in store. The merging of Order and Caviar connects the order and delivery process for business orders through a trusted and reliable application. For individuals, Square offers Square Cash, a simple way to send and receive cash to/from one individual to another individual or a business.

Jack Dorsey serves as Chief Executive Officer of the company; he holds the same role at micro blogging site Twitter. Dorsey was integral in growing Square Inc. from a small processor for mom and pop shops to a staple in the debit and credit card payment system. Sarah Friar serves as Chief Financial Officer, bringing finance and technology experience from leadership roles with SalesForce (CRM) and Goldman Sachs (GS) Technology Research Group. Francoise Brougher is the Business Lead, responsible for all business operations, with an emphasis on consistent annual growth. Before joining the company, Francoise worked at SMB Global Sales and Google (GOOG).

In late 2015, Wall Street has been cooling on appetite for “unicorns” – loss making technology companies with valuations of a billion dollars or more. This loss of appetite caused Square’s management and underwriters to make the decision to price shares approximately 18% below the low-end of the initial pricing range. However, the discounted price created a bullish market for Square shares, with shares up nicely after the $9 IPO. Investors were also drawn to Square because of the stellar track record of CEO Dorsey who has successfully grown social media company Twitter into a giant by focusing on the expansion of services to acquire and retain customers. Dorsey had applied the same strategy at Square through acquisitions and the addition of new services, which have helped drive up the company’s market share in global financial transactions through innovative offerings.

Square has over 100 patents to protect it from smaller competitors like Beamm, Bindo, Dwolla, Intuit, PayNearMe and SumUp while strategic partnerships help it remain competitive against larger competitors like PayPal (PYPL). One of Square’s key competitive advantages is its convenience and ease of use, especially when it comes to processing food payments. Food accounts for 15% of payments processes, an area that other mobile merchant processors have not tapped into. Over the last twelve months, Square has processed over $32 billion in gross payments, which supports the company’s scale and higher valuation relative to its peers. Another avenue that helps Square diversify its revenue is cash advances through Square Capital; the company has advanced over $300 million through 50,000 advances. This is an area that, again, its peers are not involved in and that offers significant upside. Square is likely well on-track to profitability and shares offer significant upside at current levels, albeit for investors who are comfortable with a slightly riskier, higher beta investment since the company is a loss-making entity at this early stage.

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