Square’s dance

April 21, 2014

Five months ago, Square was talking to Goldman Sachs and Morgan Stanley about a 2014 IPO. Now the payments company is trying to sell itself before it runs out of cash. The WSJ reports that Google discussed purchasing the company, whose card reader plugs directly into mobile phones. Google’s interest in buying Square was reported earlier this month by Jessica Lessin. Apple and PayPal are also potential acquirers, according the WSJ and confirmed by Forbes.

Square issued a narrowly-worded denial, telling Mashable, “we are not, nor have we ever been in acquisition talks with Google… we have never seriously considered selling to anyone or been in any talks to do so”. TechCrunch gives a sense for the hairsplitting going on here, confirming that while Square met with Google, “none of the meetings the payments company had with Google amounted to actual acquisition talks, we’re told, just ‘a two minute meet and greet’”.

Jason Del Rey summarizes the amusing state of affairs: “The most-asked question, of course, is whether Square is for sale or not. And that answer depends on what you mean by for sale”. Del Rey says the answer is yes, if the price is $8 billion or more. (It was most recently valued at $5 billion.)

The reason Square is shopping itself – through direct conversations or otherwise – is that it’s running low on cash. The company spent $110 million more cash last year than it received, and since 2009 has spent more than half of the $340 million in equity it has raised. Two weeks ago, the company secured a credit facility of more than $100 million, but is still just nine months from having to dip into its pre-designated emergency funds. The company’s profitability picture doesn’t look much better. Square lost $100 million last year. Revenues are also relatively small, because eighty cents of every dollar coming into Square gets sent back to credit card companies. The company processed purchases worth $20 billion last year, but has just an estimated $110 millionto $165 million in revenues.

Steven Bertoni thinks the key problem is that Square’s key users are “low volume, low transaction businesses. They are not the type of customers you need in the thin margin payments world”. He sums up its fundamental problem: “the more payments Square currently processes, the more money the company loses”. – Ben Walsh

On to today’s links:

Actually good questions
“Who put Michael Lewis in charge of securities regulation?” – Matt Levine

Dear Feature Regulators
“At the end of the day, those self-regulating systems don’t solve the insurance question” – Wonkblog

Billionaire Whimsy
Sean Parker wants to fix the broken political process by spending money – Politico

Niche Markets
Nike employee arrested for stealing hundreds of rare prototype shoes – TSG

The purpose of the universe is to make baby universes – io9

New Normal
“We are privatizing justice to the point the rich can afford it and every one else can’t” –NYT

Possibly Not-So-Useless Data
Are airfare price predictors any good? – FiveThirtyEight

Health Care
The drug price regulation paradox – James Surowiecki

Tyler Cowen on Piketty – Foreign Affairs

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