If you think you’ve got a thorny to-do list, consider what Square co-founder and CEO Jack Dorsey has tucked away on some tablet or laptop:
1. Take over as Twitter CEO. (Check: Did that last week.)
2. Lay off up to 336 people at Twitter. (Check: #BigBummer.)
3. File papers to take Square public. (Check: Square filed plans this week to offer $275 million in shares in an initial public offering.)
4. Inhale breakfast. (Hold off until next week.)
Indeed, the 38-year old tech wizard has his work cut out for him. And with his birthday less than a month away, he might want to ask for a dozen gift-wrapped Wall Street gurus as a present. To borrow from financial experts, Dorsey doesn’t just have his hands full: If he were an eight-armed Hindu goddess, he’d have all those hands full, too.
“The big challenge is that Jack Dorsey has been interim CEO of Twitter and Square CEO since June,” says Todd Antonelli, managing director of the Berkeley Research Group in Chicago and senior advisor to high-tech Silicon Valley business leaders. “Only someone who’s 30-something could pull this off.”
But one thing Dorsey cannot conjure, at least for now, is a sea change in the balance sheet of Square, a digital payments company named for the small plastic device that plugs into the audio jack of smartphones or tablets. According to its SEC S-1 filing, Square reported a net loss of more than $77 million for the first six months of 2015, putting it on pace to match its 2014 total losses of $154 million.
What that means for investors, at best, is to proceed with caution and not throw all the eggs in a Square basket. “This is a high-risk investment with a potential high reward and perhaps should be part of a diversified portfolio of recent IPOs,” says David I. Kass, a clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.
Still, those who set their sights longer term may want to be a bit more adventurous. “It’s not uncommon for technology companies to be losing money when they go public,” says Imran Ahmed, a principal at OCA Ventures. “Box (BOX), Castlight Health (CSLT), Etsy (ETSY) and others have proved that you can go public despite heavy losses. However, I think it’s notable that many of these companies have traded down since going public.”
Square hopes to list on the New York Stock Exchange under the ticker symbol SQ. Investment wisdom may also depend on whether Square can advance on its ubiquity among small business. If it hopes to gain traction among bigger merchants, it faces daunting competition from the likes of PayPal Holdings (ticker: PYPL) and Visa (V).
A team led by K.C. Ma, director of the George Investments Institute at Stetson University, just completed a commerce market comparison two weeks ago pitting Square against its rivals, including PayPal, another recent IPO following its spinoff from eBay (EBAY).
For Dorsey, it’s not good news.
PayPal might be loathed by some consumers, “but if Square is trying to beat the PayPal fee, around 2.5 percent, they are not doing it yet because Square charges 2.7 percent,” Ma says. “And their margin after paying the credit card companies is so small — less than 20 to 30 basis points — which is why they are still at a loss.”
But could a pivot in payment methods benefit Square? Ahmed thinks so: “One feature of the U.S. payments landscape that may help Square break into larger merchant accounts is the shift to EMV credit cards,” he says. “That’s forcing many merchants to re-evaluate their legacy point-of-sale devices. I believe this will lead to many adopting Square.”
Meanwhile, private investors have already bought in, valuing the company at $6 billion. And if Dorsey’s a digital rock star, maybe his investor list will sway skeptical Wall Street types. The lineup includes Yahoo! (YHOO) CEO Marissa Mayer, Napster founder Shawn Fanning and Virgin Group mastermind Richard Branson.
What’s more, Dorsey may be able to ease investor worries about the overextended bandwidth of a double CEO. “A role of many CEOs is to serve as a broad strategic planners, as suppliers of vision,” says Paulo Prochno, a clinical professor of management at the Smith School. “That’s not necessarily time-intensive: It’s based more on your experience in the industry and your insights. You don’t have to work 50 hours a week to have a good insight into where your industry is headed.”
Where Twitter and Square are headed profit-wise, though, is another story: one that will expose Dorsey as either overly ambitious or incredibly ambidextrous in engineering near-term turnarounds. “He will need strong leadership teams at both as he revives Twitter and positions Square as a successful publicly traded company,” Antonelli says.
As for whether you’ll be able to buy Square stock with a Square swipe, it’s not likely — though Dorsey might want to pass the idea off to one of his minions the next time he has 15 seconds to spare.
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For IPO Investors, Will it Be Hip to Be Square? originally appeared on usnews.com
