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Exploration of 2014 IPO Possibility with Banks Undertaken by Square

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November 08, 2013

Exploration of 2014 IPO Possibility with Banks Undertaken by Square

By Joe Rizzo
TMCnet Contributing Writer

If you saw the opening bell yesterday morning for the Stock Exchange, you saw the people from Twitter (News - Alert) ring it. According to a news article today, Twitter’s IPO has already taken two of its founders on the road to being billionaires.

It seems that this has piqued the interest of that little square credit card reader. You know, the one that you plug into the audio jack of an Android (News - Alert) or iPhone device. On the heels of such positive news for an IPO, Square, Inc. has been in discussions with several banks about a possible 2014 IPO.

Some of these banks include Goldman Sachs Group and Morgan Stanley. Although as of now, no bank has been hired and a person who seems to be familiar with Square’s discussions said that the timing of a deal could change.

Not too much more can really be said about whether or not it will happen or when it could happen because spokespeople for Square, Goldman Sachs and Morgan Stanley both declined to make any comments concerning the matter.

Jack Dorsey, who is CEO of Square and also a co-founder of both Square and Twitter, has publicly stated that Square does not turn a profit. He has made reference to the fact that 2015 will be the profitable year. This is interesting since sales will be approaching $1 billion in 2014.

The thing is that right now the $1 billion represents what Square takes from the roughly $30 billion in total transactions it expects to process next year, before it passes much of that amount on to partnering credit card companies. While sales will be in the neighborhood of about $550 million this year it appears that roughly 70 to 80 percent of Square’s revenue goes to credit card companies. This puts the company’s net revenue somewhere between $110 million to $165 million.

Last year Sarah Friar was hired away from (News - Alert) Inc. to be Square’s chief financial officer. This is just one of the steps taken by Dorsey to expand revenue lines and strengthen its management side. In addition, David Viniar a former Goldman Sachs CFO, joined Square’s board last week to replace Starbucks Chairman and CEO Howard Schultz, who left after one year as a director.

Square also plundered Facebook (News - Alert) when earlier this year Gokul Rajaram was hired to oversee its growing portfolio of point-of-sale (POS) services for local merchants. Square has also developed mobile wallet software to let customers pay without using a credit card.

Square raised about $200 million last year from Rizvi Traverse Management. This is a deal that values the company at $3.25 billion. Square has taken more than $340 million from a diverse group of investors that includes Kleiner Perkins Caufield & Byers, Khosla Ventures, Sequoia Capital (News - Alert) and Visa. If that is not enough, it also has big name angel backers such as Yahoo CEO Marissa Mayer and entrepreneur Richard Branson.

Edited by Cassandra Tucker

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