Square (NYSE: SQ), the credit card payment processing company, priced its initial public offering at $9 per share last night, below what was said to be an expected range of $11 to $13, according to Business Insider. The IPO pricing is reported to give Square a market capitalization of $2.9 billion.
Had the Square IPO priced at the high end of the expected range of $11 to $13, the company would have been valued at $4.2 billion. The offering raised a total of $243 million, below the $275 million the company expected when it filed with Securities and Exchange Commission in mid-October, as reported by the Inquisitr.
In October of 2014, Square was reported to have raised $150 million in a deal that valued shares at $15.50, giving the company a market capitalization of $6 billion, or more than twice what it is valued at with last night’s share pricing.
— Reuters Business (@ReutersBiz) November 19, 2015
Recently, GoPro, Inc. (NASDAQ: GPRO), another disruptive technology company, though more consumer-driven than Square, saw its shares sell off hard following its third quarter 2015 financial results. As reported by the Inquisitr, GoPro is now trading below its IPO price of $24. Shares of GoPro had traded as high as $98.47 in the months following the June 2014 IPO.
When GoPro went public, the company was expecting shares to price in a range of $21 to $24, as reported by CNBC. When the deal was actually completed at $24, this showed strong demand on the part of investors. GoPro shares traded up on their first day of trading and then consolidated until the end of August, before breaking out above $48 and doubling over the following months.
Square pricing, not at the low end of the expected range, but below it, suggests hesitancy among market participants.
“The initial public offering is rarely the stock’s lowest price. Shares seldom make their market debut, shoot up and never come back down to their initial offering price,” Investor’s Business Daily writes with regard to IPOs like Square. The publication also advocates the use of stop-losses of a maximum of 8 percent for all stock trades, including those made in the shares of promising IPOs.
Very few IPOs perform like GoPro did, where an investor could have bought the IPO and almost quadrupled their capital within months. Facebook, Inc. (NASDAQ: FB) went public for $38 a share in May of 2012 and, very differently than GoPro, stayed below that price for well over a year, according to Tech Crunch. However, today the market values FB shares at $107.77.
Both stocks formed consolidations, GoPro’s IPO base was weeks long, while Facebook’s was over a year, yet when the market decided to take each through the high price of their respective consolidations, the price advances in both cases continued to very profitable levels.
The vast majority of stocks never appreciate like this. Shares of King Digital Entertainment (NYSE: KING) were first offered for $22.50 in early 2014, according to CNBC. The stock quickly traded, and stayed, below the offering price for the duration of its run on the New York Stock Exchange. Activision Blizzard, Inc. (NASDAQ: ATVI) has made an $18-per-share cash offer for King. Shares of King trade near $17.75, reasonable with what would be expected from a acquisition target, unlike shares of Office Depot (NYSE: ODP), which trade well below the floating cash and stock valuation offered by Staples (NASDAQ: SPLS), as reported by the Inquisitr.
Over the past three years, Square revenues have grown from $194.0 million in 2012, to $433.8 million in 2013, to $708.0 million in 2014. The 2014 figure represents annual growth of 63.2 percent. Despite this, Square is not yet profitable.
Like Square, Twitter, Inc. (NYSE: TWTR), which also shares a CEO with Square in Jack Dorsey, wasn’t profitable when it first came public in late 2013 for $26 per share. However, Twitter is forecast to earn $0.35 per share in 2015 and $0.59 in 2016, by Wall Street analysts. Since the Twitter IPO, the shares have traded as high as $74.73 and as low as $21.01. Twitter shares closed $0.10 below their IPO price, at $25.90 yesterday.
— Forbes Investing (@ForbesInvestor) November 19, 2015
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