HOT IPO: The Reason Behind Square’s Low IPO Pricing


Some questions have been asked following Square’s decision to set its initial public offering price at only $9 a share. The digital payments startup had initially set shares at a price of $11- $13. What’s more, even these initial pricings were below the $15.46 price from its last round of private funding.

This new lower IPO price cut the company’s market cap by half from an initial $6 billion private valuation to just $2.9 billion. Despite this, all of Square’s shareholders made a profit, according to Matt Levine of Bloomberg View. Stock rose by as much as 60% and closed up at around 45% at $13.07. Things certainly look much better now but could this headache have been avoided?

Let’s take a look at why Square’s price was cut so drastically. Market conditions could well be behind such a decision, with investors said to be concerned with the current market and even demanding a lower valuation. It appears that Square was then left with the decision of whether to postpone the deal or continue with a lower valuation, and chose the latter.

It’s believed that Square’s management were understandably unhappy at having to price lower than originally planned. However the benefits of pushing ahead and getting into the public markets and accessing a shareholder base seemingly outweighed pulling out of the proposed deal. Needless to say, they will be pleased with the result.

CEO Jack Dorsey has since spoken about the subject on CNBC. Asked if he agreed with a quote from a Fred Wilson blog which said that sometimes “you just need to get the deal done”, he responded “He’s absolutely right. It’s all about getting the business and accelerating the business, and that’s what we came here to do today, and we did it.”