Why you should care about Square, unicorns and the new tech bubble _ Sci-Tech _ DW.COM _ 19.11.pdf
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TECH IPOS
Why you should care about Square, unicorns
and the new tech bubble Want to know why "everyone" is talking about unicorns, Jack Dorsey and a tech firm
called Square? No, not Foursquare. Just Square. It's debuted at the New York Stock
Exchange and rocketed. Read on.
To be frank, you have every reason not to care about Square and its initial public offering (IPO) on the
New York Stock Exchange on Thursday. You may be one of the many millions of people on the planet
who h ave never heard of Square - and nor should you ha ve.
But a relatively small and yet influential group has been in a positive tiss about this company and its
going public for weeks, if not months.
Why? Simple. It's a unicorn.
And this unicorn just hit the ground running at the New York Stock Excha nge on Thursday. Within
about 30 minutes of trading, shares in Square had jumped 52 percent, from a starting price of $9 to
$13.66.
PrivCo, a research firm, says Square's debut "will set a precedent" for how other unicorns are viewed by
investors at a time of considerable doubt over tech valuations.
What the **** is a tech unicorn?
A unicorn in tech is a privately held company valued at over $1 billion, based on fund-raising alone.
Square is a unicorn - but its unicorn status has been shrinking of late.
At the time of writing, a list compiled and upda ted by Fortune in August had Square valued at $6
billion. After its last round of fu nding, however, its estimated market value dropped to just over $4
billion.
TOP STORIES / SCI-TECH
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Way above Square were companies such as Uber (upwards of $50 billion), Xiaomi ($46 billion),
Airbnb ($25.5 billion), Snap chat ($16 billion), SpaceX ($12 billion), Pintrest ($11 billion), and Dropbox
(upwards of $10 billion) - all in the top ten.
What's shocking a bout the list - aside from the fa ct tha t it's dominated by men - is that some analysts
fear there is no real analysis of these companies' true financial prospects - indicating the potential for
a new bubble in the private tech markets.
Matthew Kennedy, an analyst at Renaissance Capital, described Square's valuation prior to the IPO as
"worrying."
Square set the price per share late on Wednesday at $9. It was somewhat below a price range of $11
and $13 which the company had said it expected in a regulatory filing in early November.
The feeling was, Square wanted to keep the initial price as low as possible so as to maximize its
chances of scoring a huge bump when it hit the trading floor in New York. And if that was Square'stactic, it clearly worked.
So what does Square actually do?
Good question. Square is a tech startup, specializing in a mobile payments. It was founded by Jack
Dorsey about three years after he co-founded Twitter.
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Jack Dorsey (2nd L) at Twitter's IPO in 2013. He's CEO of Twitter and Square
Square started by offering financial transaction software for smartphones and tablets, as well as
"dongles" that enable the mobile devices to read the magnetic strip on credit cards.
Will this lead to a mobile payments boom?
Not to be confused with a tech bubble - mobile payments will bloom, whether we like it or not, but they
may not boom just yet.
A study published in May by Gartner, an IT research and advisory firm, suggested many consumers
don't trust mobile payment methods.
However, there is growing competition among the tech giants in the US, including Apple, Amazon and
PayPal, who want to shape the future of shopping by changing the way we pay.
Mobile payments are the new tech battleground, but are we heading for a bubble?
In 2014, released the iPhone 6 with software called Apple Pay, which for contactless payments, using
Near Field Communication (NFC) technology. Samsung also has a "mobile wallet" called Samsung
Pay.
But both have a long way to go before they achieve success, with Gartner estimating NFC transactions
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will account for "only 6 p ercent" of mobile payments in 2018.
Square takes a 2.75 percent commission on transactions using its mobile dongle. Transactions via
PayPal and others also come at the cost of a commission, usually to the seller.
Payment trackability
But the real issue here is being able to trace payments. Put simply, tech firms and governments want
us to move more and more payments online, because it means our transactions can be tracked.
That may be good for us, but it's even better for them.
In African countries such as Kenya, mobile payments have long had a strong footing
Hence the recent interest in Bitcoin - despite its association with criminal trades on sites like Silk Road
and more recently with the Islamic State terror group. Governments, financial institutions and others
are keen to harness the cryptography used for digital currencies to increase payment security,
whatever the ends entail.
The US government has even held Bitcoin as "cash" reserves.
The future looks…
Square's IPO was highly anticipated, although regulatory filings on the third quarter showed a net loss
of $53.9 million on revenues of $332 million. But this drop in value ahead of the IPO is precisely what
made it interesting.
Analysts believe Square's IPO will set a benchmark - or even a correction in p rivate markets - and
shape other anticipated IPOs by Dropbox and Airbnb, for instance.
As Jack Dorsey - a man who h as seen it all before - must have been quietly confident. Research by
Ipreo, a market intelligence provider, has Twitter at number three in its ranking of Top Tech IPOs
since 2010. You'd think Dorsey knew what he was doing.
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L I V E
B L O G S
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Date 19.11.2015
Author Zulfikar Abbany
Related Subjects Sci-Tech, Technology
Keywords Square, IPO, initial public offering, New York Stock Exchange, mobile payments, technology, tech bubble
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WWW LINKS
Fortune's Unicorns List