Square is going public tomorrow (Nov. 19) at a stock price short of Wall Street’s expectations, and its own.
According to the Wall Street Journal and other media reports, Square has priced its public offering at $9 a share, suggesting a valuation of $2.66 billion for the company. That’s significantly lower than both the $11 to $13 range Square was targeting for the share sale, and the $6 billion valuation implied by the company’s last private fundraising round.
Square has its own challenges, but its IPO drama also highlights the growing disconnect between public and private market investors. With startup valuations soaring higher than ever, there’s concern that Square won’t be Wall Street’s only victim. Mutual funds like Fidelity have been slashing the value of other major startups, like Snapchat, Zenefits, and Draftkings.
A drop of more than 50% in Square’s valuation isn’t a rousing recommendation of Square by public investors. But investors in Square’s Series E round will be getting more shares to make up the difference—thanks to a “ratchet” clause that was added in that fundraising round.
Meanwhile, Wall Street hasn’t been too enamored with Square’s financials. The payments firm has been growing at a nice pace, but at the sake of profits. In its most recent S-1 filing, Square reported a third-quarter loss of $53 million on revenue of $332 million. Another potential reason for the drop in Square valuation might be concern over CEO Jack Dorsey’s other job, as the CEO of Twitter, another company that’s been struggling in the public markets.