Square CEO Jack Dorsey may take advantage of what seems to be a profitable market bubble for technology stocks by taking his mobile payments company public in early 2014 to follow the successful initial public offering of his former company Twitter.
The mobile payments company has met to discuss a 2014 IPO with banks including Goldman Sachs Group, which helped to underwrite the Twitter public offering, the Wall Street Journal reports.
Square declined to comment for this article.
Square's Reader device plugs into a mobile phone and allows individuals to accept credit card transactions for a small fee. The company also unveiled Square Cash in October, which allows payments between debit cards using any email address, without the need to setup a Square account or pay any transaction fees. Twitter had an exciting first day on Wall Street as a public company on Thursday, as its stock price closed at $44.90, well above the original value of $26 set by the social media giant during its public rollout. Dorsey founded Square in 2009, after co-founding Twitter in 2006.
This could reflect a hot time for tech stocks, so there is a lot of discussion among the tech community in San Francisco about Square lining up to go public, given the strength of the company and the stock market, says Bob Ackerman, managing director of Allegis Capital.
"The IPO market has welcomed new companies with growth prospects and Square is one of those companies," Ackerman says.
Square may be a quality company, but the business world should also be cautious when an IPO market gets hot and some companies hope to jump on the bandwagon and cash in on the positive trend, Ackerman says.
"The first companies that go out tend to be very, very strong. Over time the parameters tend to soften a little bit," Ackerman says. "One thing we need to look at is 'how strong is the bar that companies need to meet to go public?' When we see that bar soften a little bit it gives us concern that the cycle will have run its course."
The market and the U.S. economy as a whole appear prosperous enough for tech companies to go public, but economic trends might not keep that bull market going through 2014, says Santosh Rao, senior equity analyst and head of research at Greencrest Research financial analysis firm.
"If you have to do an IPO now is the time to do it," Rao says. "There is a mood that the stock market is topping, the macro economic indicators are good, so it is time to cash in."
The success of Twitter's stock offering is going to speed up the timelines of companies that are waiting on the sidelines for an IPO, but by the time a company is ready to go public in 2014 it may be too late them to profit from the good times tech stocks are enjoying, Rao says.
"The market will drop at some point," Rao says. "It is definitely reaching limits. It looks like it is reaching the top." Financial data about Square revealed to the Wall Street Journal by a person familiar with the IPO conversations between the banks and the company indicates Square's revenues are projected to hit $1 billion in 2014. The company foresees handling $30 billion in transactions next year in association with credit card companies. Approximately 70 percent to 80 percent of Square's revenue is given to participating credit card companies, the Wall Street Journal reported. Investors of Square include firms like VISA and "angel" backers such including Marissa Mayer, CEO of Yahoo and Richard Branson, founder of the Virgin Group, the Wall Street Journal explained.