Square Inc priced shares at $9 for its initial public offering, about 25 percent less than it had hoped, as it struggled to win over investors skeptical about its business and valuation before trading begins on Thursday.
The mobile payments company said it along with a selling stockholder would offer 27 million shares, raising $243 million in its Wall Street debut, about $80 million less than expected.
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The San Francisco-based company earlier this month set a price range of $11 to $13 per share, well below the $15.46 investors paid in Square's most recent private financing round last year.
The steeper discount to $9 - a 42 percent drop from a year ago - suggests widespread uncertainty about the profitability of the payments industry and the future of Square itself, which has seen slowing revenue growth.
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The weaker price puts Square's market capitalization at $2.9 billion, a far cry from the $6 billion valuation it had earned from private investors.
"The way that Square was valued as a private company is they were just going to disrupt everything and change payments," said Andrew Chanin, chief executive of PureFunds, an exchange-traded fund that includes mobile payments companies. "And the reality is not that."
The IPO is among the strongest indications yet that valuations set by private market investors can be fleeting.
Fidelity Investments recently cut the estimated value of its stake in some high-profile private tech companies, including Snapchat, Zenefits and Dropbox.
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Compounding concerns is Square CEO Jack Dorsey's dual role running Twitter Inc, a social media company struggling for a turnaround.
Investors have criticized Dorsey and Square for not better communicating how he plans to split his time between the two companies.
Only on Monday did Square touch on Dorsey's dual roles in an updated IPO filing that states Dorsey will give his "full business efforts and time to the company, other than with respect to (his) work with Twitter Inc."
Founded in 2009, the company started as a way for small businesses to accept credit card payments through mobile devices. It has evolved into a suite of small-business services, relying on partnerships with companies such as Apple and Visa.
The valuation cut triggered a ratchet, or protections investors wrote into a previous funding round. Investors had expected shares to price at more than $18, and Square must sell several million additional shares to make up the difference.
The company will sell 25.65 million Class A common shares, while the Start Small Foundation, a charity created by Dorsey, will offer 1.35 million.
Square will begin trading on Thursday on the New York Stock Exchange under the symbol "SQ".
The company joins Wall Street at a time when dozens of well-funded banks, credit card companies and big tech firms are expanding into mobile payments.
"They are competing with Visa and American Express and PayPal, and more and more with Apple and Google," said James Gellert, CEO of Rapid Ratings, which rates the financial health of companies. "These are formidable competitors."
For the nine months ended Sept. 20, Square made $892.8 million in revenue, a 49 percent increase from the same period in 2014, but slower revenue growth compared with prior years.
It posted $131.5 million in losses, up from $117 million the prior year.
"What you see here is a deterioration," Gellert said. "They are losing more money, and cash from operations continues to be negative."
(Reporting by Heather Somerville and Lauren Hirsch; Additional reporting by Mansi Goenka; Editing by Ken Wills, Peter Cooney and Gopakumar Warrier)