Jack Dorsey (left), CEO of Square, standing outside the New York Stock Exchange. Square priced shares at $9 for its initial public offering, about 25% less than it had hoped, as it struggled to win over investors sceptical about its business and valuation before trading begins on Thursday.

Reuters
New York

Shares of Square, the mobile payments company co-founded and still run by Twitter Chief Executive Jack Dorsey, soared as much as 64% in their market debut, following a marked-down initial public offering, countering the negative sentiment that has nagged at Silicon Valley startups in recent weeks.
The steeply discounted IPO price, at less than 60% of the company’s last private valuation, had raised questions about the prospects of other so-called ‘unicorns’ - startups worth at least $1bn - that might want or need to go public.
A number of tech IPOs have performed poorly over the past year, and mutual fund investors including Fidelity Investments have been marking down the value of their private tech holdings.
Dispelling some of the gloom, Square’s shares jumped to a high of $14.78 in early trading on Thursday and closed at $13.07, booking a 45% gain.
The stock pop came after the IPO priced at $9 late on Wednesday, well below the expected range of $11 to $13 and even farther below the $15.46 price of Square’s last private financing in 2014. It bucked a difficult stretch for IPOs, which are trading down about 5% for the year.
“The IPO buyers have very healthy skepticism about unicorn valuations,” said Chris Bulger, managing director of Bulger Partners, a tech advisory firm in Boston.
Despite Square’s 42% valuation drop from its last private financing round, most backers scored a payday. Investors who bought shares a year ago were protected by a ‘ratchet’, ensuring they would get a 20% return, and early-stage investors bought Square at less than a dollar a share.
“It’s still a good game,” Bulger said. “Just in the last two rounds you’re not getting venture capital-like returns for the risk you are taking.” Square’s strong start was followed by a positive debut by online dating empire Match Group Inc, whose shares finished the day up nearly 23%.
Tom Donino, co-head of trading at FNY Capital Management, said it is unusual to see a stock trade up so much after pricing below the expected range, as Square’s did.
“There’s obviously retail and other demand for the stock, but the pricing seems strange,” he said. “The fact the stock is now this strong will probably quash” the bearish sentiment around private-company valuations, he added.
Square raised $243mn in its IPO, money the company needs to cover heavy losses. It reported a loss of $131.5mn in the first nine months of the year after losing $117mn in the same period a year earlier, though revenue rose 49% to $892.8mn.
The debut comes at a time when slowing global growth and uncertainty about the timing of a US interest rate hike have kept investors on edge.
Ken Polcari, director of the NYSE floor division at O’Neil Securities, said he thought the low price of the offering, which cleared the way for the first-day pop, was a smart move in the current market environment.
“Those particular types of companies - these unicorns that have these crazy valuations - you are going to see some of them become more conservative in their pricing because it makes sense. What they don’t want to do is damage themselves by trying to be so super-aggressive.”
Dorsey, who was celebrating his 39th birthday on Thursday, owns 21.9% of Square following the IPO and is the company’s biggest shareholder, with a stake now worth almost $930mn.
The high-flying executive is also trying to run Twitter, another company with substantial obstacles to growing profits. Shareholders in both companies have been concerned about Dorsey’s dual role.
Square’s IPO filings show a net loss of $29.6mn in the second quarter, ballooning to nearly $54mn in the third quarter.
“Square’s financials leave much to be desired,” said Brian Hamilton, chairman of data firm Sageworks. “But there’s still a lot to like here.” Square Chief Financial Officer Sarah Friar said in an interview with Reuters that the company has been investing heavily in new hardware, such as chip-enabled card readers, and building out its lending business, Square Capital.
“The slope of the line is up and to the right in terms of our operating margin,” she said. “So we are going to grow but we are going to do it in a disciplined way.”
Friar pointed to the consumer trend of shopping less with cash.
“Still, 40% of all commerce is done with cash and check, but slowly that’s eroding. So that’s one big reason for the growth,” she said. Square, founded in 2009, has built buzz and a substantial customer base with a credit card reader that can turn a mobile device into a payment terminal. It has made its mission to enable any small business to easily accept any form of payment, and also provide them with additional services ranging from lending to payroll management.
But the company faces intense competition in the payments market, with Apple launching its Apple Pay service, Amazon.com exploring in-store payments, and startups such as Stripe entering the fray.