Square shares rose by as much as 64 percent following their debut in the market. The mobile payment company was co-founded and is run by Twitter Inc’s CEO Jack Dorsey.
Dorsey’s Square Shares Jump by 64% Amidst Fears of a Barrage of Poorly Performing Tech Startups
Performance of the shares was surprising given that the IPO was steeply discounted. The upward trend by Square is refreshing and counters the barrage of negative performance among Silicon Valley startups in recent weeks.
The IPO was put up at less than 60 percent of the company’s private valuation. This stirred concerns among analysts and market observers who wondered about the prospects of companies worth at least $1 billion who were looking to go public.
Over the past year, several tech IPOs have recorded poor performance and mutual fund investors have been devaluing their holdings of private tech companies.
Square shares hiked to $14.78 on Thursday in early trading and closed at $13.07, recording a 45 percent gain.
Late Wednesday, the IPO was priced at $9, significantly lower than the anticipated range of $11 to $13 and lower than the company’s private valuation that valued the company at $15.46 in 2014.
According to analysts, investors were concerned about the company’s valuation and waited until the shares were available to the public. The low price on Square’s IPO must have created a pile-on effect on Thursday morning so that the stock hiked as high as it did.
Chris Bulger, managing director of Boston-based Bulger Partners said “IPO buyers are cautiously skeptical about unicorn valuations,” referring to tech startups that are valued at least $1 billion and are looking to go public.
He added, “It is a good game. Just that in the last two rounds, you are not receiving venture capital-like rewards for the risk you are taking.”
Tom Donino FNY Capital Management co-head said it was unusual for a stock to trade so high even after pricing its IPO lower than the anticipated range.
Donino said, “There’s other demand for the stock in addition to retail. However, the pricing seems quite strange. The fact that the stock is this strong right now will likely quash.”
In its Wednesday IPO, Square raised $243 million, money that will be used to cover significant losses incurred by the company. In the first nine months of the year, the company lost $131.5 million, after a $117 million loss in the same period a year earlier in spite of a 49 percent increase in revenue to $892.8 million.