One of unicorn darlings of the private equity realm is now public. Square (NYSE: SQ) went public at $9 on Thursday. There isn't a consensus as to whether it was a successful IPO or not. Bears can argue that the fast-growing mobile payments platform had a dud of a debut. Pricing the stock in the single digits was less than the initial $11 to $13 price range that underwriters had been seeking and well below the last year's round of financing with well-heeled private investors shelling out $15.46 a share. Bulls will counter that Thursday's pop -- the stock opened at $11.20 and traded as high as $14.78 -- validates the decision to leave money at the table initially by pricing the deal so low.
However, the one thing that you won't find either camp doing is compare the Square IPO to Groupon (NASDAQ: GRPN). I will.
Square and Groupon are more similar than you might think. Both companies serve the same market of small- and mid-sized businesses that want to run with the big boys. Square offers merchants the ability to accept credit and debit cards at a reasonable rate of 2.75% of the swiped amount or 3.5% and $0.15 for every keyed-in transaction. Groupon gives small businesses the ability to smoke out new leads without any upfront marketing costs, instead taking roughly half of the proceeds for any prepaid vouchers for discounted experiences.
Both companies feel as if they can take their market leadership in one niche to excel in related businesses, making the most of their fat Rolodexes. Square sees corporate lending as a big driver in the future, just as Groupon has tried to push a wide range of enterprise services to its merchant base.
Both companies have struggled with profitability, and the starting lines -- at least in terms of top-line results -- are eerily close. Groupon raked in $713.4 million in revenue in 2010, the year before it went public. Square delivered $707.8 million on the top line last year.
Square and Groupon could have both fetched higher ransoms if they had gone public earlier. The buzz for flash sale websites in general and Groupon in particular had peaked by the time that it went public at $20 in late 2011. The market's chilly reception to Groupon's IPO eliminated the possibility of smaller rivals going public. The same thing might happen with Square if it can't continue to build on its initial pop.
Square should have gone public a year ago when private investors were pegging it with a $6 billion market cap. Growth has decelerated at Square, going from 124% in 2012 and 63% in 2013 to 52% last year. That may not seem so bad, but it's going to get worse. Square and its largest customer Starbucks decided to end their exclusive partnership starting this quarter, something that will weigh on near-term growth since the baron of baristas accounted for 17% of Square's revenue last year. It was never a profitable partnership for Square, but it likely validated the platform in the eyes of java-sipping entrepreneurs.
Growth isn't enough on Wall Street. Groupon kept growing. It generated roughly as much revenue in its latest quarter -- $713.6 million -- than it did in all of 2010. However, the stock has shed more than 85% of its value over the years because it failed to deliver the expected bottom-line results to accompany the initial lofty expectations. That could be Square this time around, even at a much lower market cap.