Square to be valued US$ 4 billion?
Square, founded less than three years ago by Jack Dorsey, has not had trouble raising capital thanks to its rapid growth and Mr. Dorsey’s reputation in Silicon Valley as a co-founder of Twitter. The company has raised US$ 137 million (EUR 104 million) to date, with Kleiner Perkins Caufield & Byers, Tiger Global Management, Sequoia Capital, Khosla Ventures, and Visa among its current investment partners.
Still, the business doesn’t make a lot of money on a per-transaction basis. It charges a small fee from every transaction made on Square, which it shares with credit card companies. The company processes US$ 4 billion (EUR 3 billion) in annual transactions. According to All Things D, taking into account transaction fees, in all, the company’s annual revenue would then be close to US$ 122 million (EUR 93 million). Moreover, most, but not all of that revenue, is then handed over to the credit card companies for processing fees.
To become enormously profitable, it will need to increase its merchant base drastically to generate enough transactions. Square said it had plans to expand internationally, and has just hired former PayPal VP of products for North America Alyssa Cutright as the VP of international business (cf. Smart Insights Weekly #12-14). It’s a particularly challenging feat, given the hyper-competitive nature of the mPayments market (cf. SIW #12-15). However, In the future it could also generate revenue from advertising or other loyalty programs. For instance, Square has recently launched its latest product Square Register, a free app that turns an iPad into a cash register replacement. Square has expanded its card reader and customer loyalty program with a complete and free POS app.
Meanhwile, negotiations continue and investors could ultimately value the company at a more modest number.