Square Gearing Up Toward IPO

Gartner’s report Forecast: Mobile Payment, Worldwide, 2009-2016, released earlier this year  predicts that worldwide mobile payment transactions will grow from 62% over the year from $105.9 billion to $171.5 billion this year. From 2011 through 2016, the global mobile transaction market is estimated to grow to $617 billion, and Gartner projects an annual growth rate of 42%. Gartner further estimates that mobile transaction services will have more than 448 million users by 2016.

Square’s Financials
Square provides a small card reader that can process electronic payments through a mobile device. The company has been seeing strong growth in market acceptance and now has more than one million businesses and individuals who accept Square payments. Square earns revenues through a processing fee for all cards transacted through its device. Analysts estimate that Square is at a run rate of processing $10 billion in transactions this year. At an average of a 2.75% transaction fee, that translates to revenues of at least $275 million for the year.

Square is expanding its reach to consumers by being available in retail stores. Its presence in retailers has doubled since the beginning of the year. In June of this year, the device was being sold in more than 20,000 retail outlets in the country, with readers available for sale at AT&T, Walgreens, Staples, FedEx Office, Apple, Walmart, Best Buy, Radio Shack, and Target. It is expanding internationally as well: it launched its service in Canada recently, and its mobile card reader is now available in more than 250 retail stores in Canada, including Apple and Best Buy.

To date, Square has raised $341 million in venture funding from several individual investors, including names such as Marissa Mayer, Richard Branson, Dennis Crowley, and Kevin Rose, and venture funds that include First Round Capital, Khosla Ventures, Greg Yaitanes, Sequoia Capital, Visa, Kleiner Perkins Caufield & Byers, Tiger Technology Global Management, Starbucks, CrunchFund, Citi Ventures, and Rizvi Traverse Management. Its most recent round of funding in September 2012 helped it to raise $200 million and was led by Starbucks, CrunchFund, Citi Ventures, and Rizvi Traverse Management. The round is estimated to have pegged the company’s valuation at $3.25 billion. Its valuation has nearly doubled from the $1.6 billion the company was estimated to be worth a year ago.

Competition Already Strong in Developing Market
Competition in electronic payment services is increasing fast. eBay’s PayPal service also recently launched its credit card reading service, PayPal Here. Others like Google are also entering the mobile payment market through their NFC-based services such as the Google Wallet. Earlier this year, big retailers, including Walmart, Best Buy, and Target, came together to create a merchant customer exchange to develop a common system that will help their customers pay for goods using their cellphones.

Analysts believe that the company is eying an IPO, and perhaps to that end recently hired a new CFO, Sarah Friar, who is a former Goldman Sachs and Salesforce.com executive. Square is rumored to be working on a funding round that could value it at $4 billion.