[SAN FRANCISCO] Mobile payments company Square Inc priced shares at US$9 late on Wednesday, according to people familiar with the matter, further discounting the company's valuation before it begins trading Thursday morning.
Square has raised US$243.5 million in its Wall Street debut, about US$80 million less than expected.
The price set on Wednesday puts Square's market capitalization at US$2.9 billion, a 52 per cent drop from the US$6 billion valuation it had earned at its last private funding round.
San Francisco-based Square, led by CEO Jack Dorsey, earlier this month set a price range of US$11 to US$13, well below the US$15.46 per-share price of its most recent private financing.
The steeper discount to US$9 - a 42 per cent drop from what investors were willing to pay a year ago - suggests widespread uncertainty about the profitability of the payments industry and the future of Square itself, which has seen slowing revenue growth.
"The way that Square was valued as a private company is they were just going to disrupt everything and change payments," said Andrew Chanin, CEO of PureFunds, an exchange-traded fund for mobile payments companies.
"And the reality is not that." Compounding concerns is Dorsey's dual role running Twitter, a social media company struggling for a turnaround.
Founded in 2009, the company started as a way for small businesses to accept credit card payments through mobile devices. It has evolved to a suite of small business services, relying on partnerships with companies such as Apple and Visa.
The valuation cut triggered a ratchet, or protection investors wrote into previous funding rounds, that requires Square to sell several million additional shares.
The company planned to sell 25.7 million Class A common shares, while a charity created by Dorsey is set to sell about 1.35 million.
Square will begin trading Thursday on the New York Stock Exchange under the symbol "SQ".
Square is one of the most prominent "unicorns," or private companies valued at US$1 billion or more, to plan a public debut this year.
Many have held up Square as an example of how fleeting - and at times nonsensical - private market valuations can be. There are more than 140 "unicorns" globally.
It joins Wall Street at a time when dozens of well-funded banks, credit card companies and big tech firms are expanding into mobile payments.
"They are competing with Visa and American Express and PayPal, and more and more with Apple and Google," said James Gellert, CEO of Rapid Ratings, which rates the financial health of companies.
"These are formidable competitors."
For the nine months ending Sept 20, Square made US$892.8 million in revenue, a 49 per cent increase from the same period in 2014, but slower revenue growth compared with prior years.
It posted US$131.5 million in losses, up from US$117 million the prior year. "What you see here is a deterioration," Mr Gellert said. "They are losing more money, and cash from operations continues to be negative."