Swipe Again For Square's IPO Quiet Period Expiration

Square, Incorporated (NYSE: SQ) - Buy Recommendation - $13.10 PT

Square is a San Francisco based company that develops and markets point-of-sale software and hardware primarily for smartphones and tablets. We previewed SQ's IPO quiet period expiration on our IPO Insights platform (and its IPO here).

The 25-day quiet period on Square, Incorporated will come to an end on December 14, 2015, allowing the firm's IPO underwriters to publish (likely positive) reports and recommendations on December 15.

Current research shows a significant potential for above-market returns in the five days prior to and two days after the conclusion of a company's quiet period; thus, the event opens a new buying opportunity for a growing firm.

Business Overview: Developer and Maker of Point-of-sale Software for Use with Smartphones and Tablets

Square makes point-of-sale software and hardware that is primarily used by SMEs to accept payments through a smartphone or tablet. Its product portfolio includes programs that provide digital receipts, consumer feedback, analytics, sales reports and inventory management. Square markets its products as a comprehensive service to operate an entire business by turning mobile devices into registers. In addition, the company offers small business financing and marketing tools. Its revenue comes mainly from within the United States, although sales are growing in Canada and Japan.

The San Francisco startup was founded by Twitter CEO Jack Dorsey, and the shares climbed 45 percent on the first day of trading, which demonstrated that investors still seek out new tech equities at reasonable prices. The company reduced its IPO offering price to $9 per share, which put the market valuation significantly lower than expectations. The strategy cost the company $110 million less that it would have raised if it had been priced closer to the closing price on the first day at $13.07.

In the 12 months ended September 30, 2015, Square processed $32.4 billion in gross payment volume (GPV) through 638 million card payments made from approximately 180 million payment cards.

Square devices accept the latest technology in payment methods, including EMV and NFC, which enables payment through Apple Pay and Android.

The company had $850 million in revenue last year. Revenue for the first half of this year was $560.6 million, an increase of 51 percent over the same period last year. However, the company had a net loss of $154.1 million in 2014, and a loss of $77.6 million for the first half of 2015 and has warned that it may continue to generate losses in the near future.

Management Team Overview

Jack Dorsey co-founded Square in February 2009; he currently serves as President, CEO and Chairman. Previously, he co-founded Twitter (NYSE:TWTR) and has served as its CEO since September 2015. Dorsey has also been an independent director of The Walt Disney Company (NYSE:DIS) since 2013. Mr. Dorsey attended New York University and Missouri University of Science and Technology.

Business Lead Francoise Brougher has served in her position since April 2013. Her previous experience includes senior positions at Google, SMB Global Sales and Operations, and Charles Schwab. Ms. Brougher currently serves on the board of directors of Sodexo S.A. Ms. Brougher holds a Masters in Engineering from Institut Catholique d'Arts et Metiers and an M.B.A. from Harvard Business School.

Competitors: PayPal, Flint and Spark Pay

Square remains a primary driver in the mobile payment processing sector, although several companies offer similar software and hardware for accepting mobile payments. These include Flint, Spark Pay, PayPal (NASDAQ:PYPL), Level Up, IZettle, Softcard and Inner Fence.

Early Market Performance

Square was priced at $9, below its expected price range of $11 to $13. The stock opened at $11.20 and closed at $13.07 for an increase of 45 percent on its first day of trading. It has declined slightly since then to trade close to $12.12 (12.8.2015).

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(Nasdaq.com)

Conclusion: Buy SQ Prior to December 14th

Square's powerful IPO underwriters (Goldman Sachs, J.P. Morgan Securities, Morgan Stanley, Barclays Capital, Deutsche Bank Securities, Jeffries LLC, LOYAL3 Securities, RBC Capital Markets, SMBC Nikko Securities, and Stifel Nicolaus) will likely release a flood of positive news on SQ when its quiet period expires on December 14th.

We suggest buying SQ prior to the event to take full advantage of an anticipated uptick in stock price.

Our research shows that tech firms with a strong syndicate and strong IPO performances, such as SQ, often move up ~3% over the course of a (5,+2) day time span, leading up to and shortly following the event (Day 0).