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Square Payments – Helping Companies Get Squared Away

Square Payments LogoSquare (NYSE: SQ), a mobile payment and financial services company, is another new addition to our Internet sector coverage. Founded in February 2009 by Jack Dorsey and Jim McKelvey, Square is headquartered in San Francisco, California, and led by Chairman, CEO, and president Jack Dorsey, who also serves as CEO of publicly-traded Twitter (NYSE: TWTR), which he also co-founded. Consensus estimates call for revenue of $1.2 billion and a loss of $0.53, followed by a projected $1.5 billion in revenue for 2016, and a loss of $0.25 per share.

Square debuted on the New York Stock Exchange on November 19, 2015 at a price of $9.00 per share, below its expected range of $11-13 per share, and well-below its most recent private financing round, which then valued the company at $15 per share. The offering featured 27 million shares, with 25.6 million coming from the company, and the remaining 1.4 million coming from shareholders. At a recent share price of $10.40, Square’s market cap is roughly $3.7 billion, the result of including dual share classes, in contrast to Twitter, which features only common stock, and not super-voting rights that disenfranchise common stock owners. Goldman Sachs, Morgan Stanley, and J.P. Morgan were lead book-running managers for the offering, all three of which led the Twitter IPO. Barclays, Deutsche Bank, Jefferies, RBC Capital, and Stifel as book-running managers, and LOYAL3 and SMBC Nikko as co-managers, rounded out the members of the underwriting group.

Square’s mission is to enable everyone with a mobile device to accept credit and debit cards anytime and anywhere. Square’s products help their customers, or sellers, begin, manage, and grow their companies. Sellers can see which of their products are selling the most and create and engage a loyal base of customers. The technology and design focus that Square employs helps them create simple and easy to use products.

Square’s top product is Square Register, which allows sellers to accept offline credit and debit cards on their smart phones and tablets. This product works in tandem with Square Reader, which is the device that the credit and debit cards are swiped onto. Square Reader plugs into the audio jack of smart phones and tablets. These were Square’s first two products. Square provides a free software app, along with affordable—often free—hardware to make smart phones and tablets point of sale solutions in mere minutes. While the vast majority of Square’s revenue comes from the United States, its products are also available in Canada and Japan.

While Square initially targeted small companies, it currently is aiming at businesses of all sizes. Square’s services are applicable to every type and size of business, ranging from taxi cabs to restaurants to law firms to landscaping companies to retail stores. Post-IPO, Square has a strong balance sheet, with well over $300 million in cash and no debt, though it is unclear at this juncture how long the company will have the luxury to operate at substantial losses and begin to deplete its cash position. To learn more about how Square ranks relative to other internet IPOs of the last several years, please contact Battle Road Research.

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Ferrari IPO

Ferrari IPOFerrari (NYSE: RACE), a luxury sports car manufacturer, is the newest addition to our Consumer sector coverage. The company, which was recently spun out of Fiat Chrysler Automobiles (NYSE: FCAU) in an IPO, was founded by Enzo Ferrari in Maranello, Italy in 1929. Ferrari is one of four storied Italian race car manufacturers, which along with Alfa Romeo, Masserati, and Lamborghini, have been testing the limits of automotive performance for decades.  Until Ferrari started producing street legal cars in 1947, it manufactured race cars and sponsored race car drivers.  Ferrari is still headquartered in Maranello, Italy today, and led by CEO Amedeo Felisa.  Consensus estimates call for revenue of $2.85 billion in 2015 followed by $2.9 billion in 2016. EPS is projected to rise from $1.56 in 2015 to $1.69 in the coming year.

Ferrari debuted on the New York Stock Exchange on October 21, 2015 at a price of $52.00 per share.  The offering contained 18.9 million shares. UBS Securities acted as the global coordinator of the offering, with Bank of America-Merrill Lynch, Pierce, Fenner & Smith, Allen & Company, Banco Santander, BNP Paribas, J.P. Morgan and Mediobanca—Banca di Credito Finanziario acting as joint book-running managers. At a recent share price of $49, Ferrari’s market cap is roughly $9.3 billion.  Post-IPO, Fiat Chrysler owns about 80 percent of the company, and Piero Lardi Ferrari, the second son of founder Enzo Ferrari, owns 10 percent of the company.

Ferrari is focused exclusively on the design, engineering, production, and sales of its top of the line, high performance luxury sports cars, and over the years the company has helped to transform the car business, through its emphasis on style, performance and luxury. Through its avid and frequent participation in Formula One racing, which is considered to be the premier class of single-seat auto racing, the company continues its heritage in automotive racing. Fiat first acquired 50 percent of the company in 1969, and expanded its stake to 90 percent in 1988. Fiat also owns Maserati and Alfa Romeo.

Ferrari currently offers nine vehicle models, seven of which are sports cars.  Ferrari boasts extremely high performance vehicles, with cars consistently going 0-60 miles per hour in approximately 3 seconds, with reported times as low as 2.6 seconds.  All of Ferrari’s automobiles have either high powered V8 or V12 engines.  The top reported speed of a Ferrari is 217 miles per hour, belonging to the limited edition LeFerrari model.  Ferrari prices range anywhere from approximately $200,000 to about $1.4 million, with the most expensive being the LeFerrari model.  With the motto: offer only the best engines, design and customization, Ferrari aims to tailor its high performance and quality vehicles to each individual customer.

Ferrari is in the process of phasing out its “458 model” cars, and replacing them with “488 model” vehicles, and will complete the process within the next several years.  In 2014, Ferrari shipped 7,255 cars.  This low volume production strategy is utilized to continue Ferrari’s reputation of being exclusive and rare.  Ferrari carefully monitors and maintains production volumes as well as delivery times to continue this reputation.

As well as producing high quality vehicles, Ferrari’s brand stretches well beyond this.  Ferrari’s cars symbolize speed, wealth and nobility, and are notoriously expensive, suggesting a high ranking in society for drivers.  Aside from its symbolism, the Ferrari brand extends beyond just cars, offering sportswear, watches, theme parks, electronics, and other accessories.