This week, while watching the drama that was Square’s IPO unfold, something occurred to the PYMNTS staff. Everything you need to know about Square’s story up until now you can learn this weekend by binge watching the Star Wars movies. Or at least the first five Star Wars movies — “Return Of The Jedi” is optional, but highly recommended.
No, as Yoda would say, kidding we are not.
And if worried you are (we’ll stop now, we promise) that you don’t have time this weekend to watch 10 hours of Star Wars to test our theory — good news, you don’t need to. This theory can actually best tested in under 30 seconds by merely scanning the titles of the first seven Star Wars movies to appreciate just how almost weirdly well they tell the story of Square.
There probably isn’t much in the way of argument that if analysts weren’t calling Jack Dorsey and Square the payments ecosystem’s “phantom menace” when Square first took the stage in the 2009-2012 period, it’s only because they weren’t Star Wars fans.
“Dorsey is the only guy in the industry who’s thinking about payments in a deep way, and Square is the only payments company that’s innovating on hardware, software, and price. … This will be Square’s moment: Millions of people will see its magical payment system in action for the first time. Once they get hooked on it, they won’t want to stop,” Slate gushed in 2012.
We’re not picking on them, there are many versions of that paragraph scattered throughout tech editorials, white papers and powerpoint slides from about five years ago when everyone was convinced that Square was about to eat the lunch of everyone who was in payments or thinking about getting into payments.
Oh yes, it was very hip to be Square (how many times have you read that line?).
This one is actually so on point in that it runs the risk of being too on the nose.
As has been well -documented, Square had such a great idea for a business model – making it easy for teeny-tiny merchants to accept cards and use a mobile phone to do that — that a whole lot of people decided to emulate it.
According to the latest edition of the PYMNTS mPOS Tracker, there are over 200 mPOS players taking the field today. mPOS players who took Square’s idea (of making it finger snap easy for small merchants to take payments) ran with it hard and fast by wrapping around a whole pile of other capabilities around payments. The space evolved from being about dongles and card acceptance via smartphones to a bunch of value-added payments capabilities that made card acceptance a piece of a bigger payments pie.
But what Square really wanted – then, at least – was to build a network of small merchants and the consumers who loved them and shopped with them. That was the Dorsey vision.
But much like the Jedi alliance with Chancellor Palpatine did not quite work out the way they planned during “The Attack of the Clones,” Square’s big move to build that consumer base did not work out quite the way they had hoped.
Before starting, we should note that for this metaphor to work, we essentially have to equate Starbucks to the Sith — the villains who serve as the Dark Side of the Force in Star Wars. Given Starbucks’ extraordinary corporate commitment to positive social engagement and the well-being of the planet, we recognize that this is somewhat unfair.
For the record, outside the context of this metaphor, Howard Schultz does not in any way deserve to be compared to either the Emperor or Darth Vader.
However, from Square’s point of view and the $71 million it lost to processing payments for Starbucks over the last three years, Starbucks is probably as close to their evil empire as the team at Square can imagine.
When Starbucks signed on with Square, the tremor that ran through the industry was that Square — as the power behind turning Starbucks toward mobile payments — was about to grab up that big, tech-savvy and mobile-enthused consumer base it needed to ignite a payments network.
And given how things actually turned out over at Starbucks, with its absolutely stunningly successful mobile program, that was a legitimate concern.
But much the way the Empire really didn’t want to be the Jedi’s allies and turned on them to take power, Starbucks didn’t really want a partner in its rule over mobile. They were happy to let Square process their payments on the cheap, but they invested big and built their own mobile wallet that was (until very recently) the only mobile pay option available at Starbucks.
Square was never really able to build their consumer side of the business, and the mobile wallet was shuttered (as were most of the B2C initiatives).
Square then turned back to the merchant side of its business, only to find itself overrun by an army of clones — some of which were offering a lot more functionality than they were.
The great money bleed began to happen and enthusiasm turned to skepticism, that itself turned out to be contagious.
Was Square, going into an IPO, shaping up to be an avatar for the over-bloated, overhyped unicorns that were about to be sacrificially slaughtered on Wall Street’s altar? Were the Silicon Valley Jedi about to get an absolutely crushing blow at the hand of the Empire on Wall Street?
Except, of course, the IPO didn’t flop as was widely feared — mostly because Jack Dorsey used some Jedi-level mind tricks on the market.
Instead of pricing within the $11-$13 range, Dorsey gambled harder than the rebel alliance, sending a fleet of X-wing fighters to take on a Death Star, and threw an incredible lowball at the market with a $9 share price, counting on a pop.
Then, he got his pop.
The Death Star exploded.
Ending the day on a number that shocked Wall Street, shares rocketed higher (much higher), clocking in at $13.07.
That was up an impressive 45 percent on the day, and intraday trading was even more sanguine, where shares were up 64 percent at one point. So, with a $13 handle at 4 p.m., the stock wound up being just above the high end of an of the IPO effort.
According to the University of Florida’s Jay Ritter, who studies IPOs, the last time a bump like this happened was November 1998, at the dawn of the “dot-com” bubble, when TheGlobe.com’s IPO set a record for the largest first-day gain in U.S. history.
Cue the music, the rebels won the day. Tech is safe, the Empire will not strike it down.
Right?
While the team at Square is rightfully celebrating this weekend, given the dedication with which they have put on the Silicon Valley’s real-life reenactment of the Star Wars saga so far, it seems worthwhile to recommend watching the next movie in the series.
As it turns out, blowing up the Death Star is a won battle, not a won war. The Empire comes back to encase Han Solo in carbonite, cut off Luke’s hand and start building the next Death Star.
And Square, with many of the same structural problems that once plagued it before it went public, still stands in the shadow of those problems.
By gathering up $243 million through the IPO, Square gets at least some of the cash it needs to help offset a cash drain that comes with the heavy expense load that has kept the bottom line bogged down in red ink. The losses have been mounting, as the firm reported a loss through the first nine months of the year of $131 million, up from $117 million last year through the comparable time frame — not impressive given a 49 percent gain in sales over the same basis to $893 million.
Add in the fact that there’s only going to be more competition in the payments arena, ranging from PayPal to Stripe, and Square still has a long way to go in this saga before it is celebrating around a campfire with some Ewoks.
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