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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.

Rapid7 (NASDAQ: RPD)
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Rapid7 (NASDAQ: RPD)

Rapid7 (NASDAQ: RPD)Rapid7 (NASDAQ: RPD), based in Boston, Massachusetts, is a recent addition to our Battle Road IPO Review Software sector coverage. The company was founded 15 years ago in New York City, where its founders took the city’s rapid transit train to work in mid-town Manhattan. RPD focuses on IT security software and services, with an emphasis on vulnerability and threat detection. The company recorded revenue of $77 million and a net loss of $33 million in 2014. For 2015 Consensus estimates call for revenue of $104 million and a Loss per Share of $1.53, followed by revenue of $131 million and a Loss per Share of $0.85.

Rapid7 priced its 6.45 million share IPO at $16 per share –above an expected range of $13-15—on the NASDAQ on June 16, 2015 for first trade the following day. All shares were offered by the company. Subsequently the underwriters exercised their over-allotment, enabling the company to raise about $110 million in its IPO. The deal was led by Morgan Stanley, Barclays Capital, KeyBanc Capital Markets/Pacific Crest, William Blair, Raymond James, and Cowen.

Rapid7 is led by Corey Johnson, President and CEO, who has risen through the ranks of the company in the last seven years, and served as Chief Operating officer, prior to his current position. His experience includes five years at Microsoft, where he was a Group Project Manager, with responsibility for the world-wide launch of SQL Server in 2005. Steve Gatloff, CFO, formerly CFO of iPass, held financial roles at United Online, Sterling Commerce, and VeriSign.

Rapid7 provides a portfolio of cloud-based software and managed services to detect and analyze cybersecurity threats for over 4,100 customers across a broad range of industries, including 34 percent of the Fortune 1000. In the last year, RPD added BJ’s Wholesale Club, Boyd Gaming, Dollar Tree, Fastenal, Iowa State University, Johnson Controls, Parker Hannifin, Samsung Electronics, and the Smithsonian to its growing list of business and government customers.

Roughly two-thirds of sales in each of the last three years comes from its Nexpose vulnerability and threat assessment software, which among other things, identifies weak points in a company’s data network, and helps to prevent cyber attacks across computer networks. About 88 percent of sales comes from the US, and the company utilizes a direct salesforce as well as channel partners that account for 41 percent of sales. RPD boasts an 87 percent renewal rate for existing products. The company recognizes about 80 percent of sales each quarter from backlog. At the end of the September 30, 2015 quarter, the company’s DSOs stood at 103, up from 95 in the previous quarter, a level that we consider to be high relative to other software companies that we research.

The market for security threat detection and assessment is a large and competitive one, with IBM, HP, and Intel, through its acquisition of McAfee, quite active in the market. In addition, RPD faces competition from several dedicated security software and services vendors, such as FireEye (NASDAQ: FEYE), Qualys (NASDAQ: QLYS), and others.