Last night, the prospects for Square's initial public offering looked shaky. After facing increasing investor skepticism, the electronics payment company priced shares for its IPO at $9—lower than the company’s initial proposed range of $11 to $13 a share. But as it turns out, the company’s lowball may not have been a bad move.
Square shares opened this morning at $11.05 and peaked in early trading at $14.78 per stock, which briefly put the company’s market cap at $4.77 billion. That’s still below the company’s highest private valuation of $6 billion but much higher than the company’s valuation of $2.9 billion at its initial asking price.
All of which signals at least some confidence in Square after much speculation that a poor showing in its IPO could lead to a broader loss of confidence in so-called unicorns—startups privately valued at more than $1 billion.
Still the gap between Square’s IPO price and market’s opening price today means the company sold more than 26 million shares to institutional investors at what amounts to a serious discount. The IPO pricing conundrum is especially familiar to tech companies subjecting not just a new company but often a new technology to the whims of the public market. Price an IPO too high or too low, and you’re leaving money on the table.
It’s easy to spout off about hitting that crucial sweet spot, but in an atmosphere where so much doubt is swirling doubt about Silicon Valley’s frothy venture capital environment, finding that spot takes some very careful aim.
