Square Inc. plans to sell shares to the public at $11 to $13, raising up to $403 million in the deal, but valuing the company significantly lower than in the private market.
At the high end of the price range, the payments processor would be valued at $4.2 billion, calculated using total shares outstanding. That's roughly a 30 percent discount from the previous equity fundraising round: In October 2014, the investment arm of Singapore's government led a $150 million Series E investment in the company at a $6 billion valuation, people familiar with the matter said at the time. In October 2015, Square also raised an additional $30 million in equity from "one existing investor and one new investor" under the same terms of the earlier stock sale.
The conservative valuation highlights the difficulty of selling shares in companies untested by public-market scrutiny to new investors. New IPOs this year have seen an average first-day pop of 14 percent, but the average return is negative after that, according to Renaissance Capital. For that reason, investment bankers have sought to value companies going public at about 20 percent lower than their publicly traded peers, in hopes a discount would bring more buyers to the market.
Still, the company's latest filing raises its expectations for the IPO. Square's previous filing listed plans to raise up to $275 million in the offering.
In the third quarter, Square's losses accelerated while revenue growth slowed to $332.2 million. Square will begin an investor roadshow in the coming days and schedule its first public trade for the week before Thanksgiving, as previously reported by CNBC. Square, whose CEO is Twitter chief Jack Dorsey, will trade under the ticker SQ at the New York Stock Exchange.
Twitter shares have been under pressure following a surprise executive reshuffle that brought co-founder Dorsey back to the CEO role and a series of lackluster earnings reports.
Dorsey recently announced plans to give one-third of his stake in Twitter to Twitter's employees as a signal of his commitment in the company. As part of the Square deal, Dorsey will be giving 40 million of his shares — an additional 10 percent of the company, to the Start Small Foundation, which invests in the small businesses and founders that are Square's core audience.