Square isn't profitable... Even the linked article makes this clear:
> While the company is not yet profitable, Dorsey has done a number of things designed to generate profit within two years, including bringing on new board members.
There are a lot of ways to make a LOT of money on payment processing beyond the basic transaction fees. But you've gotta get big first. Square is playing this perfectly.
There are two types of profitability of concern here:
1 - Is the product itself profitable. In this case: does the cost of providing a payment transaction cost Square more money than they charge for said transaction. A company that fails #1 is a really long way from success.
2 - Is the company itself profitable. You can have #1 but not #2, if you're pouring the bulk of your income into expansion.
Square can very well be making money hand over fist, but still be in the red due to pouring all would-be profits into acquiring more market share and R&D into new markets (aka the Amazon model).
Naturally, this is a risky move - it presumes that the the core product is long-term sustainable (i.e. the new market share you're acquiring is just as profitable as the market share you already have), and that the new markets you're investing massively in are worth it.
All said and done, Square not turning a profit overall doesn't say much about the overall viability of their business model.
That's not a terrible conclusion. Square loses money on lots of transactions (small ones--under ~$8 and they're losing money). Credit card processing involves a per-transaction fee which really adds up for small purchases and Square's pricing doesn't have a minimum or a per transaction fee.
Then there are things like Square Cash that make no business sense (there's no revenue, only expenses and risk). Great for consumers while it lasts though.
That's not true anymore for under $10 transactions (see Dodd Frank), but the point was that since Square has no minimum fee they actually lose money on small transactions. Square is used a ton for these sort of small transactions which goes a ways to explain why they have never made a profit (but have billions in revenue).
Yeah remember that turning a profit means you pay taxes as a corporation. Growing companies with lots of revenues will, in many cases, take a loss since they are investing that money into their own growth instead of making some profit and throwing close to half that money to the government.
I'm a fan, but it's ironic to hear about this on the day that I discovered that Boomtown, one of my favorite Houston coffee shops, has switched away from Square to Revel.
They need to do it now because the % that companies are able to charge is going to collapse very soon. This is a money grab for founders and investors - that's all. Square will have money to try to compete but they'll have a hard time.
Obviously I can't speak for the OP, but here are three things I can think of:
[1] Current Bull Market. (S&P500 is up 22.5% YTD)
[2] Tech IPOs are hot atm. (see TWTR)
[3] Lots of liquidity in the market courtesy of the Federal Reserve (Quantitative Easing)
The general premise is that all bull markets must end at some point. Also the Federal Reserve will start tapering (the liquidity that it is providing to the market via quantitative easing) at some point in the near future. This might mean that the company has a short window to time its IPO to "grab money" at the high end of its valuation (given the current favorable market conditions).
Fully agreed. I just implemented Stripe to take payments for my consulting business online, and it's really nice. My only complaint is that Stripe takes a week to initiate a bank transfer, rather than Square's one business day.
I think right now there's a large difference in culture. Square is really hip and tries to avoid exposing 'nerd stuff' to their users, whereas Stripe focuses heavily on API examples etc. Seeing them combine but stay two different 'personas' could be beneficial for both.
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[ 3.0 ms ] story [ 83.6 ms ] thread> While the company is not yet profitable, Dorsey has done a number of things designed to generate profit within two years, including bringing on new board members.
New board members always means profits!
Why shouldn't a payment processor be profitable?
There are two types of profitability of concern here:
1 - Is the product itself profitable. In this case: does the cost of providing a payment transaction cost Square more money than they charge for said transaction. A company that fails #1 is a really long way from success.
2 - Is the company itself profitable. You can have #1 but not #2, if you're pouring the bulk of your income into expansion.
Square can very well be making money hand over fist, but still be in the red due to pouring all would-be profits into acquiring more market share and R&D into new markets (aka the Amazon model).
Naturally, this is a risky move - it presumes that the the core product is long-term sustainable (i.e. the new market share you're acquiring is just as profitable as the market share you already have), and that the new markets you're investing massively in are worth it.
All said and done, Square not turning a profit overall doesn't say much about the overall viability of their business model.
Then there are things like Square Cash that make no business sense (there's no revenue, only expenses and risk). Great for consumers while it lasts though.
It was board members, all along (nobody believed me).
We should grab a coffee!
[1] Current Bull Market. (S&P500 is up 22.5% YTD)
[2] Tech IPOs are hot atm. (see TWTR)
[3] Lots of liquidity in the market courtesy of the Federal Reserve (Quantitative Easing)
The general premise is that all bull markets must end at some point. Also the Federal Reserve will start tapering (the liquidity that it is providing to the market via quantitative easing) at some point in the near future. This might mean that the company has a short window to time its IPO to "grab money" at the high end of its valuation (given the current favorable market conditions).
[1] http://www.investopedia.com/terms/b/bullmarket.asp
[1] http://www.bloomberg.com/news/2013-11-04/best-stock-market-s...
[2] https://news.ycombinator.com/item?id=6690043
[3] https://en.wikipedia.org/wiki/Quantitative_easing
I think right now there's a large difference in culture. Square is really hip and tries to avoid exposing 'nerd stuff' to their users, whereas Stripe focuses heavily on API examples etc. Seeing them combine but stay two different 'personas' could be beneficial for both.