Square sees negative margin shrink as revenues climb
Yesterday Square announced its IPO agenda and gave out fairly detailed financial data.  Square was valued at US$6 billion last year and is looking to raise $275 million in the proposed capital raising. The prospectus shows that revenues rose by 54% last year to $850 million and are set to break through the billion dollar mark in the current year. Losses widened to $150 million and its is clear that some of its early contracts were poorly priced.  Its landmark deal with Starbucks has brought in $310 million of sales since it was signed back in 2012, but has cost the company $380 million to run: the company is hoping to be able to exit the deal early. First half 2015 numbers do show a clear improvement in the company's margin with the negative margin being trimmed from -21.3% to -13.8% on 50% increase in H1/H1 revenues.  Twitter CEO Jack Dorsey will maintain his role as CEO in Square.

Two women using Square's point of service solutions. Square's S-1

Mobile payment company Square filed to go public on Wednesday afternoon.

The company was founded in 2009 by Jack Dorsey after his co-founder Jim McKelvey struggled to accept a credit card payment for a piece of art he created.

Now it's generating more than $850 million annually.

How?

Mostly, Square allows merchants to accept mobile credit card payments via a plastic dongle that can be inserted into the port of a phone. Square, like a credit card company, takes a cut of the transaction (2.75% per swipe or 3.75% plus 15 cents for manually typed transactions). It also has other products, software, and point of sale services that make it like the cash register of the future.

Square

But dealing with credit card companies and tiny transaction fees isn't easy. So here's how payments are processed by Square, according to a diagram in its S-1 filing:

square

Here are the four steps, from the S-1:

Once the Buyer is ready to make a purchase, the Seller inputs the transaction into the Square point-of-sale (POS) and presents the Buyer with the amount owed. The Buyer pays for the transaction by swiping or dipping their payment card, or by tapping their NFC-enabled mobile device on the Square Reader or Square Stand, which captures the Buyer’s account information. The Square POS sends the payment transaction information to Square, which acts as the Payment Service Provider (PSP). Square passes the payment transaction information to the Acquiring Processor via an internet connection. Square pays a small fixed fee per transaction to the Acquiring Process.

And here are all of the products and services Square offers its merchants:

Square

Square also makes a good chunk of its revenue through a partnership with Starbucks, although that is ending one year earlier than it was supposed to because it caused a lot of issues, so much so that Square listed it as a risk in its S-1.

Here's the full revenue breakdown: