Twit­ter founder’s suc­cess with Square can’t halt se­ri­ous whis­pers of tech bub­ble

Weekend Argus (Saturday Edition) - - MEDIA& MARKETING - JAMIE NIMMO

LON­DON: Con­cerns have resur­faced about a pos­si­ble tech bub­ble even af­ter a strong de­but on the stock mar­ket for the lat­est highly val­ued but loss-mak­ing tech­nol­ogy start-up.

Square, a US mo­bile pay­ments firm founded and run by Twit­ter co­founder and chief ex­ec­u­tive Jack Dorsey, fared well on its out­ing as a pub­lic com­pany on the New York Stock Ex­change.

How­ever, the flota­tion was priced at $9 (about R126) per share, be­low the $ 11- 13 range it had guided in­vestors to­wards ear­lier this month, prompt­ing ques­tions about the valu­a­tions be­ing placed on com­pa­nies that are yet to turn a profit.

Square, known for its small white read­ers that plug into smart­phones and tablets, was val­ued at $3.2 bil­lion be­fore trad­ing be­gan, well be­low the $5.85bn value im­plied in last year’s pri­vate fund­ing round when it raised $150 mil­lion.

It still makes a loss af­ter six years of trad­ing, while Twit­ter, another com­pany yet to make a profit, re­cently fell be­low its 2013 $26-a-share float price for the first time.

In­vestors in Square’s last pri­vate fund­ing round struck a deal that saw them of­fered ex­tra shares if the ini­tial pub­lic of­fer­ing price dropped be­low $18.55, un­der­lin­ing their con­cerns about the state of the stock mar­ket for tech list­ings.

Dorsey re­turned to the helm at Twit­ter in Oc­to­ber fol­low­ing the de­par­ture of former chief ex­ec­u­tive Dick Cos­tolo.

Some an­a­lysts have spec­u­lated that he will be quick to pass the reins over to a fresh pair of hands at Square, leav­ing him free to con­cen­trate on turn­ing Twit­ter into a prof­itable busi­ness.

Mean­while, Match Group, which owns ca­sual dat­ing app Tin­der, also dropped its price be­fore ris­ing on de­but.

It has been a dif­fi­cult time for tech flota­tions glob­ally, with French mu­sic stream­ing com­pany Deezer and Caribbean tele­coms firm Dig­i­cel both chang­ing their list­ing plans in the past six weeks.

It has also been a tough time for tech­nol­ogy firms al­ready on the pub­lic mar­ket. Shares in peer-to- peer lender Lend­ing Club, for ex­am­ple, have halved this year on the New York Stock Ex­change af­ter it floated in De­cem­ber.

Square is classed as a “uni­corn” – a Sil­i­con Val­ley term for a start-up with a val­u­a­tion greater than $1bn.

Uber is the uni­corn with the big­gest price tag, with its last fund­ing round valu­ing it at $ 50bn. Re­ports sug­gest the mo­bile cab­book­ing app firm is sound­ing out in­vestors over another fundrais­ing round to the tune of $1bn.

Mean­while, Airbnb raised $1.5bn in June in a deal re­port­edly valu­ing the home-rental ser­vice at $25.5bn.

Pri­vate start-ups have en­joyed a flood of in­vest­ment in re­cent years from ven­ture cap­i­tal firms in Cal­i­for­nia and from pri­vate in­vestors hop­ing to grab a piece of the next Ap­ple or Face­book.

But Canac­cord Ge­nu­ity an­a­lyst Bob Liao said tra­di­tional in­vestors on Wall Street ap­pear “in­creas­ingly scep­ti­cal” of the lofty price tags be­ing placed on pri­vate com­pa­nies.

Richard Holway, a vet­eran an­a­lyst at TechMar­ketView, said pri­vate fund­ing of uni­corns has gone into “crazy bub­ble ter­ri­tory”. He said: “There is no value if we get into another bub­ble and in some ar­eas we have got into another bub­ble. When we had the last bub­ble, it af­fected ev­ery­body. – The In­de­pen­dent

HIP TO BE SQUARE: Jack Dorsey, CEO of Square and Twit­ter, live-casts video while stand­ing out­side the New York Stock Ex­change for the ini­tial pub­lic of­fer­ing of Square, in New York. PIC­TURE: REUTERS

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