NEWS ANALYSIS: Square's financial numbers are on the rise, but its CEO is facing a lot of daily pressure at two red-ink companies.
"Convergence" is a term often associated with new-gen tech because as time goes on, more and more functionality is being stuffed into smaller and denser boxes and onto smaller and denser pieces of silicon. Thus, we get "converged" hardware and IT infrastructure.
Jack Dorsey, currently CEO of both Twitter and mobile payments service Square, has experienced convergence of his own in a highly personal manner over the last 11 days.
Everything seems to be happening at once for the 38-year-old programmer and entrepreneur. Three huge life events happened at virtually the same moment for him:
-- On Oct. 5, he took over as permanent CEO of Twitter
, a company he co-founded in 2006, helped take public in 2013 and for which he has served on the board since the beginning;
-- On Oct. 13, he announced layoffs of 8 percent of the company's workforce
—336 people—something that had probably been in the works anyway for a long while but nonetheless was left for Dorsey himself to do. Nervous IT investors are wondering if this is the beginning of a new tech bubble about to pop.
-- The next day (Oct. 14), he announced that his other company, Square, had filed an application to the federal Securities and Exchange Commission for an initial public offering to be listed on the New York Stock Exchange. This is likely to take place before the end of the calendar year.
Good News, Not-So-Good News
So it's all a mixture of good news and not-so-good news, an encapsulation of life itself. Another data point: Neither company is anywhere near profitability at this time. For that reason alone, it's surprising we don't see more gray in Dorsey's head of hair.
Square, which developed and maintains a popular mobile app for merchants that handles secure financial transactions, reported revenue of $561 million—along with a net loss of $77.6 million—in its S-1 filing to the SEC, which entails the first six months of 2015. While those results aren't exactly stellar when examined by the untrained eye, they are better than at this time a year ago ($371.9 million in revenue, $79.4 million net loss).
Go here to read the actual S-1 filing affidavit.
In addition, they are in line with what investors want to see: revenue way up, losses down, with room to grow in a business (mobile transactions) model that is expanding faster than anyone could have projected five years ago.
Square's Numbers Improving
Square's net loss improved in Q2 to $29.6 million, down from $48 million in Q1. Would-be investors should know off the top, however, that Square doesn't appear to be close to black ink for at least the next couple of years. But the company's potential, of course, is considered excellent by a majority of analysts.
Doresey's idea, naturally, is that with the added capitalization of an IPO, he'll be able to invest in enough marketing and sales to bring Square into profitability.
According to the S-1, Dorsey is Square's largest shareholder with 24.4 percent of the company. Khosla Ventures, which is Sun Microsystems co-founder Vinod Khosla's VC firm, owns a 17.3 percent stake; Square co-founder James McKelvey has a 9.4 percent share.
The S-1 couldn't ignore the fact that Dorsey also serves as the CEO of Twitter and is splitting his time between the two companies. In an understatement, the S-1 casually notes that "this may at times adversely affect his ability to devote time, attention, and effort to Square."
Can a man serve two constituencies—in rough and tumble Silicon Valley, no less—in full and faithful fashion, yet live to tell about it? Jack Dorsey, bold entrepreneur, is under more than a few magnifying glasses in these roles, and we'll soon find out if he's up to the challenges.