After reading the http://localregister.amazon.com/ announcement and the related article on techcrunch
It appears that the end is near at Square.
So:
- The wsj article last april ( you need to come from google to see it) reported that according to insiders the company had 9 months runway in Q1 of 2014. They did 100M debt financing in April. This means that they will probably start using their debt facility next month or so.
- The wsj article (and separately this one ) reported that they had about $110M of cash losses in 2013. So the question is how are their losses so far in 2014. So according the the wsj article in 2013 they report 20B of volume, $550M of Revenue and they had 21% gross margin (after paying networks+ and fraud). So they had about $110M of Gross Profit to pay for their normal expenses in that year - which means that their expenses were about 200M. Now according to what square employees said in Quora they had 250 ems in 03-2012, 650 in 11-2013 and according to linkedin they have 980 now (980 linkedin members say that Square is their current employer). The above would argue that their salary related expenses increased at least by 50% this year compared to 2013 and it seems that salaries is the majority of their expenses. The company did $8B of payments in 2012 and $20B of payments in 2013, so I would guess that at best in 2014 they would double their volume. If they do that would mean (assuming that their margin don't erode further) that instad of 110M gross they would bring 220M gross. This extra 110M would allow their net losses to stay flat even if they increase their expenses by 50% from 200-> $300M. So this means that all things normal the company would eat up another 100M of cash in 2014 - or equivalently they have exactly 12 months runway before they use completely their new credit line.
- Enter amazon and the company will be forced now to change - even somewhat its pricing at least through the next 3 months - while the amazon steal-of-a-deal lasts. Recalling the impact of Starbucks deal (2% instead if normal pricing caused 20M of losses according to the articles above) we should expect that the new runway can easily disappear - if the company's cuts further into its margin.
What does the above means. Its not about whether in the end Square succeeds. I think that has been decided sometime ago (ie no future). What this means is that the end is much much closer than what everyone else thinks. Square has really just through the end of the year to
a) find a down-round ~1B-2B buyer in the next 3-4 months.
b) make major layoffs to counter the declining margins and extends its runway beyond this year - postpones the inevitable
c) bet that customers wont move to amzn due to the smb's fear of amazon is a competitor and don't do anything => fire-sale next year when declining yoy payment volume shows.
I bet that we will see a) and maybe b)
It appears that the end is near at Square.
So:
- The wsj article last april ( you need to come from google to see it) reported that according to insiders the company had 9 months runway in Q1 of 2014. They did 100M debt financing in April. This means that they will probably start using their debt facility next month or so.
- The wsj article (and separately this one ) reported that they had about $110M of cash losses in 2013. So the question is how are their losses so far in 2014. So according the the wsj article in 2013 they report 20B of volume, $550M of Revenue and they had 21% gross margin (after paying networks+ and fraud). So they had about $110M of Gross Profit to pay for their normal expenses in that year - which means that their expenses were about 200M. Now according to what square employees said in Quora they had 250 ems in 03-2012, 650 in 11-2013 and according to linkedin they have 980 now (980 linkedin members say that Square is their current employer). The above would argue that their salary related expenses increased at least by 50% this year compared to 2013 and it seems that salaries is the majority of their expenses. The company did $8B of payments in 2012 and $20B of payments in 2013, so I would guess that at best in 2014 they would double their volume. If they do that would mean (assuming that their margin don't erode further) that instad of 110M gross they would bring 220M gross. This extra 110M would allow their net losses to stay flat even if they increase their expenses by 50% from 200-> $300M. So this means that all things normal the company would eat up another 100M of cash in 2014 - or equivalently they have exactly 12 months runway before they use completely their new credit line.
- Enter amazon and the company will be forced now to change - even somewhat its pricing at least through the next 3 months - while the amazon steal-of-a-deal lasts. Recalling the impact of Starbucks deal (2% instead if normal pricing caused 20M of losses according to the articles above) we should expect that the new runway can easily disappear - if the company's cuts further into its margin.
What does the above means. Its not about whether in the end Square succeeds. I think that has been decided sometime ago (ie no future). What this means is that the end is much much closer than what everyone else thinks. Square has really just through the end of the year to
a) find a down-round ~1B-2B buyer in the next 3-4 months.
b) make major layoffs to counter the declining margins and extends its runway beyond this year - postpones the inevitable
c) bet that customers wont move to amzn due to the smb's fear of amazon is a competitor and don't do anything => fire-sale next year when declining yoy payment volume shows.
I bet that we will see a) and maybe b)
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