Perceptions (and valuations) have shifted a lot in recent years, and, as the article points out, the "Billion dollar club" is getting crowded.
YouTube was bought for $1.6B after all. That was a huge deal then. When Zuckerberg refused the $1B offer from Yahoo!, that was also a pretty big deal. Now we see a few young companies at these valuations, so, the perception is different.
Much of the new billion dollar club is special in that it actually has the kind of revenue and revenue growth to at least sort of justify the valuation. It sounds like Airbnb, Dropbox, and Square have serious profits with trends suggesting that they'll be even bigger soon. These startups look more like PayPal, which was a 1.5B acquisition where Ebay totally and unsurprisingly got their money's worth, rather than a social site with no revenue. (Did YouTube have any revenue when they were bought? And I think Facebook had ads, but they were still losing money fast when they were offered 1B.)
Even though it's looking like YouTube will pan out for Google, it's a lot more obvious that Square has the potential to be worth billions than that YouTube did.
Yeah, I find that strange too. I think some startups are getting bloated valuations which could cause people to think that a billion dollars is not a "big deal".
The sad reality is that if it wasn't Dorsey behind this it would have to prove itself like any other business.
My guess is that you haven't solved payment if you have to get additional hardware. and even if that get solved what is to hinder Apple and Google from offering it natively which it should be.
How do you know they're not profitable? To the best of my knowledge, they've never released any public financial statements.
Usually when you're in the business of receiving and vending money, profits come naturally. Now, whether they've reached volume necessary to actually be profitable is a fair question but I have little doubt they've got a clear and well defined path to profitability if they aren't already there now.
Nope. As a privately held company, they have zero interest in making their balance sheet public. They obviously have little trouble getting investment or making deals and have little to gain from publishing their finances.
Now Square just has to figure out a way to disrupt the market for ATM machines in "Cash Only" businesses. There are dozens of local business in Square's own San Francisco that, even given a novel payment solution like Square, refuse to accept credit cards and opt instead to host on-premise ATM machines.
Many of these deals may have special terms as well. At a minimum VCs will get 1x and at times 2x or 3x of the first money made. That way, VCs can protect their downside while investing in some of the companies that have the biggest potential.
That being said, these valuations are still quite high.
But, assuming you believe Square can pull off what they're trying to pull off... a billion-dollar valuation is not hard to justify. I mean, these guys could be bigger than PayPal, all things executed correctly that is.
They're paypal for meatspace, which is a bigger market than paypal for cyberspace.
They're literally almost the exact same thing. Instead of dealing with merchant accounts, and credit card numbers yourself, you offload it to a third party.
In cyberspace this was paypal, in meatspace it will be square.
Agreed, there's huge potential upside if it all goes well. PayPal was acquired for $1.5B. A $2B for Square (at its very early stage, with a part-time CEO) seems pretty bubblicious to me.
I would have to disagree with the comparison of PayPal and Square. I find that there are similarities, but there are much more profits to be found in enabling businesses to bypass the hardship of being able to process cards (which can be both time consuming and costly). I think the valuation of Square to be reasonable, considering that in that they are early-stage and are already processing three million dollars per day (which is increasing). Though the valuation of Spotify at one billion dollars is just plain ridiculous.
This is pretty ridiculous given that Square's market is a tiny fraction of retail, its distribution model is expensive, and it doesn't solve any of the problems with the payment industry. Granted, I'm a competitor, but $2 billion? Even $1 billion is absurd.
Investors aren't looking at what Square's offering now; they're looking at what Square can reasonably offer in the future, soon enough that their investment is "worth it". Square may only address 0.01% of the market now, but they might have a realistic plan for addressing 0.1% or 1% or 10% of the market, making them a billion to multi-billion dollar company.
If Square is able to convince investors that they've got mass market appeal then they can justify a multi-billion dollar valuation. Considering Visa invested an undisclosed amount in Square, they may actually have reason to command such a large valuation.
I think techcrunch writers are following the "AOL Way" of writing articles. (Although the occurrence of 5 foursquare articles in a day has stopped recently) I guess they're under pressure to sell their massively overpriced/slightly useful conference.
Not saying square isn't valuable (they're my favorite new company, and the one that I think will go the farthest), just making an observation.