Square, the small-business payments and services company run by Jack Dorsey, set an IPO price of $9 a share this evening, falling below the initial price range it set of $11 to $13 a share. The price also marks a 42 percent discount from the $15.46 a share investors paid in Square’s last round of private financing in 2014.
The $9 a share tells us that demand among investors was lower than Square and its bankers anticipated. In other words, Wall Street and Silicon Valley have very different ideas of its future value. It also means, simply put, that Square is worth much less than it was last year on the private markets. In addition, big institutional investors likely asked for a discount in the offering, given all the open questions about startup financing in general and Square’s business in particular.
Square’s revenue, mainly composed of payment processing fees for retail businesses, is growing fast, but the company still records heavy losses. One common question from investors is how Square will eventually become profitable. The fact that Dorsey is also the full-time CEO of Twitter could be weighing on investors’ minds as well.
Square sold 27 million shares in the IPO, raising $243 million in the offering. The $9 share price also means that Square will have to issue millions of extra shares to its Series E investors under the terms of that fundraising deal. Those investors paid $15.46 a share, but would be owed extra shares if Square’s IPO share price was less than $18.55, which it is. Square will have to issue these Series E investors more shares to make up the difference. That’s a better deal than what was offered to Series D investors, who paid $11.01 a share but didn’t get the same price protection, what’s known as a “ratchet,” for their investment.
The IPO price is what big institutional investors such as mutual funds dish out for shares. The price could rise or fall by the time the stock becomes available to mainstream investors on the New York Stock Exchange on Thursday morning.
This article originally appeared on Recode.net.