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The Square IPO and Unease over Tech Bubble 2.0

Last week, mobile payment company Square launched its IPO at $9 per share, closing the day at a 45% gain of $13.07. ((Ian Kar, Square’s IPO Achieved Something That Hasn’t Been Seen in 17 Years, Quartz (Nov. 20, 2015), However, in spite of ending the day at a gain, Square’s IPO opening share price was lower than expected. ((Id.)) As of early last week, it was speculated that the company would open at a $3.9 billion valuation ($11-$13 per share), down from the company’s $6 billion private valuation a year ago. ((Lesley Picker, Square Sticks to the Script as It Prepares for It’s I.P.O., N.Y. Times DealBook (Nov. 11, 2015),

This combination of a dramatic opening bump and lowered valuation has raised the attention of analysts, some of whom speculate that a poor performance by Square could signal a shift towards the bursting of a second tech bubble. ((See Rupert Neate, Square’s IPO: The Beginning of the End of The Unicorn-Driven Tech Bubble?, The Guardian (Nov. 14, 2015, 7:04 AM), It has also been pointed out that the last instance of this type of debut was the IPO of, which occurred at the outset of the first tech bubble in 1998. ((See Kar, supra note 1.)) Square’s low initial valuation and first-day bump also paralleled, to a certain extent, the initial offering of Match Group this week (owning, Tinder, and OKCupid). ((Peter Cohan, Match and Square IPO’s to Send Unicorn Tourists to Exits, Forbes (Nov. 19, 2015, 8:16 AM),

Since the early 2010’s, the number of tech start-ups with an IPO valuation of over $1 billion (so-called “unicorns”) has more than doubled. ((Id.)) However, a startling number of these companies have subsequently broken below their initial valuations. ((Matt Egan, Grounded: GoPro Crashes Below IPO Price, CNN Money (Nov. 13, 2015, 1:42 PM), Examples include such prominent companies as GoPro, Etsy, and Twitter. ((Id.)) This trend has led to a growing suspicion of overvaluation among investors, and some analysts believe that it indicates a pending ‘burst’ similar to that of the first tech bubble in the early 2000s. ((See Neate, supra note 4.)) For example, investor unease regarding overvaluation has been linked to Fidelity Investment’s recent writing down of its stake in prominent tech companies Dropbox (by 31%) and Snapchat (by 25%). ((Id.))

Despite these underwhelming performances, however, other analysts believe that this trend is not as troubling as it appears at first blush. ((See, e.g., Rani Molla, Are Global Tech IPO’s Really Overvalued?, Bloomberg View (Nov. 15, 2015, 5:00 PM), One alternative perspective involving a cross-industry IPO comparison shows that tech IPO’s have not actually performed particularly poorly, and that the overall effect of initial overvaluations has been mitigated by price correction in the market. ((Id.)) At this point, it doesn’t appear that the Square and Match Group IPOs present as clear an indication of a dangerous second tech bubble as some analysts predicted. ((See Kar, supra note 1.)) That being said, it has also been noted that the willingness of Square to accept such a low opening valuation could indicate a desperation for cash or an expectation of a future drop in demand. ((See Cohan, supra note 6.)) Although these IPOs don’t seem to be as foreboding as some had suggested, they also don’t allay the concerns of overvaluation and under-profitability inherent in the growing unease of a second tech bubble.

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