As PF extraordinaire Square begins its IPO perp walk (aka roadshow), it is seeing consumer media criticism (such as this piece from USA Today) that its numbers are not as strong as so-called contemporaries. The problem is Square’s business model and execution approach is truly different, so much so that there are hardly any comparably-sized companies that are apples-to-apples comparisons—and certainly none that are already publicly-held.
This concern is oft-cited by startups who claim to have no competitors, but with Square, the differences are much more significant.
Rick Oglesby, a senior analyst with payments consulting firm Double Diamond Group and a longtime tracker of Square, said he was concerned about the influence exerted by comparisons like the ones USA Today made.
“This article keeps talking about tech companies and, if that’s the benchmark, then it probably isn’t that pretty. But if the benchmark is payments companies, Square is very pretty,” Oglesby said. “This is not a Facebook or a Twitter, but relative to the competitors listed in the article—which aren’t really even competitors—I’ll take Square.”
This problem is hardly foreign to companies who lead their own niche. Wall Street has a biological need to compare any company to a half-dozen others. If the comparisons aren’t fair, then they’ll find the closest. And if the closest aren’t close at all? Such is life.
But as PFs know only too well, a new payments space needs to be dealt with based on reality, not artificial comparisons.
“There aren’t really and like-for-like companies out there for Square,” Oglesby said. PayPal is often cited, but its services go far beyond what Square is offering, doesn’t offer much that Square does offer and for the overwhelming majority of its corporate life, it was a division within a far larger—and much more diversified—company (eBay).
“North American Bankcard is somewhat close, but it’s a much smaller company. You could put Intuit in there,” Oglesby said, but he added that the consumer financial software makes that a not especially apt comparison. “You can say that there are hundreds of competitors of Square,” Oglesby said, referring to every company that offers any one of the Square services for any market in any manner. “Or you can say that there are no competitors. Square offers direct sales to merchants, their own distribution channel, their own brand, their own products and a fully-integrated” suite of products. “They are taking the Apple approach, where they own everything.”
The problem is that Wall Street sees Square as a tech company. And its sees Square CEO Jack Dorsey’s payments effort as a contrast to his other CEO venture, Twitter. “They want to see Twitter-like returns and the payments industry doesn’t work that way,” Oglesby said. “Facebook doesn’t have an incremental cost for every like.”