Popular mobile-payments startup, Square Inc., is reportedly nine months away from running out of funds to stay afloat. A report from The Wall Street Journal claims the company can't keep up with widening losses, and is therefore on the brink. As a last resort, the company is allegedly in talks for a possible sale, with Google, Apple and eBay among the top candidates. A Square representative said the company isn't considering any sale, but sources speaking to WSJ paint a much different picture.
In the past few years, Square has endured a loss of more than $100 million, and paid out roughly $110 million more in cash than it took in last year. Since raising $340 million three years ago, Square has already burned through half; a pre-determined "cushion" amount has been set aside for the company to survive on if its course doesn't turn around in nine months, but sources close to Square don't sound very confident things will get better.
It's not that Square isn't popular; more than one million merchants use and rely on the little Square dongle to accept credit and debit card payments. But Square's business model doesn't yield profits, WSJ said, and much of the money Square does take in is spent on fees to payment networks such as Visa and MasterCard; its gross margin fell to 21-percent in 2013, down from 27-percent in 2012. Sources said that Square processed over $20 billion in transactions last year, producing about $550 million in revenue. But profits aren't good, so Square's longterm sustainability is in jeopardy.
Earlier this month Re/code reported that Apple and Google were mulling over possible offers for Square, but it's unclear how far along those discussions are. Sources speaking with WSJ claim Google and Square resumed talks in recent months, but didn't say if the two were close to any deal. Re/code sources claimed Square founder, Jack Dorsey, was more interested in coming to terms with Apple.
Square has been rapidly expanding its offering in recent months, most recently with the simple mobile app Square Cash. In a Bloomberg TV interview last fall, Dorsey said he was more interested in building a commerce company than an actual payments company. That could align well with an acquisition from Apple or Google, which both offer plenty of physical and digital goods.
If Square did sell, it would likely grab billions—and that might be the problem. Apple is reportedly turned off by the price Square is looking to fetch, so a deal between the two seems unlikely. Google, meanwhile, already has its own Wallet payment platform.
"While we appreciate that Square may be an attractive target for some companies, we have never seriously considered selling to anyone or been in any talks to do so," a Square spokesman said.