Square, Nothing More Than a Loss Leader?

Square SwipeSquare has been losing money hand over fist despite huge growth.  This article reports that growth in revenue only results in increasing losses, not increasing bottom line profits. It is also reported in this NBC Bay Area piece that Square may not be profitable until mid-2015, stating that the company’s spending is exceeding its $300 million/year revenue.  I remain skeptical.

As outsiders, we cannot really tell what Square’s ultimate business strategy is, but they only have a few options.  They either have to raise prices or find alternative ways to gain revenue.

Square has released many products into the market with hope of something sticking.  They have Square Cash for person to person payments, Square Market for online shop creation, Square Capital for merchant cash loans, Square Order for food order and deliver, and Square Stand for in-store Point of Sales (POS).  They have also killed Square Wallet, their virtual wallet application that failed to catch on.  It would appear that they are throwing a lot out there. Seems to me they are looking for tertiary products that can monetize their current customer base.

There has also been speculation that Apple or Google could acquire them and earn revenue through alternative means, leveraging Square’s client base.  Otherwise, Square could figure out how to generate something valuable from their customers, like data they could sell to other companies.

Either way, Square has to pull something off before they go through all their cash. Unfortunately, the market they are going after is a high-risk low margin group, which is the main reason they have been able to capture it so successfully.  Granted, it is easy to capture a market when you are essentially giving your services away for free.

As a merchant and Square customer I would expect changes to the services they offer and the pricing structure.  What those changes may be depend on what direction the company ends up going in.  Given their current trajectory they have to change something or risk ending up being a smoking hole in the ground.  Or maybe they will just make it up on volume…

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