Square Inc (SQ) Rallies after Visa Inc (V) Reveals Investment


Square Inc (NYSE:SQ), the mobile payments services company co-founded and headed by Jack Dorsey, receive a huge investment from Visa Inc (NYSE:V), based on a regulatory filing with the Securities and Exchange Commission (SEC).

The shares of Square benefited from Visa’s disclosure and rallied nearly 7% to $9.20 each at the time of this writing around 1:06 in the afternoon in New York. The stock rose as much as 13% to $9.84 per share earlier today.

Details of the investment

Based on the regulatory filing, Visa owns 4,194,230 Class B Common shares of Square. However, it has the option to convert those Class B shares to 3,520,210 Class A shares or 9.99% of Square.

Visa’s disclosure raised questions regarding its plans with the mobile payments services company. Mr. Dorsey first announced the credit card company’s investment in his firm in April 2011, when it was still a private company. The terms of the deal between Visa and Square are unknown.

Market observers suggested that investors usually convert their Class B shares in a company if they intend to sell.

Since its initial public offering in November last year, the shares of Square have been facing volatility. The market is trying to figure out how to value the company because it is considered a financial services and a technology firm.

During its first day of trading, Square surged 45% from its offering price of $9 per share to more than $13 per share. However, the stock fell below its IPO price this year due to concerns regarding its ability to sustain growth amid the ongoing volatility in the global markets. The company lost nearly 30% in stock value year-to-date.

Visa disclosure serves as a vote of confidence for Square

The stock price of Visa also climbed more than 2% to $70.01 per share.  Some market observers said that if Visa decides to convert its Class B shares into Class A, it would become the second-largest shareholder of the mobile payments services company.

Capital Research and Management Co., which owns 12% stake is the largest shareholder of the mobile payments services company.

Analysts at BTIG commented in a note to investors that Visa’s disclosure served as a “vote of confidence” for the mobile payments services company. According to the analyst, it is also a reminder that Square is an attractive acquisition target given the fact that large technology companies are boosting their electronic payments capabilities.