The Simplest Way to Make Money Elizabeth Cheng | Jing-Jing Li | Irwin Liu | Jessica Lukrich
The Square Proposition Simple pricing: Huge market Inspiring and 2 75% per . swipe opportunity experienced in mobile management payments team Zero friction: no commitment and daily deposit High future S lid o valuation business and ROI model with Free iPhone, iPad, even with high revenue Android app and later stage generation g car ca d reader d eade investment Defensible business and strong The simplest way execution to make money strategy 1
Management Team The team has the background, proven track record and vision to succeed Jack Dorsey – Co-Founder, CEO Successfully Managing Co-Founder, Chairman of Twitter Advisor at Ustream Keith Rabois – COO VP of Strategy & Business Development for Slide VP of Business & Corporate Development at LinkedIn EVP f EVP o B f Business D Development t and d Policy for PayPal Bob Lee – CTO Founder at Twubble Founder at Other Key Advisors Software Engineer at Google Gideon Yu Jim McKelvey – Co-Founder Roelof Botha Ryan Gilbert Owner at Mira Alyssa Milano Co-founder at Third Degree Glass Greg Kidd Factory Andrew Rasiej 2
The Market Mobile payments is a massive, rapidly growing but underpenetrated industry $250 $214 CAGR ‘10 – ’14: 68% $200 $162 $150 $119 $100 $ $81 $46 $50 $16 $0 2010 2011 2012 2013 2014 2015 Dollar Amount of Mobile Payments In The U.S. (billions)* Opportunity Market Changes Square Positioning Traditional card readers Rapidly burgeoning interest are unwieldy & expensive in mobile payments First mover advantage Scalable across Difficult for small business NFC tech adoption but owners to use card services credit card usage prevails multiple platforms Low costs address Alternative online services Capturing a loyal user base are expensive has huge revenue potential target customer needs 3 *Source: Aite Group
The Product Square satisfies buyers and vendors through an easy‐to‐adopt platform Consumer Desires Designate amount Use credit cards Swipe and go Vendor Desires Swipe credit card e do es es Accept credit cards Save on processing fees Enter tip and sign Simple and intuitive with finger on-screen interface Transaction completed The Technology Transaction Magnetic reader that plugs into headphone jack of smartphone Data Conversion Once card is swiped, data is converted into an audio signal Information Processing Processors route signal to Square software application Transmission Encrypted data sent through Wi-Fi or 3G to back-end servers Communication No info stored on devices, auto-communication with payment network 4
Value to User Square offers the simplest and most compelling way to accept credit cards Traditional Card Online Card Processing Firms Processing Scan and go; Requires some training; Tied to computer; Intuitive interface Problems require technician Manual input Ease of Use of card information E Expensive reader; Free card reader; osts Up to 5% variable + 30¢ flat rate; Up to 3.5% variable rate C Flat 2 75% fee Expensive update and + 30¢ ¢ fl at a r at a e C Flat 2.75% fee pe s e upda e a d maintenance fees Saves money; Saves time; Familiar to user; Cheaper than traditional; nefits Accessible across Technical support Only requires computer and cal support Be internet multiple devices 5
Customer Acquisition Through wide exposure, Square targets anyone that seeks easy payment Target Customer Small businesses, independent workers, individuals selling goods Market: anyone who accepts payments Square’ ’s Cost C t: gaini i ing t cus omer awareness + free car f d d reader Selling Points Advertisement Retail Easy convenient Social media and Selling through everyday usage internet advertising online registration No surprise fees Traditional and Apple stores Adaptable across mediums with max Follows razor blade multiple devices exposure/min cost retail model Acquiring 100,000+ customers per month 6
Competition and Defensibility Its established presence and niche market give Square a competitive edge Square Characteristics Advantages Direct Competitors: Similar technology Established clientele GoPayment, PAYware application as first mover Higher fees and rates No credit check for certain options No monthly fees Intuit or VeriFone Device compatibility service support Apple partnership Emerging Market: N
Fi ld Built-in hardware for POS experience Near Field phones Compatible across Communications Potentially eliminate differing hardware use of credit cards Unique market focus Cross interaction with Can integrate NFC oth h er ph
one apps technology 7
Financial Model and Projections Square will make for a lucrative investment even with conservative projections By Year End 2011E 2012E 2012E 2014E 2015E Payments Processed Per Day ($ ($mm) 1.1 7.7 23.1 41.6 49.5 Growth Rate 1000% 600% 200% 80% 19% Annual Revenue $ 1 0.59 7 $ 4.11 222. $ 34 400. $ 21 476. $ 25 EBITDA 0.53 4.45 20.01 44.02 52.39 EBITDA Margin 5% 6% 9% 11% 11% EBIT 0.32 2.96 13.34 28.01 33.34 EBIT Margin 3% 4% 6% 7% 7% $120 Assumptions p $100 • Investment: $20m $80 • Stake: 20% $60 • Hurdle Rate: 15% $40 $20 $- IRR of 55% 2011E 2012E 2013E 2014E 2015E • Sale or IPO at 2.5x Best Base Worst 2015 Revenue 8
Why Invest Now Additional investment will generate outsize returns due to growth prospects Need for Additional Investment High Potential for Growth Additional resources Potential for growth will needed to maintain allow new investors to first mover advantage see an outsized see an return Competitive pressures Customer adoption will increasing scale up exponentially Expected spe e n d spe d d in
The key to y success will advertising and be in locking in a loyal customer acquisition customer base early $27.5 * Additional capital from $20.0 Sequoia and $10.0 new investor $ con co sortium Proposed Series A Series B Series C 9
Exit Strategies Square will have multiple exit opportunities that will result in a high ROI Highly Viable M&A Prospects IPO Considerations Depends on user base Multiple buyers possible competitive bidding expansion success and Valuable user base with recurring revenue stream considerati cons on of M&A Clear fit into product portfolios High standalone potential Large Companies Competing in Potential Valuation Mobile Space Service Providers 2 $700mm-$1.4bn and Hardware Rev Manufacturers 1 EBITDA $450mm- $800mm Payment Processors 0 $400 500 $700 1000 $1000 1500 $1300 2000 $1600 ($mm) 10
Appendix Index of Presentation and Appendix Slides Presentation Slides Appendix Slides des 1. The Square Proposition • Financial Assumptions 2. Management Team • Financial Model 3. The
k Mar et • Assumptions f
ti from 4. The Product Comparables 5. Value to User • Future Valuation Perspective • Concerns an
d R 6. Customer Acquisition d Responses 7. Competition and • Partnerships Defensibility • Company Vision 8. Financial Model and • Market Analysis Projections 9. Why Invest Now 10.Exit Strategies
Financial Assumptions Growth expected to scale exponentially and valuation will increase M Growth Assumptions D Expected to process $40 million in transactions in Q1 of 2011
O Currently signing up 100,000 merchants per month R y g g p , p R Compare to 30,000 monthly signups last Fall. $1 million in payments per day D
I Processing a few million in mobile transactions per week as of last fall E V L Valuation Assumptions E Valued at $240m after last round of funding in January 2011 ($27.5m) Valued at $40m at first round of funding in December 2009 ($10.0m) R S Sources DealBook, TechCrunch, Wall Street Journal, VentureBeat, Capital IQ
Financial Model B B y y Y Y e e ar ar E End nd 2011E 2011E 2012E 2012E 2013E 2012E 2014E 2014E 2015E 2015E Pa Pa ym y e m n e t n st Proc s Pro es c se ess d e Pe d r D Per ay Da y ($ y( mm ( $ ) $mm) 1.1 7.7 23.1 41.58 41.6 49.4802 49.5 Gr Gr owth R h at Rae te 1000% 600% 200% 80% 80% 19% A A nnua nual Reve ev n e ue nue $ 10. $ 10. 59 59 $ 74. $ 11 $ 222. $ 34 $ 400. $ 21 $$ 476.
25 E EB B ITIT DDA A Margin 5% 0.53 6% 4.45 9% 20.01 11 44. % 02 5 11% 2.39 EBITDA $ 0. 53 $ 4 .45 2 $ 0.01 44. $ 02 $ 52. 39 EBITDA Margin 5% 6% 9% 11% 11% EBIT Mar a gin g 3% 4% % 6% 7% 7% EBI EB T I 0 3 . 2 32 2 9 . 6 96 13 34 . 28 01 . 33 34 . EBIT $ 0. 32 $ 2 .59 1 $ 3.34 29. $ 22 $ 34. 77 EBIT Margin 3% 4% 6% 7% 7% Growth Assumptions 2011E 2012E 2013E 2014E 2015E Best Case 1000% 800% 400% 100% 50% Bas Ba e Ca C s a e 1000% 600% 200% 80% 80 19% Worst Case 1000% 200% 100% 20% 5% EBIT 2011E 2012E 2013E 2014E 2015E Best $ 0. 32 $ 3 .34 2 $ 8.59 69. $ 56 $ 104.
Assumptions from Comparables Margin projections derived from median of comparable companies Company Name LTM Gross LTM EBITDA LTM EBIT LTM Net LTM Total Margin % Margin % Margin % Income Revenues, 1 Yr Margin % Growth % Ebay Inc. 72.0% 31.0% 22.7% 19.7% 4.9% Gerber Scientific Inc. 30.7% 4.5% 2.9% (3.0%) 21.0% Iltro r n o Inc n . 30 9% . 14 0% .
8 8 2 . % 2% 4 4 6 . % 6% 33 9% .
Iteris Inc. 43.5% 8.3% 6.4% (8.3%) (1.2%) Mastercard Incorporated 100.0% 53.3% 50.7% 33.3% 8.6% PAR Technology Corp. 26.1% 2.7% 1.6% 1.3% 7.6% Perceptron Inc. 37.3% 0.8% (1.0%) 1.9% 30.4% Veri Ver Fo F ne S o yst y ems In s c In . 37 7% . 14 8% .
11 3% .
11 3% .
24 3% .
Veritec Inc. 60.8% (64.2%) (67.8%) (86.5%) 108.0% Visa Incorporated 84.4% 60.0% 56.8% 37.0% 17.0% Summary Statistics LTM Gross LTM EBITDA LTM EBIT LTM Net LTM Total Margin i % % Margin i % % Margin i % % Incom e Revenues, 1 Y
1 Yr Margin % Growth % High 100.0% 60.0% 56.8% 37.0% 108.0% Low 26.1% (64.2%) (67.8%) (86.5%) (1.2%) Mean 52.3% 12.5% 9.2% 1.1% 25.5% Median 40.6% 11.2% 7.3% 3.3% 19.0%
Future Valuation Perspective Square’s valuation would price at premium to multiples due to early stage Company Name TEV/Total TEV/EBITDA LTM TEV/EBIT LTM - NTM NTM NTM Forward Revenues LTM - - Latest Latest TEV/Forward TEV/Forward P/E Latest Total Revenue EBITDA Ebay Inc. 3.83x 12.34x 16.88x 3.3x 9.4x 15.9x G b er S er i c t en itififi I c nc. 0 4 . 9 49x 10 95 . x 16 80 . x 0 5 . x 7 9 . x 21 9 . x Iltron Inc. 0.71x 8.55x 11.10x 0.7x 6.3x 16.5x Iteris Inc. 1.18x 8.47x 14.51x 1.2x 7.7x 13.0x Mastercard Incorporated 5.46x 10.23x 10.77x 4.9x 9.0x 15.8x PAR Technology Corp. 0.29x 10.73x 17.98x 0.3x 7.9x 23.7x Per e cep r tron r I on n I c n . 0 53x . 67 04x . NM 0 5 . x 5x 9 7 . x 7x 37 3x . VeriFone Systems Inc. 4.49x 30.27x 39.89x 4.0x 19.3x 29.6x Veritec Inc. 4.03x NM NM - - - Visa Incorporated 6.12x 10.21x 10.80x 5.5x 8.6x 15.3x Summary St y atistics TEV/Total TEV/EBITDA LTM TEV/EBIT LTM - NTM NTM NTM Forward Revenues LTM - - Latest Latest TEV/Forward TEV/Forward P/E Latest Total Revenue EBITDA High 6.12x 67.04x 39.89x 5.5x 19.3x 37.3x Low 0.29x 8.47x 10.77x 0.3x 6.3x 13.0x Mean 2 71x . 18 75x . 17 34x . 2 3 . x 3x 9 5 . x 5x 21 0x . Median 2.51x 10.73x 15.66x 1.2x 8.6x 16.5x
Concerns and Responses Concern Response NFC will overtake credit Credit cards too engrained in daily life to become outdated card use daily life to become in the near future Large companies will Square has a different leverage ability to target audience and has provide at lower prices the first mover advantage Consumer concerns over Partner bank verifies service security on a newly and secure server makes introduced platform security claims unfounded Square has a successfully run Square will face and experienced execution risks management team Flexibility of the industry No defining industry standard promotes innovation; a standard will soon be reached
Partnerships There are a multitude of partnership opportunities for Square Present Future
Company Vision Square: 0 to $60 in under 10 seconds Target consumers are Free app for iPhone, iP d & A d id small business iPad & Android Daily deposit to your bank account Simple pricing, free shipping Vision is to create zero friction and complexity around payments The simplest way to Emphasis on simplicity & efficiency make money
Market Analysis Strong market growth and advantageous company position Market Position Expanding & First Mover Advantage High growth unsaturated Few comparable potential marketplace competitors Currently underfunded Large Competitors Small Competitors Competitors Ie. Google, Apple Ie. VeriFone, Intuit Not focused enough to drive Square out of its Lack first mover niche market advantage