On Friday, Square Inc. saw a surge after Visa Inc. revealed the size of its stake in the mobile payment startup after its initial public offering. Founded and run by Jack Dorsey, the Chief Executive at Twitter, Square had made the announcement of Visa’s investment in April 2011 without making any disclosure about the size as the company was still private back then. On Thursday, in a regulatory filing, Visa revealed that it owns about 4.19 million Class B shares in Square, which are not traded publicly. However, there is an option available to the credit card company that it can use for converting the shares.
This move would make them equal to 3.52 million Class A shares thereby giving it a 9.99% stake in the share class traded publicly. According to a spokeswoman for Visa, the company hadn’t bought or sold its shares in Square since it made its original investment. The disclosure of the stake by Visa came just before the deadline of a regulatory filing and turned out to be a soothing balm for the already-struggling stock. In November, after its IPO, there had been an early surge in the shares of Square Inc., but since then, its stock had remained quite volatile.
The volatility was explained as difficulty for the market in trying to figure out how a business that blends elements of a technology and financial-services firm should be valued. Other fin-tech companies such as LendingClub Corp. have also had their IPO and they have been whipsawed since then. Based in Foster City, California, Visa hasn’t historically made any acquisitions such as Square that can act as agents for bringing merchants onto the platform of Master card, Visa Inc. and other card networks. According to stock analysts, the disclosure by Visa acted as a vote of confidence in Square as it was a reminder of the startup’s appeal as an acquisition target.
A small piece of plastic that can be plugged into smartphones and used for making credit and debit card payments is how Square got its beginning. It was in 2011 that Visa first made an investment in Square as it saw the company as a way of helping converting small businesses that only accepted cash payments at the time to accepting credit card payments via Square devices. Meanwhile, Visa has remained focused on digital efforts lately as more and more consumers have been migrating to electronic payments.
Visa Digital Solutions has been launched by the company, which is an initiative geared at making secure payments via mobile devices. It has also offered its support to Apple Pay, the payment service introduced by Apple Inc. Typically, investors only convert their Class B shares when they wish to sell. If Visa does decide to make the conversion to Class A shares, it will become the second-largest holder of these shares in Square, after the mutual-fund giant Capital Research and Management Co., which has a stake of about 12% in Square. The filing made by Visa was statement of an existing position.