ETFs to Round Up if Square Goes Public
The California-based mobile-payment company Square Inc filed for an IPO on Wednesday intending to debut on the New York Stock Exchange with a ticker code of SQ. The enthusiasm apparently came from the unparalleled surge in the mobile-payments business globally.
The company, offering a square-shaped dongle that transforms mobile phones into credit-card readers is led by Twitter Inc. (TWTR) CEO Jack Dorsey, as per Bloomberg. The company plans to raise about $275 million which would be used for corporate spending or acquisitions.
What are the Prospects?
Square has been witnessing bulging losses despite solid revenues. As per market participants, the company’s net revenue came in better than expected and is expanding faster than expected. Transaction revenues jumped 63% to $707.8 million last year.
The company’s net revenue was $850 million in 2014, $552 million in 2013 and $203 million in 2012 while net losses were $154.1 million in 2014, $104.5 million in 2013 and $85.2 million in 2012. Expenses mainly increased to support product development, sales and marketing.
The upcoming ride is likely to be mixed for Square. While the broader stock market is presently on the line, making the IPO market vulnerable and raising questions about the success of Square’s planned IPO, immense opportunities in the mobile-payments business might lead to a favorable outcome for this IPO.
Bloomberg noted that, several small merchants processed $23.8 billion in credit-card payments via Square devices last year. This represents about 10% of the payments volume processed by PayPal (PYPL). However, Square will likely face stiff competition from PayPal, Apple’s (AAPL) Apple Pay and Google’s (GOOGL) Android Pay (read: ETFs to Ride on PayPal Growth Story).
There is yet another concern. Given the fact that the co-founder and CEO of Twitter is the founder and CEO of Square and that Twitter couldn’t hold onto its IPO success (the current price is down about 40% since its initial days at the bourse back in 2013), edgy investors might expect Square to imitate Twitter’s fate, if the former goes public at all (read: Social Media ETF: Will You Sign In or Out Post Earnings?).
ETFs in Focus
Still, if everything falls into places and the IPO takes shape, Square might find a place in a number of ETFs. Investors seeking to ride out the fast-growing areas of payments processing, and merchant cash advances could consider these ETFs.
Renaissance IPO ETF (IPO)
This fund provides exposure to the largest and most liquid newly listed companies by tracking the Renaissance IPO Index. New companies seek inclusion on a ‘fast entry basis’ on the fifth day of trading. The fund holds close to 70 stocks in its basket. From a sector look, technology makes up for 41% share while financials and consumer services round off the top three with double-digit allocation each.
The fund has amassed $22.4 million in its asset base while it trades in a light volume of less than 6,000 shares, probably implying an additional cost beyond the expense ratio of 0.60%. The fund is down 7.8% so far this year (as of October 14, 2015).
First Trust US IPO Index Fund (FPX)
This ETF focuses on the largest, best performing and most liquid U.S. IPOs and follows the IPOX-100 U.S. Index. New companies can find entry into the fund’s holding after trading for a minimum of 100 days. In total, the fund holds 100 securities in its basket. Further, information technology dominates the fund’s portfolio, closely followed by consumer discretionary (27.5%) and health care (19.9%).
It has accumulated $779 million in AUM and charges 60 bps in fees a year. Volume is good as it exchanges more than 132,000 shares in hand on average. The fund is up 0.6% so far this year (as of October 14, 2015).
Purefunds ISE Mobile Payments ETF (IPAY)
This newly launched ETF tracks the ISE Mobile Payments Index to provide exposure to the performance of companies engaged in the mobile/electronic payments business. Companies offering payment solutions including smartcards, prepaid cards and virtual wallets get an entry into the index. This approach results in the fund holding a small basket of 31 stocks.
Infrastructure and Software dominates the fund with about 30% exposure, followed by Processors and Cable Networks, each with double-digit allocation of about 26.4% and 23.6%, respectively (read: Play Mobile Payments & Big Data with 2 New ETFs).
As far as geographical concentration is concerned, the fund is heavy on the U.S. with about 85% focus followed by France (4.32%) and Germany (3.83%). The fund charges 75 bps in fees and has amassed about $5 million in assets, having debuted in mid July. The fund is down 2.5% so far this year.
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RENAIS-IPO ETF (IPO): ETF Research Reports
FT-IPOX 100 (FPX): ETF Research Reports
PF ISE MOBLPAY (IPAY): ETF Research Reports
APPLE INC (AAPL): Free Stock Analysis Report
ALPHABET INC-A (GOOGL): Free Stock Analysis Report
PAYPAL HOLDINGS (PYPL): Free Stock Analysis Report
TWITTER INC (TWTR): Free Stock Analysis Report
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