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Good ol' Huey Lewis and the News had it right back in the 80's. I bet he never imagined some 30+ years ago that today his words would find their way into the title of a Seeking Alpha article.
Indeed today, it is hip to be Square, Inc., or even better one of the San Francisco-based company's investors. $5 billion! That's how much Square is worth, calculated from the planned sale of 1 million shares at $135.28 each, sources say. The startup's stock, which isn't publicly traded, would be sold by current investors and employees of the company, which has received funding from Kleiner Perkins Caufield & Byers, Sequoia Capital and others. The company was co-founded by Twitter Chairman Jack Dorsey.
According to TechCrunch, Square's growth has been a story of sustained momentum. Rising from a payment processing run rate of $1 billion in the middle of 2011, Square is now expected to process some $30 billion this calendar year. As Square's payment processing run rate has grown, bolstering its revenue, so too has its valuation exploded. Worth only $240 million in January 2011, Square has increased its value by an average of 175% per year since then, to $5 billion today.
With many calling for 2014 to finally be the year of mobile, Square's growth comes amidst a favorable backdrop for the mobile payments space. Mobile payments are projected to reach a staggering $721 billion in 2017.
So while all good is for the various investors in Square, chances are that you, along with me, aren't one of them. Unless you have some deep Silicon Valley and/or Wall Street ties, you, too, have unfortunately failed to receive an invite to this exclusive party.
So when Square goes public in 2014, investors would be well served to have their eyes on other "sympathy stocks," or stocks that should also rise in concert. The Square tide will clearly raise many boats.
For this very reason, my top 2014 stock pick remains Spindle Inc. (OTCQB:SPDL). Spindle is a mobile commerce company that leverages its propriety platform for mobile marketing and payments to help other companies enter the mobile economy without the stress and confusion of mastering technology and trends. The company has been in the forefront of developing and distributing their technology for the past 18 months culminating with the launch of their MeNetwork 360 product at the Money2020 show in October in Las Vegas. Recently the company issued news that it had acquired Yowza!!.
Spindle announced that it will combine its MeNetwork mobile marketing services with the Yowza!! mobile couponing solution to deliver an end-to-end mobile commerce service. The new service will allow merchants to manage customized marketing campaigns in a single interface and facilitate payment processing as an integrated service. For consumers, the platform delivers a wide range of features, including loyalty programs, electronic coupons, rebates and time and geography relevant offers as well as an electronic wallet, all of which are delivered to personal iOS and Android smartphones and tablets. As a result, consumers can easily find merchants, locate appropriate offers, build loyalty points and make purchases directly from a single app on their mobile device. The combined solution already has an existing user base of nearly 2 million consumer downloads and approximately 95,000 merchant locations.
Seizing on the evolutionary, and formerly separate, disciplines of the mobile marketing and payments market, Spindle, from a 30,000-foot view, has PayPal, Braintree (both now owned by eBay (EBAY)), Foursquare, and Groupon (GRPN) features and perhaps more. Spindle is not a daily deals or a display ad, but rather a merchant tool for consumers to discover merchants, allowing them to publish desirable incentives and promotions to consumers in real time.
Combining their payment technology with mobile marketing creates their concept of "brilliantly simple" commerce. Model companies such as eBay (EBAY), Amazon (AMZN), and others have been successful with online, but have struggled from a mobile perspective along with Google (GOOG), ISIS, and others. These companies seem to be consistently evolving their go-to-market strategy based on large retail rollouts, while Spindle focuses on the largest business sector in the United States: small to medium businesses (SMB). SMBs represent over 99% of firms, 86% of business locations, 55% of employees, and 43% of sales receipts. A player such as Spindle can focus on the challenges of a smaller business and be agile to changing behaviors. Part of Spindle's positioning however is in its proprietary financial services platform architected and developed in-house.
Spindle also makes its technology available to developers, and with these tools provides a revenue share to its channel partners by leveraging their financial services designation to deliver a more efficient and cost effective process. Spindle reports they are a Payment Services Provider (PSP), which is the new breed of merchant acquirer approved by Visa (V) and MasterCard (MA) and championed by Square. Not to be confused with the card swiper, Square is in the business of acquiring merchants and managing the risk, underwriting, and processing functions internally. Only a limited number of these designated companies exist due to the stringent regulatory, compliance, and technology requirements. This configuration enhances Spindle's value add to its customers and delivers a simple platform for accepting payments.
A recent VentureBeat article discussed eBay Inc. and its acquisition of Braintree, a global payment platform powering the next generation of online and mobile-first start-ups, for a total consideration of approximately $800 million in cash. The article set a valuation for technology-driven companies within the payments industry. Yet Braintree is only a traditional gateway and not a PSP, albeit with incredible developer tools which are friendly to web and mobile companies who wish to accept credit card payments. Over the past few years, Braintree has leveraged their easy to use gateway to grow its merchant base and portfolio.
Spindle is positioning to be a trusted commerce company accepted by both retailers and consumers very much like merchants, and consumers view online giants such as eBay and Amazon today for retail services. Spindle looks to do this to solve a merchant's mobile acquisition, retention, and processing needs for the physical world through mobile. With SPDL's acquisition of Yowza!! and Yowza!!'s current consumer base of approximately 2 million combined with the recent partnership with edo and its 27 million publishing card-linked end points, Spindle has a diverse and robust model for mobile economy.
How does it all fit? Yowza!! delivers free real-time promotions to consumers through their Apple (AAPL) and Android (GOOG) devices. Merchants, on the other hand, use the service as a low-cost, secure and reliable portal to build one-on-one relationships by sending valid and "relevant" offers to existing and potential customers. It's a true win-win situation for both the merchant and the consumer. Through a single web, tablet, or connected device user interface, a merchant within 10 minutes or less can establish a mobile commerce strategy to easily solve specific discovery and payment technology initiatives. Neither Braintree, PayPal, eBay, nor Amazon currently deliver such a solution to their merchants, nor do the large CRM and financial services companies such as Intuit or Sage. Another market differentiator is that unlike Square, LevelUp, and others in the market today, Spindle is hardware and point-of-sale agnostic.
Indeed, in a recent press release about Yowza!!, Vikrant Gandhi, principal analyst for Frost & Sullivan, affirms that, "Spindle's tightly-woven mobile marketing and payments application is already a very compelling solution for the marketplace," to which he adds, "The addition of Yowza!!'s couponing technology will strengthen its position, and give it increased access to many more merchants and consumers."
So sure, with Square's recent $5 billion valuation and their likely forthcoming IPO, it is hip to be a Square investor. Unfortunately, the vast majority of us retail investors will never get a chance to participate in an early-stage opportunity in the exploding mobile payment space with a company like Square….Or will we? Fortunately for many of us, I believe Spindle uniquely offers us "regular guys" a chance to do just that, and stuff a piece of the profits soon to be generated by the mobile commerce revolution into our wallets.