The world got a glimpse inside payments processing startup Square’s financials on Wednesday, as the company filed for its much anticipated IPO.
While things are looking up for the company that has grown into a giant in the mobile payments space, there was one black eye buried in the numbers: that exclusive deal it signed with Starbucks to handle all credit and debit card transactions.
As of June 2015, the deal had cost Square more than $70 million, according to the SEC filing. That’s no small sum for a company that turned a net loss of $77.6 million through the first half of 2015.
The not-so-symbiotic relationship got started in 2012, when Starbucks invested $25 million in the then-skyrocketing startup. Starbucks CEO Howard Schultz joined Square’s board at the time and the company began processing payments for the coffee king.
But pretty soon, reports started surfacing that the deal wasn’t working out so well for Square.
Now we can see just how bad things got.
As part of the deal, Square received a percentage of all transactions it processed. But its share was so small that the company was actually losing money every time a Starbucks customer swiped a card, according to the filing. In 2014, for instance, the company made $123 million off processing the transactions, but it paid $151 million to get it done.
Square lost a little over $3 million by the end of 2012, $25 million in 2013, $28 million in 2014 and $14 million in the first half of 2015.
By August, Square reported in the SEC filing, the company began taking steps to distance itself from the raw deal. The two companies agreed to amend the contract so Starbucks could start using another provider. Square expects that to happen by 2016. In the meantime, the new agreement increased the percentage Square receives for each transaction.
Getting out of the deal will certainly be a welcome change for Square, and it couldn’t happen soon enough. With the IPO now approaching, the company’s financials are about to come under heavy public scrutiny, and it’s going to have a lot of shareholders to please.
