Visa Investment a Hefty Vote of Confidence in Struggling Square

Visa has accumulated a stake of Square’s Class A stock, according to a filing with the Securities and Exchange Commission, giving a boost to the mobile point of sale company, which has faced challenges recently.

The stake represents 9.99% of “beneficial ownership” of Square’s Class A common stock, according to a Visa spokesperson, adding Visa’s current holdings represent approximately 1% of Square's fully diluted common equity as of December 31, 2015.  

The card network has been a Square investor since at least 2011, though it did not disclose the size of its holdings until this week.

"This now confirms that the investment is more sizable than many had assumed and indicates that it may have grown since the original injection of funds," said Zil Bareisis, a senior analyst at Celent.

Square, which went public in November 2015, reported strong revenue growth at the time, about 54%, though adjusted EBITDA for 2015 of negative $67.74 million. Starbucks has also been a Square investor, though the coffee chain has since scaled back its collaboration with the mobile payment company.

Visa's disclosure could provide a boost for Square, which is the most recognized brand in mobile point of sale hardware, but faces several issues in the new year. Square's IPO did not raise as much as it hoped, and the company faces pressure to reclaim its position as a disruptive force in payments technology.

Square also retreated from consumer mobile wallet apps and faces competition of its own from mobile payments companies that focus on specific merchant niches or require less hardware. Additionally, there's been controversy over Square CEO Jack Dorsey also serving as CEO of Twitter, which has faced troubles of its own. Visa also collaborates with other mobile point of sale providers.

"Square pioneered a new way to accept cards and grow the number of card transactions, good news for the issuer and for the card networks," Bareisis said. "As the company grew it introduced and sometimes shut down new products and services, but remained primarily focused on merchants, an important stakeholder in the payment network, such as Visa."

Square and Visa did not return requests for comment Friday morning.