By Heather Somerville
SAN FRANCISCO (Reuters) - Mobile payments company Square Inc set a price range on Friday for its highly anticipated initial public offering that values the company at up to $4.2 billion, a 30 percent discount to its valuation at its last fundraising round.
San Francisco-based Square, which is headed by Twitter Inc Chief Executive Jack Dorsey, is one of the most prominent "unicorns," or private companies valued at more than $1 billion, to make a public debut this year.
"It's going to set the precedent for a fair amount of these unicorns, and sadly I think it's going to be a Petri dish for some of the IPOs in 2016," said Brendan Connaughton, chief investment officer at ClearPath Capital Partners, which has a client relationship with Square.
Founded in 2009 to give small businesses a way to accept credit card payments through a "dongle" for mobile devices, Square has evolved to offer services ranging from loans to invoice software. It was valued at $6 billion at its last funding round a year ago.
"I'd argue that this company is simply not ready to go public yet, even at a significant discount from their last valuation," said Brian Hamilton, chairman of private company analysis firm Sageworks.
Square said on Friday it expects its initial public offering to price at between $11 and $13 a share. At the midpoint of that range, Square will raise $372.6 million and be valued at $3.9 billion.
The company said it would sell 25.7 million Class A common shares, while Start Small Foundation, a charitable fund created by Dorsey, would sell about 1.35 million.
While many investors had predicted a discount, the price range offered Friday was lower than expected. Some investors had discussed a range of $22 to $24, sources said.
But pricing low also gives Square a better chance to perform well on the stock market.
"The hedge funds would have shied away from it at $22 to $24," Connaughton said. "At this level, there will be appetite to invest."
Investors listed several reasons for the discounted pricing, from Dorsey's role at Twitter, which limits how much time he can devote to Square, to tough competition.
Apple Inc unveiled its own mobile payments service last year and e-commerce company Amazon.com Inc is exploring in-store payments.
Worrisome financial results also likely contributed. Square showed mounting losses for the first nine months of the year, compared with the same period in 2014, and slowing revenue growth.
The company is expected to begin trading before the Thanksgiving holiday in late November. The push to go public near the holidays and at a discount suggests that Square needs cash, and expects the public market will be more receptive than private market investors, say investors and IPO analysts.
Square will apply to list its stock on the New York Stock Exchange under the symbol "SQ." Goldman Sachs & Co, Morgan Stanley & Co LLC and J.P. Morgan Securities LLC are among 10 firms underwriting the offering.
(Additional reporting by Sruthi Shankar and Devika Krishna Kumar in Bengaluru; Editing by Stephen R. Trousdale and Matthew Lewis)