Starbucks deal costs Square

There are no sure things in business – not even a partnership with Starbucks.



In paperwork filed for a planned IPO, Square revealed that since launching an agreement to process back-end mobile transactions for Starbucks in October 2012 (the coffee chain did not adopt Square reader hardware), it has recorded $309.8 million in revenue but $380.4 million in processing costs.



That adds up to a $56 million loss. The deal never really worked out the way Square had hoped. Although Starbucks invested $25 million in Square, the retailer did not provide the expected publicity for Square, and Starbucks CEO Howard Schultz initially joined the Square board but resigned in October 2013.



The real blow to Square came in December 2014, when Starbucks said it would stop accepting mobile payments via the Square Wallet or Square Order apps for in-store purchases, in favor of the proprietary Starbucks mobile app. Square has still been providing back-end mobile payment processing (and losing money doing so).



Square said it will not renew the Starbucks partnership when it expires in the third quarter of 2016. The company also said that as of November of this year, Starbucks will be allowed to select a new mobile payment processor if it chooses.



Interestingly, the Starbucks deal is not the only potential liability Square mentioned in its IPO. The company also warned investors that the status of CEO Jack Dorsey, who recently accepted the position of CEO at Twitter, could be an issue.



“Jack Dorsey, our co-founder, president, and CEO, also serves as CEO of Twitter,” said the filing. “This may at times adversely affect his ability to devote time, attention, and effort to Square.”



Dorsey is also a co-founder and original CEO of Twitter, but stepped down as CEO to become chairman of the board in 2008. He helped found Square in 2010. Dorsey has reinvested 20% of his Square equity back into the company to demonstrate his commitment to investors.



In the filing, Square said that during the first half of 2015, it had revenue of $560.6 million and a loss of $77.6 million.