In 2012, Square formed a partnership with Starbucks which was perhaps ranked among the biggest of its history. The coffee maker would invest $25 million into the company and in return, Square would play a part in processing payments at Starbucks’ thousands of locations around the country. But now that’s going away.
Square has revealed in its initial public offering that in in the third quarter of 2016, the deal is going away. The company said: “We … anticipate that Starbucks will transition to another payment processor and will cease using our payment processing services prior to the scheduled expiration of our payment processing agreement with them in the third quarter of 2016.”
In 2012, Square received $9.47 million in revenue from Starbucks and that amount increased in 2013 to $114.45 million until finally $123 million in 2014. However, when you look at the transaction costs from the Starbucks deal, it paints a much different picture: in 2012 Square paid $12.54 million, $139.8 million in 2013, and $150.96 million in 2014.
Based on the filings, it appears that Square has put too much of its proverbial eggs in one basket and in order for it to succeed, it’s going to need to rely more on other companies to help minimize the risk that it incurred from the Starbucks deal.
At the time, Square said that the deal with Starbucks was “a valuable catalyst for building best-in-class enterprise infrastructure.” Sadly the company was mistaken. In 2013, Starbucks’ CEO Howard Schultz announced his departure from Square’s board, a year after the investment in the company. At the time, Square defended the decision saying that Schultz had only intended to stay on the board for about a year.
Following the separation, Square says it expects its overall gross profit to be “positively” affected.
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