Wedbush Warns Square IPO Lockup Expiration Will Put Pressure On Shares

Wedbush analyst Gil Luria sent a harsh message to Square Inc SQ investors heading into Monday's trading session: "Square is rapidly growing a business that may never reach peer profitability, which will become apparent as growth slows over the next couple of years on competition and saturation."

The upcoming lockup expiry on Tuesday, May 17 -- an event often times viewed bullishly by Wall Street analysts -- could put pressure on the stock as venture investors exit their positions, Luria said. The Wedbush analyst noted the lockup expiration covers as much as 90 percent of shares, mostly held by venture investors, private equity and individuals.

"We believe the speed at which top VC holders Kleiner Perkins, Sequoia and Khosla Ventures have disposed of previous IPOs, coupled with Mr. Khosla’s departure from the board weeks before the SQ IPO (and Magic Johnson last week) indicate a likely disposition," Luria highlighted.

Luria and Wedbush maintain an Underperform rating on shares of Square; the analyst reduced his price target from $9 to $8.

The new price target represents potential downside of more than 12 percent from where the stock closed at $9.16 on Monday afternoon.