Stripe Stock: Could it be Fintech’s Largest Ever IPO?

Update: March 15

On March 14th Stripe announced a new round of funding that now values the company at $95 billion. With this funding round in hand, Stripe is now the second most valuable startup in the world after Bytedance, a startup that recently raised money at a $140 billion valuation.

In this post, we’ll dive into the details of the Stripe IPO and what it means for investors.

Stripe

IPO Interest

10

What is Stripe?

Stripe bills itself simply as “the payments infrastructure of the Internet.” The company makes all facets of accepting payments online simple, and has attracted a rabid customer base.

Expected IPO Date:

2022 or later

  • Stripe bills itself simply as “the payments infrastructure of the Internet.” The company makes all facets of accepting payments online simple, and has attracted a rabid customer base.
  • Stripe is not currently publicly traded. Shares may be available on secondary markets. Public companies have invested in Stripe, giving investors a “backdoor” strategy to own a piece of the company.

Bull Case

  • Just 3% of global commerce happens online, providing Stripe a massive runway for growth.
  • Stripe’s cofounders Patrick and John Collison are generally seen as visionaries who have a strategic mindset on par with technology’s greatest leaders.
  • As Stripe expands it has dozens of high-margin products it can add on to its products suite.

Bear Case

  • Stripe has a deep partnership with Shopify. Some estimates believe it could be generating $350 million from Shopify merchants alone. That customer concentration could prove problematic.
  • Certain segments of processing payments can be commoditized. Stripe needs to continue to innovate and expand on its product offerings to justify its pricing.

The Big Picture: Why Do Investors Want Stripe Stock to IPO in 2021?

The fintech space is red hot among investors right now, and for good reason. Rarely will you find a sector that mixes the profitability of banking and the high-margin scalability of technology.

Fintech investors have been rewarded in the last year with shares of publicly traded payment processing stocks like Square and PayPal posting 1-year returns of 230% and 140%, respectively. With returns like that, it’s understandable that investors are eagerly awaiting Stripe’s IPO.

But it’s not just retail investors that are excited about the opportunity. Last year Stripe surprised the world when it was able to poach Dhivya Suryadevara to be its CFO, luring her away from General Motors.

If you’re like many in-the-know investors, you can’t wait to buy Stripe stock. Unfortunately, the biggest reason you might not be able to take advantage of Stripe’s stock gains might be CEO and founder Patrick Collison.

Here’s what investors should consider before buying shares once Stripe stock is available to the public.

or, skip straight to the section on when you can buy Stripe stock

Stripe News & Analysis

Bull Case: Why Would I Want to Buy Stripe Stock?

Paying for a purchase online might seem like a straightforward, if not mildly irritating, affair but there’s a lot going on behind the scenes. Ask any merchant and they’ll tell you the lifecycle from authorizing a charge to ensuring they receive payment from the bank has traditionally been a long and often difficult process.

Before the rise of integrated payment processing fintech providers, many of these services had to be performed using a piecemeal approach of hardware, software, and payment services from a host of disjointed providers, or the merchant had to do this on their own, which interfered with profitable activities.

Fintech solutions like Stripe offered a fully integrated approach to help merchants get paid faster and with less work on their end. Because of the full integration, merchants are willing to pay nearly 3% of the transaction costs (Stripe takes a lower cut after accounting for banks and credit card payments). The result for companies like Stripe that have mastered this process is a toll-road like business model that scales with ease.

Although it remains private, Stripe is among one of the more important players in the processing market with a customer list in the millions, from mom-and-pop stores all the way to Fortune 500 companies using Stripe’s software process payments to manage their businesses online.

And there remains a long runway for growth. Despite the hype of ecommerce, only 3% of global commerce occurs online today. The growth of ecommerce and the increasing use of credit and debit card transactions will continue to boost Stripe’s top line for decades to come.

Bear Case: Why Pass on Stripe Stock at IPO?

The biggest operational risk for Stripe stock is how it manages fraud and illegitimate transactions that occur on its payment network. Because of the immense scale Stripe has, there are bound to be fraudulent transactions both from merchants and buyers. When fraud occurs and Stripe cannot resolve the transaction between the buyer and seller, it is left on the hook to pay the charges.

A related risk all financial providers share is data protection. As a payment provider, Stripe has sensitive information including payment card numbers and expiration dates, bank account data, and even personally identifiable information (PII) like names and social security numbers. In the event of a data breach, there could be direct monetary liability or reputational harm.

While Stripe remains a leader in the space, traditional payment processing is mostly a commodity product and Stripe will need to leverage the relationships it has with merchants into higher-margin services. Competition is fierce from established fintech providers battling to process those transactions for merchants.

New entrants are always a concern. Unlike traditional banking, fintech is a rapidly evolving space full of disruption. In the event Stripe fails to create the new tools, features, and products needed to maintain market acceptance, the company could be at risk from a host of competitors looking to forcefully move into the space, ranging from traditional banking institutions like Goldman Sachs and JPMorgan to upstart fintech startups.

Finally, Stripe stock faces risks on account it is a richly valued stock and needs to show investors considerable growth once it hits the public markets.

Stripe IPO Date: When Can I Buy It?

With a fresh funding round in hand, it’s unlikely Stripe will IPO in 2021. However, keep two things in mind.

  • Stripe has received plenty of outside capital ($2.3 billion to date) and eventually, those investors will want liquidity on positions that are up more than 1,000X since early rounds.
  • There are backdoor ways to get exposure to Stripe’s growth today (more on that below in our “who owns it now” section).

If you’re looking to buy Stripe today before its IPO, keep in mind that Stripe remains a private company. That means accredited investors – those meeting SEC requirements for minimum net worth ($1 million, not including primary home) or annual earnings ($200,000 in each of the last two years, $300,000 for couples) – are the only people able to buy shares of Stripe stock at this point.

That is, assuming you meet those standards AND can find a secondary broker with shares of Stripe (another problem in and of itself)!

Unfortunately, for retail investors it does not appear like a Stripe stock IPO is imminent. Stripe’s CEO and various company spokespersons have been consistent in their communications that they do not plan on taking the company public in the “near term,” most recently when the company hired Suryadevara.

That said, a public debut might come sooner than CEO Patrick Collison prefers. Stripe recently raised money at a $95 billion valuation, which makes it the second most valuable startup in the world.

Private investors continue to provide Stripe funding, but they’ll soon expect to cash out at these lofty valuations, and the easiest way to provide private investors the liquidity they desire, at these valuations, is the public markets.

The next blockbuster IPO?

2021 could be one of the biggest years for IPOs in stock market history. Yet, with just a small fraction of IPOs historically driving nearly all the profits, who will you trust to uncover the most innovative and high-upside IPOs in the coming months?

There’s a company that “called” these businesses long before they hit it big. They first recommended Netflix in 2004 at $1.85 per share, Amazon in 2002 at $15.31 per share, and Apple back in the iPod Shuffle era at $4.97 per share. Take a look where they are now.

That company: The Motley Fool.

For people ready to make investing part of their strategy for financial freedom, take a look at The Motley Fool’s flagship investing service, Stock Advisor. They just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you should check out the full details.

Click here to learn more

Stripe Stock: Who Owns It Now?

Because Stripe remains private, non-accredited investors are not allowed to directly buy stock. Additionally, Stripe is not required to disclose any of its investors, which prevents the public from knowing all its backers and all the funding it has received to date.

But we do have some key data on the company. Brothers Patrick and John Collison founded the company in 2010, and both remain at the company. According to Bloomberg, the net worth of the brothers after Stripe’s newest funding round stands at a combined $23 billion!

Stripe stock boasts an enviable list of venture capital backers like Sequoia Capital, Andreessen Horowitz, and even Peter Thiel’s Founders Fund.

In their most recent funding round, the company expanded its investor base to include banking giants like Allianz X, Axa, and Fidelity.

Also, if you own stock in Visa or American Express you are a Stripe investor as the credit card companies participated in the $100 million funding round in 2015. That round came at a $5 billion valuation, which means both companies have done exceptionally well with their investment.

With a list of Silicon Valley backers and corporate venture arms like this, it’s understandable that many retail investors are champing at the bit to buy Stripe stock once the IPO occurs.

Is Elon Musk a Stripe Billionaire?

One Stripe investor who could surprise you: Elon Musk! When the company raised a reported $2 million seed round (reportedly at a $20 million valuation), Musk was one of the company’s first investors.

While we don’t know exactly the terms of Musk’s investment, Stripe’s valuation is up an incredible 4,750X from the reported valuation of that seed round. Even factoring in the impacts of dilution across later rounds, it’s likely a Stripe investment from Musk of just $500,000 is now worth in excess of a billion dollars!

Stripe Value Chart: How Much it is Now?

Craft is reporting Stripe has undergone eight distinct rounds of funding since inception. Stripe’s stock value will change each time the company takes new money, and when Stripe IPOs the stock price will almost certainly be higher than its current value.

If you look at the chart below that includes cumulative money raised by round and the valuation per round and you can see the significant market capitalization growth. Prior to March 2021, Stripe had received funding of $1.7 billion and was valued at $36 billion as of its G funding found.

Stripe Valuation
Source: Sharespost/Craftco figures in billions. *Valuation estimated. 

After its March 2021 funding round, Stripe is now valued at $95 billion. This latest round provides Stripe with $600 million in fresh capital, which increases its total funding to $2.3 billion.

What is Stripe’s Stock Symbol?

Stock symbols are for public companies that trade on stock exchanges. As a private stock, Stripe doesn’t have a stock symbol yet. However, when the Collison brothers decide it’s time for Stripe to debut on the public markets it will likely file on the NASDAQ exchange.

Traditionally, NYSE – the New York Stock Exchange – is the exchange of record for financial industries with Goldman Sachs and JP Morgan listing on the “Big Board.” However, fintech stocks often identify more with their technology background than finance, and considering the Collison brothers started as coders, it’s likely they share this outlook.

However, we do have some thoughts on how the company will come to the public markets.

If the rumored $70 billion to $100 billion round is truly in the offing, it’s likely Stripe stock will come to the markets as a traditional IPO. At that value, it would be difficult to find a “blank check company” with enough capital to bring it to market via a special purpose acquisition company, or SPAC.

Additionally, having an IPO deepens the relationship with investment banks whose relationships Stripe would like to maintain for future opportunities. IPOs also provide supporting services like market making and research coverage deemed necessary for large-cap stocks.

A third option would be a direct offering, which Roblox recently pursued. New legislation makes direct offerings more attractive to larger companies going public.

Stripe filing for a traditional IPO or SPAC will not affect the choice of stock symbol. However, on what exchange Stripe stock lists might affect the stock symbol. New York Stock Exchange-listed stocks traditionally use three letters or less – GS Goldman Sachs and JPM for JP Morgan – while NASDAQ stocks tend to have four letters, like PayPal (PYPL).

Assuming a NASDAQ listing, Stripe has a choice of symbols like STRP.

Is Stripe the World’s Most Valuable Startup?

After its most recent funding rounding Stripe is now the world’s second most valuable startup.

  • Bytedance: $140 billion
  • Stripe: $95 billion
  • SpaceX: $74 billion
  • Didi Chuxing: $62 billion
  • Instacart: $39 billion

Comparing Stripe to some publicly traded peers, its valuation isn’t far behind Square. As of March 15th, Square is worth $113 billion. Stripe’s partner Shopify is worth about $140 billion.

Looking at the larger end of fintech companies we find that Visa is worth $474 billion while Paypal is valued at $292 billion. Of course, Paypal books more than $21 billion in sales a year. In the next section you’ll see how that stacks up against Stripe.

Stripe Stock: Should You Buy the IPO?

Attempting to recommend a stock without analyzing the company’s financials or knowing what the value would be at the time of IPO is an exercise in futility. That said, there are a few things that are virtually certain for Stripe’s stock price.

The first is that Stripe stock price will be considered expensive by traditional valuation metrics. The company reportedly booked $450 million in revenue in full-year 2019 (2020 revenue has not been reported), so using that figure and its recent $95 billion valuation gives it a price to sales ratio of 211.

Stripe’s stock price will be valued significantly higher than publicly traded fintech companies like PayPal and Square at 14.0 times and 11.5 times, respectively. Stripe will have to keep its top line growing at a rapid clip to reward investors.

At this point, a bet on Stripe is a bet on the growth of ecommerce and fintech. This has been a profitable undertaking for investors in Square and PayPal, and has afforded these companies the capital to drive into exciting new areas of fintech, most notably cryptocurrency.

If Stripe stock filed for an IPO this year it would be among one of the most expensive stocks in the fintech space at a time when investors are in a fintech frenzy.

Looking down the list of fintech performance, it’s easy to see why investors are excited:

Share price growth 2015 to 2020

  • Visa: Up 191.1%
  • PayPal: Up 545.7%
  • Mastercard: Up 273.7%
  • Square: Up 1,565.2%

Building the infrastructure for payments might be “boring” business, but it sure is lucrative. With Stripe building a dominant position in ecommerce — a space once again that’s just 3% of commerce — could it follow in the footsteps of these companies?

Just keep in mind, Stripe will be significantly larger than any of these companies when it finally IPOs. Also, the multiples on its sales will likely be significantly higher than what investors paid for a company like Square at its IPO.

So, it’s a “no brainer” to be excited about Stripe’s prospects. However, when answering the question of “should you buy the IPO?” … well, we’ll have to see when they’re going public and at what price.

Frequently Asked Questions

Is Stripe a publicly-traded company?

Stripe is not currently publicly traded. The CEO of Stripe has indicated the company is in no rush to IPO, and they’re seeking a new funding round that could value the company north of $70 billion.

Is Stripe going to IPO?

There are currently no plans for Stripe to IPO. Investors who are interested in investing in the company can discover a “backdoor” play via either PayPal or Visa (who own a piece of Stripe).

Is Stripe better than PayPal?

PayPal generates significantly more revenue than Stripe, however, the future growth prospects of Stripe may be higher. Regardless, PayPal has invested in Stripe, so by investing in PayPal you can actually own a portion of Stripe pre-IPO!

Leave a Reply

Your email address will not be published. Required fields are marked *

In This Article