Stripe makes payment processing look like a glamorous business. The e-commerce fintech juggernaut has generated massive media hype and off-the-charts investor enthusiasm.
The company may soon be looking to take that enthusiasm to the public markets. Stripe has hired a law firm to advise it on early-stage listing preparations, Reuters reported in July. Sources at Stripe told the news outlet that it was weighing a direct listing, a cheaper option than a traditional IPO. This got institutional and retail investors alike to hold their breath for what has the potential to be one of the biggest public offerings in history.
Stripe’s $95 billion valuation from its latest funding round last March makes it the third most valuable private company on the planet. If that seems excessive, consider the fact that it processed $640 billion in payments last year, an amount comparable to the GDP of Poland. Stripe takes a 2.9% cut plus thirty five cents from each transaction (you can do the math to get a sense of the scale of their revenues).
The company’s ambitions are no less grand. It claims its mission “to grow the GDP of the internet,” and has itself grown by acting as a one-stop-shop for businesses to streamline their e-commerce operation.
Stripe’s extensive menu of APIs allows merchants to issue credit cards, accept crypto payments and even fight climate change, among a myriad of other functions. It counts a number of household names like Peloton, Google, and most recently Ford among its customers.
Becoming a global company
The company has come a long way since its founding as an online payment processor in 2009 by brothers Patrick and John Collison, both of whom were in their twenties.
The brothers started Stripe after moving to Palo Alto from their native Ireland and selling their first company that they spun out of the Y Combinator. A $2 million seed round drew funding from Paypal founders Elon Musk and Peter Thiel, as well as Sequoia Capital and Andreessen Horowitz.
Perhaps it was the Irish roots of its founders that inspired Stripe’s to prioritize a rapid expansion into international markets. In 2015, John Collison, who serves as the president of the company stressed the importance for global tech startups not to shy away from establishing operations abroad. Stripe has its second headquarters in Dublin and is currently available in 47 countries.
Over the years, Stripe made a few investments of its own. So far, it has acquired thirteen companies and integrated their services into its offering, most recently the accounting reconciliation platform Recko.
However, not all those investments have paid off. Stripe likely took a financial hit from its participation in two funding rounds for the one-click checkout company Fast, which drew claims Stripe acted like a “mob boss” from a competitor. Once one of Silicon Valley’s most promising darlings, Fast recently went out of business after burning through its cash through rapid hiring and excessive spending on publicity stunts.
A boost from the pandemic
An e-commerce boom during the pandemic has powered Stripe's recent explosive growth. Its transaction volume increased by 170% in the past two years.
This was likely the driving force behind a recent hiring frenzy, illustrated by data collected by our parent company Thinknum Alternative Data. Last month, Stripe’s active job listings peaked at almost five times of what they were at the start of the pandemic. They have since dipped down slightly, likely a result of a slow down in e-commerce transactions.
The company acknowledges that last year’s rate of growth is not sustainable, as the online shopping spree winds down and most people no longer view a Peloton bike as a vital necessity.
Fidelity, an investor in Stripe, downgraded the valuation of its stake in the company by 23% since the start of the year. It cited volatility in the markets and the poor performance of Stripe’s public peers as the reason for the downgrade. The stock prices of its primary competitors, Paypal and Square, have lost more than 50% of their value after peaking last year.
Paypal and Stripe, however, are on different trajectories since the latter has been experiencing much bigger growth.
Thinknum’s data shows that the total number of Stack Exchange posts about Stripe’s APIs have been far outpacing those for Paypal. Stack Exchange is a popular Q&A platform for developers seeking to get answers to their technical questions and the number of posts about a tool can be a proxy for its usage. Stack Exchange posts for Stripe have grown at nine times the rate of Paypal posts since 2015.
Even without the pandemic forcing more people to shop online, Stripe wants you to know that it's just getting started on its ascent. The company’s leadership believes that it has many international markets to conquer. And in its most recent performance report, the company noted that only 12% of total retail spend happens in the ether.
As the GDP of the internet continues to expand, Stripe’s valuation may just follow suit.
Update 05/03/2022: Fidelity recently raised its valuation of its share in Stripe by 15%.