Stripe Inc., which is one of Silicon Valley’s most valuable Fintechs, is reportedly getting closer to what might be one of the largest public-market entries in recent times.
Stripe co-founders Patrick and John Collison told company workers that the firm’s executives set a goal of taking the Fintech firm public or allowing workers to sell shares in a private-market transaction within the coming year, according to sources familiar with the matter (and cited by the WSJ).
Stripe appointed the Goldman Sachs Group and JPMorgan Chase & Co. to advise the firm on both options, the sources revealed.
A payments processor to internet-based firms and businesses like Shopify and Instacart, investors think of Stripe as a type of index for Silicon Valley businesses.
Until now, Stripe has preferred to stay private and has not shared many details with the public regarding its performance. This appears to have resulted in considerable demand over the years for investors who were eager to own a part of Stripe’s business but didn’t get an opportunity to do so.
Given the current socioeconomic environment with unprecedented challenges such as rising interest rates, inflation, as well as concerns of an upcoming recession, there has been a fairly large selloff in technology stocks. This has affected the operations of many public firms, and led to many early-stage firms postponing their plans to carry out an IPO.
Stripe’s most recent investment round almost two years back had valued the firm at $95 billion. Recently, Stripe reportedly approached major investors like Berkshire Hathaway regarding securing around $2 billion in funding at a reduced valuation of about $60 billion. This, according to sources familiar with the matter (and cited by the WSJ).
The capital raised could have gone towards taking care of a hefty tax bill associated with certain employee stock units, the sources stated.
But it is not yet clear if these discussions are still ongoing.
It’s worth noting that a Stripe stock-market listing might help a weak IPO market that lost considerable momentum last year. During 2022, traditional IPOs in the US secured only around $8.6 billion, which is less than previous years (at least for the past 20 years), according to data from Dealogic.
According to industry experts, Stripe might not carry out a traditional IPO since it doesn’t need to acquire additional funding. The Fintech firm may look into a direct listing, the sources claim.
In a direct listing, a firm places existing shares on a public exchange and allows the market to set the price. Unlike a traditional IPO, the firm does not determine the price of the shares or who can acquire them. And it usually does not raise any funding. Those selling stock in a direct listing are typically workers or other early backers of a firm.
Stripe is part of a relatively older group of Silicon Valley Fintechs that are currently facing pressure to give workers the opportunity to sell their shares. Many private firms that made the choice not to seek public listings this past year were pressured to look for ways to retain workers, who now must hold onto their outstanding shares.
A post-COVID surge in digital commerce accelerated Stripe’s business activities, with 2020 annual revenue growing almost 70% to around $7.4 billion, the WSJ reported.
A March 2021 investment round had valued Stripe at $95 billion, making it one of Silicon Valley’s most valuable FIntechs. However, this past year was a lot more difficult. Consumers began returning to physical store locations and also made significant changes to their spending habits while trying to cope with unprecedented inflation rates.
Like most other tech firms, Stripe had also laid off around 14% of its employees in November 2022, and the Collison brothers acknowledged that the firm’s management had significantly overestimated the digital economy’s potential and supported an unsustainable expense growth.
Shares in Stripe rivals such as Adyen and PayPal have also declined around 50% and 75%, respectively, from their highs set in 2021.
This past July, Stripe had reportedly cut an internal share price typically used to price stock options given to workers to $29 from $40, thus reducing the implied value of the business to $74 billion, the WSJ revealed earlier.
Recently, the firm lowered the value of the shares once again to $25, according to sources familiar with the issue (thus giving the firm an implied valuation of $63 billion).
Stripe is now planning to make a recovery in 2023. Recently, the firm revealed it was looking to expand the work it’s currently doing for Amazon Inc. to process a substantial amount of the tech giant’s payments volume across its divisions like Prime, Audible and Amazon Pay in the United States and other jurisdictions.