A $100 bn valuation poses risk for Stripe

Soaring estimate comes with a price to pay

If you're in the business of selling picks and shovels for the gold rush, then there's a logic to raising money when the scramble is at its most frenzied.

Stripe Inc. co-founders Patrick and John Collison certainly get the idea. The Irish brothers are raising funds for their online payments company at a valuation of between $70 billion and $100 billion. In April, the San Francisco-based firm was valued at just $36 billion. But soaring private valuations do come with a risk.

Stripe is a beneficiary of the virus-induced lockdowns. E-commerce was booming before Covid-19 struck, but global stay-at-home orders have taken things to a whole new level. Online sales grew an average of 15 per cent annually between 2010 and the start of this year, according to the U.S. Census Bureau. Then in the three months through June, they jumped 45 per cent from a year earlier, as shops were shuttered and spending shifted online. The pace of growth decelerated to 37 per cent in the third quarter as some lockdown measures eased.

The increase must have been good news for the Collisons, whose firm takes a cut of payments made to merchants that use its products. As a private company, Stripe doesn't publish any of its financials, but publicly traded Dutch competitor Adyen NV provides a useful yardstick.

The Amsterdam-based rival said that the weekly volume of online retail payments it processed almost doubled between January and mid-September. Even though its overall pace of sales growth almost halved - it's been held back by significant exposure to the travel industry, where payment volumes fell by about two-thirds in the same period - Adyen's stock has more than doubled since the start of the year. As of Wednesday, it's valued at 48 billion euros ($57 billion).

Stripe is tracking that same trajectory: A new valuation of $70 billion would represent a doubling since April. The companies are broadly similar, offering a global product that no others have yet managed to match. But their customer base has differed, according to ABN Amro Bank NV analyst Cor Kluis. Adyen has historically focused on large multinational clients such as Uber Technologies Inc., eBay Inc., Gap Inc. and Booking Holdings Inc., while Stripe has concentrated on smaller businesses, he said.

That has allowed Adyen to charge less than Stripe, since it's more affordable to scale your services for large clients than for a panoply of smaller ones. Increasingly, though, the payments processors are encountering each other in the middle, as Stripe extends its offering upward into medium-sized companies and Adyen moves downward into the same space.

There will be unanswered questions about Stripe's valuation, though, particularly if it lands at the upper end of the reported range. The accelerated adoption of e-commerce this year might make it harder to replicate the pace of growth in the years to come.

The new funding round might give the Collisons the choice of pushing any prospective initial public offering further down the line, but a punchy private valuation might also make such a delay necessary. If e-commerce growth slows once life returns to a semblance of normality, then justifying a $100 billion valuation to the public markets could be tougher. Silicon Valley stars from Lyft Inc. to Slack Technologies Inc. have shown that life under the withering gaze of public investors can be difficult — both stocks continue to trade below their IPO price.

There's a lot to be said for making hay while the sun shines. But beware of sunburn. (Bloomberg)

Alex Webb