The new issue market remains in the doldrums. But when initial public offerings do pick up, Wall Street's gaze likely will turn again toward fintech companies, and a possible Stripe IPO in particular.
San Francisco-based Stripe has mulled an IPO or direct listing for years, but never pulled the trigger. Co-founders Patrick and John Collision started the payment processor in 2010. The brothers have preferred keeping Stripe private, even though there are options for them to keep tight control of a public company.
For one, the brothers could issue dual-class shares, thereby holding the bulk of super voting rights. Many founders of tech companies have taken that course. Also, Wall Street is generally fine with the governance structure.
Stripe has managed to stay private with the help of big funding rounds. But at some point, it may need to go public, says SVB MoffettNathanson analyst Lisa Ellis.
What's clear is that a Stripe IPO would be a big event. Square's 2015 IPO raised $243 million. An offering for the operator of Stripe.com would likely dwarf that, even if the company's valuation has pulled back.
"Stripe has been a darling in the payments industry now for 10 years. It's a big company, so it would be a very large IPO," Ellis told Investor's Business Daily. "It competes with a lot of public companies, so there would be a lot of interest in seeing what their financials look like."
She added: "But they've punted on an IPO for years. I will believe it when I see it. They get pushed by their investor owners to go public. But they haven't done it."
Stripe IPO: Market Back In 2024?
The IPO market slowdown began in January 2022, said Matt Kennedy, senior strategist at Renaissance Capital. He expects a gradual pickup in activity in the second half of this year, with activity normalizing in 2024.
"We've also seen strong debuts from (non-tech companies) Cava and Oddity, which opens the window to more consumer IPOs," he said. "In addition, semiconductor giant Arm is expected to list in the fall. We should even see a handful of tech unicorns as well."
Along with a Stripe IPO, Chime and Checkout.com. are other fintech companies that could go public.
In 2022, public fintech companies such as PayPal Holdings, Square-parent Block and Affirm Holdings were scalded in the markets. But AFRM stock has rebounded 77% in 2023. SQ stock has gained 21%. PYPL stock is up 2.5%.
"Fintech was hit particularly hard during the 2022 sell-off, but we have seen some positive developments. For example, Affirm has had a strong year, which is a good sign for Klarna, an IPO candidate for years," Kennedy added.
"Still, broadly I'd expect most big fintech names to sit on the sidelines until 2024. We're tracking possible IPOs from banking and investing app Acorns, as well as financial app Revolut."
Stripe IPO: Rivals Are Adyen, PayPal
Stripe competes with Adyen and PayPal's Braintree unit as well as Chase Paymentech, Fidelity National Information Services, and Fiserv.
"Stripe is an e-commerce-focused merchant acquirer," said Ellis.
Merchant acquirers serve as middlemen between banks and retailers. They have contracts with retailers to handle the processing of credit cards and other transactions.
"Stripe is similar in scale to Adyen, but far less profitable," added Ellis. "Adyen is highly profitable. Stripe is at best break-even."
Stripe has focused on tech companies, particularly software firms and Silicon Valley startups. When Stripe processes payments for tech companies, it takes a small cut of purchases as a fee for its services.
Stripe Secret Sauce In Payments
The key strength of Stripe is an application programming interface that easily integrates its payment technology into the software systems of customers, said Ellis. But it's been challenging to scale up its platform as customers get bigger, she added.
Even without a Stripe IPO, the company remains an important piece of the ecosystem of fintech companies. In 2023 alone, it forged a distribution deal with Apple, and added Uber Technologies, consumer financing firm Affirm Holdings and HubSpot as customers.
Stripe was the first digital payment platform to offer "Tap to Pay on iPhone" to their business customers. In addition, Stripe this year teamed with Alphabet's Google. Google Workspace users can now make payments through Google Calendar.
In July, Stripe said it will team will privately held Tulip, a provider of cloud-based services in the luxury fashion retail market.
Square's biggest revenue generators are Shopify and e-commerce giant Amazon.com. Canada-based Shopify is an investor in Stripe. Other customers include Instacart and Lightspeed Commerce.
Stripe Valuation Falls
The payment processor's most recent funding round in March raised $6.5 billion and valued the company at around $50 billion, down from $95 billion in March 2021.
According to one report, Stripe in January told employees that it would decide whether to stage an IPO within the next in 12 months. An alternative to a Stripe IPO would be to allow employees to sell shares in private market transactions.
However, some developments may again push back a public offering. Stripe Chief Financial Officer Dhivya Suryadevara stepped down in early February. She cited "family matters" as the reason.
Stripe also hasn't disclosed revenue growth to the media. However, it has made investor presentations tied to funding rounds.
Stripe revenue reportedly climbed 25% to $14.3 billion in 2022. Revenue rose 54% in 2021 and 70% in 2020 during the coronavirus emergency as e-commerce boomed. The payment processor laid off 14% of its workforce in November as growth slowed.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
