Stripe: a $95bn valuation is perfectly normal for fintech

Stripe’s $95bn valuation is vast. Some may see it as a sign the fintech bubble is about to burst. They would be wrong to do so.

It is extraordinary that the San Francisco online payment processing company has added $60bn to its value in a year. Stripe has done so as a private business, which means the wider world knows little about its finances.

But its product is widely used and well-regarded. Moreover, less than a fifth of the world’s purchases take place online. The potential for future sales is vast.

When Stripe was created a decade ago by Patrick and John Collison doubts abounded. Barriers to entry included tough regulation and strong incumbents such as PayPal.

Success — and presumably vast wealth for the Irish brothers — is the result of the product’s simplicity. Customers can plug software in and instantly take payments. By selling to developers, Stripe has built up a loyal following at start-ups such as DoorDash and Lyft, growing alongside them.

Stripe processes more than European rival Adyen, meaning annual gross transaction volume exceeded $300bn last year, according to an FT contact. US processing fees range from 2.7 per cent to 2.9 per cent plus 30 cents per transaction for online card payments. Fees elsewhere are lower. This suggests revenues north of $9bn in 2020. It could also mean that Stripe is valued at about 11 times trailing sales — a lower multiple than fintech companies like PayPal, Square and Adyen. 

Payment company valuations are high because growth prospects are strong. Many people are still unbanked and ecommerce is thriving. Investors are so keen they will buy a stake of under 1 per cent in exchange for $600m. This also means Stripe’s $95bn valuation is impressionistic compared with a listed group.

Expect the company to focus on new countries — including populous Indonesia — and new products. That brings two near-term risks. Stripe stopped processing bitcoin payments three years ago but may rethink its position, opening itself up to volatile prices. Tougher regulatory scrutiny is also likely, reflecting growing scale and new products such as accounts linked to Stripe infrastructure at partner banks.

A measure of validation comes from the presence of Mark Carney, former Bank of England governor, as a board member and an investment by an Irish state agency. Stripe is making friends in all the right places.

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The Lex team is interested in hearing more from readers. Please tell us whether you think Stripe’s valuation stacks up in the comments section below