The IPO marketplace is heating up, and rumours about a mega-listing from payments giants Stripe stands out as one of the biggest potential stories to emerge from the recent boom in companies going public. But with a reported $115 billion valuation attached to the company, is Stripe undervalued, overvalued, or fairly valued?
Firstly, it’s worth noting that Stripe’s performed well in the wake of the Covid-19 pandemic. Due to the necessity of online shopping, a period of digital transformation for businesses has seen the usage of Stripe’s payment platform accelerate rapidly.
Back in October 2020, a private valuation priced Stripe at $36 billion. However, one month on, a Bloomberg report noted that Stripe was seeking to raise funds through selling stakes in the company which would price the firm at between $70 and $100 billion. In the wake of the IPO boom and interest in fintechs reaching fever pitch, Stripe’s eventual IPO may comfortably surpass a company valuation of $100 billion.
As the data above shows, the 2021 US IPO market has produced greater levels of revenue in the space of two quarters than the entirety of 2020 – and the same goes for the volume of initial public offerings arriving.
But with investors valuing Stripe at $115 billion, is there really room for investors to make money on holding Stripe stocks?
Such an astronomical valuation would make Stripe larger than IBM, which itself holds a market cap of around $107 billion. If Stripe is valued at over $100 billion, it would be the world’s second-highest valuation of a VC-backed private company – trailing only ByteDance. Even at Stripe’s last official valuation of $36 billion, it’s still one of the highest valued fintech startups globally – ahead of Nubank, Paytm and Checkout.com.
So, at $115 billion, should Stripe be regarded as overpriced? Industry commentators are split over the value that the company would wold for investors if and when it goes public. With this in mind, let’s take a look at arguments for and against the fair pricing of the payments giant:
Stripe is Undervalued
In a recent article published by Seeking Alpha on the Nasdaq newsfeed, it was argued that Stripe is significantly undervalued and that the company would, in fact, be worth more than Goldman Sachs if it were public. Considering that Goldman Sachs has a market cap of almost $140 billion at the time of writing, this is some claim.
The article points to the explosion in eCommerce in the wake of the Covid-19 pandemic – with market penetration more than doubling to 34%, compared to before the health crisis when we collectively made around 16% of our purchases online.
As we can see from Stripe’s revenue chart above, this has been a boon to eCommerce firms – and while other payments companies have experienced growth, with PayPal weighing in at around 88.5% and Adyen up 103.4% respectively since the emergence of the pandemic, Stripe’s growth of 150.5% blows them out of the water.
This indicates that Stripe doesn’t simply show itself as an investment opportunity with plenty of room for growth in the fintech landscape – it also shows that the company’s outpacing other industry leaders.
Stripe is Overvalued
However, prior to the pandemic, Rick Akerman wrote in FX Street that Stripe’s business model is a risky one to buy into when it can be easily replicated by a wide range of competitors around the world thanks to the rapid development of fintech.
This point seems pertinent considering the rapid growth of fintech. As payments become increasingly frictionless, users will gravitate towards the most innovative and convenient providers on the market. Although Stripe’s growth is exceptional at the time of writing, the company will need to out-innovate younger startups repeatedly to maintain its market dominance.
We only need to look at the disruptive force that Robinhood arrived into the investment industry with in offering zero-commission trading to retail investors in 2019 – a move that paved the way for a $31.7 billion IPO recently.
Although Stripe’s model is highly innovative, so too are competitors like Worldpay and Connectum to name a few – the latter of which has developed 3D-secure, multi-currency processing, borderless one-click payment solutions that have the potential to challenge modern payments solutions should the company secure further growth. The company supports Visa and Mastercard payment cards processing, card-to-card payments (P2P), recurring charges (subscriptions) and much more.
Investing in a company that’s attained a valuation of $115 billion means that there’s an awful long way for investors to fall should Stripe no longer find itself as a market leader – and for this reason, the company may be too much of a risk to justify such a lofty valuation.
Stripe is Fairly Valued
Despite the threat of being usurped by rivals, Alan Tsen believes that Stripe is fairly valued in his article for Fintech Radar. “I mean, there are the low-hanging fruit critiques regarding payments being a commoditised business, Stripe (probably) being “top-heavy” in terms of revenue concentration, their still lacking international reach, and their rates being fairly expensive for payment processing — especially when you start to do significant volumes,” Tsen admits in a caveat to his argument. “But when talking about Stripe, these feel too…well, insignificant.”
Tsen also believes that the company’s lack of market penetration in the massive markets of China and India can be excused due to the company’s mind-boggling growth. As a firm that started out as a payment gateway in a growing industry, Stripe’s ability to outpace its competitors has proved that it would be an IPO that represents a far safer bet for investors than other rival companies.
Yes, there may be competitors around the corner looking to out-innovate Stripe, but the company has already shown that it can hold its own simply by holding its own in a world populated by key players like PayPal, Goldman Sachs and countless more traditional institutions with pre-existing user bases.
If Stripe debuts with an IPO at a value of $115 billion, it may not represent a small-cap business with explosive growth potential for investors, but it may well represent a fair price for a company that’s worked its way up to the pinnacle of fintech’s key payment processors.