The term "fintech" has become a buzzword for companies specialising in the provision of cutting-edge, digital financial services. The sector's modern incarnation may be traced back to the early 1990s and a Citigroup project dubbed the "Financial Services Technology Consortium." At its core, fintech is the promotion of technological cooperation within the world of finance.
Although the fintech sector has been around for decades, its presence in the business world became pronounced in the early 2010s. Since that time, fintech companies have consistently gained usership, expanded services and entered the public markets.
A premier example of this phenomenon was the 2021 initial public offering (IPO) of crypto exchange Coinbase. On the first full day of trade (14 April 2021), Coinbase stock settled at US$328.28 per share. Subsequently, the company was estimated to be worth in the neighborhood of US$85.8 billion. Given Coinbase's lofty valuation, many renowned private fintech companies began to consider going public. One of the more eagerly anticipated IPOs in this arena is Stripe.
What Is Stripe?
Stripe is a fintech company that specialises in the provision of business-directed financial services. Serving millions of companies worldwide, Stripe's online infrastructure consists of software and APIs designed to help companies manage their resources, accept payments and send payouts.
Dual-headquartered in San Francisco, USA and Dublin, Ireland, Stripe employs more than 4,000 employees in 14 international offices. With a self-stated mission of "increasing the GDP of the internet," Stripe's global reach is undeniable. As of 2021, the company boasts the following usership metrics:
- More than 250 million API requests per day, peaking at 13,000 per second
- 90% of adults in the United States have made purchases from client businesses
- Supports upwards of 135 means of payment
- Financial affiliations and intermediaries in more than 35 countries
Stripe's core business consists of three distinct segments: payments, financial services and business operations. The payments division focuses upon the facilitation of online, in-person, platform-oriented and subscription payments. Stripe's financial services department is involved in the provision of corporate credit card, spending management, business financing and corporate banking facilities. The business operations department includes custom reports, fraud & risk management, carbon removal and startup incorporation amenities.
Although Stripe is a behemoth in the online payments industry, it does have a collection of competitors. Key rivals are Square, PayPal, WePay and Adyen. Square Inc (NYSE), PayPal (NASDAQ) and Adyen (Euronext) are publicly held companies; WePay remains private.
Since early 2020, the fanfare surrounding Stripe and its potential transition to a publicly traded corporation has been immense. One of the reasons for the interest is the company's soaring valuation. As of April 2021, Stripe was ranked as the most valuable venture capital-backed corporation in the United States, and it ranked third globally. Following its Series H funding tour, Stripe's value was estimated to be US$95 billion.
Over the course of the company's history, Stripe has had little problem attracting venture capital. From 2011 to 2021, the company conducted eight rounds of funding (Seed through Series H) and raised approximately US$2.2 billion from 39 investors. The capital has fostered expansion in operations and value, with Stripe's worth growing from an estimated US$20 million to US$95.6 billion over the same period.
Among the key stakeholders are Sequoia Capital, Ireland's sovereign wealth fund, Baille Gifford and Allianz SE. A list of prominent individual investors include Paypal co-founder Peter Thiel and Tesla CEO Elon Musk.
One of the drivers of Stripe's value is its commitment to diversification. Since 2013, the company has made nine acquisitions, invested in 17 individual corporations and participated in twelve rounds of external funding. The purchases of KickOff (2013), Totems (2015), RunKit (2016), Indie Hackers (2017), Index (2018), Touchtech (2019), Paystack (2020), TaxJar (2021) and Bouncer Technologies Inc (2021) round out the acquisitions.
Stripe IPO Options
An IPO is the process of a private company having shares of its stock listed for public trade on a formal exchange. In the United States, interested parties seek to be listed on the New York Stock Exchange (NYSE) or NASDAQ. Accordingly, there are two basic types of IPOs: fixed price and book-building. Each has a unique function and provides a collection of benefits and drawbacks to the issuer.
Fixed Price IPO
Fixed price IPOs are held when a company's shares are offered for sale at an established market price. Upon listing, the public is able to begin buying at the set price, thus commencing the process of price discovery. A high-profile example of a fixed price IPO was that of Facebook (FB). Shares of FB officially opened for trade on 18 May 2012. The night before, Facebook set its final IPO price at US$38 per share; the first trade came in at US$42.05 per share, a gain of nearly 11%.
Book Building IPO
A book-building IPO is one where the company provides a price range or "band" to investors. The range includes a ceiling and floor for bids and acts as a guide for share pricing. Interested parties then bid on the stock in question and establish a viable market price. Noteworthy companies that have chosen to go public via book-building IPOs are Uber (UBER), Amazon Inc (AMZN), and Twitter (TWTR).
When Stripe decides to structure its IPO, corporate leadership will have to make a multitude of important decisions. One crucial example is whether to go with a direct pricing or book-building framework. To address this issue, the company will have to determine how its shares are to be offered to the public. Below are two of the most frequently implemented ways of accomplishing this task:
Traditional: A traditional IPO is the choice of most companies. It is time and labour intensive, involving underwriters, pricing and formal tours known as "roadshows."
Direct Listing: Direct listing IPOs take place when a company elects to skip the underwriting process and register shares on the exchange themselves. The process is more cost and time effective than traditional offerings. In spring of 2021, Coinbase went public via direct listing.
Other Ways To Go Public
Aside from traditional and direct listing IPOs, Stripe has other more unconventional means of going public. A few include dealing with a special purpose acquisition company (SPAC) or holding a Dutch Auction. The collection of listing alternatives, specifically the ascent of SPACs, have given rise to a flood of early 2021 IPOs. Several noteworthy listings from this period were Bumble (US$8 billion), Coupang (US$60 billion) and UiPath (US$35 billion).
As of this writing, Stripe remains a privately held company. However, the first half of 2021 brought a consistent media buzz surrounding the company holding its initial public offering. Given its high valuation and the industry's projected growth, Stripe's IPO is one of the more anticipated financial events in recent history.
Founded in 2011 by Irish brothers Patrick and John Collison, Stripe has evolved into a global fintech leader. Specialising in the provision of financial services, payment options and business operational support, the company is a staple of online commerce. As of April 2021, Stripe was valued north of US$95 billion; according to Forbes, the company is worth upwards of US$115 billion.
These lofty valuations coupled with fintech growth expectations have prompted retail equities investors and institutional participants to eagerly await the company's IPO. In fact, the NASDAQ reported that a 2021 Stripe offering would rival Saudi Aramco's 2019 IPO which raised US$1.88 trillion.
At press time, the company remains ambiguous about its future plans to go public. However, financial insiders have been expecting a Stripe IPO since 2020. While it remains to be seen whether or not Stripe will eventually go public, the company's IPO would likely be one of the largest on record.
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