Stripe’s Valuation And The Value Of Real Disruption

You’d be forgiven for thinking that the WeWork IPO – rather, the shelving of that IPO, at least for now – heralds the end of rich valuations for firms viewed as entrenched in the early stages of disruption.

But the news this week that Stripe had raised $250 million, bringing the payments firm to a $35 billion valuation, shows a bifurcation in the way that at least some investors view hype versus hope, and public markets versus private.

In the Stripe news, venture capital firms Sequoia, Andreessen Horowitz, General Catalyst and others put up the $250 million in exchange for equity.

Most notably, Stripe has said it will not tap markets through an IPO. Co-founder John Collison told CNBC in an interview that “we are very happy as a private company. We’re quite early in this opportunity.”

The opportunity is the digitization of payments, the need for businesses to scale into online commerce, where the company has been launching new operations. Stripe, of course, launched Stripe Capital earlier this month and is debuting a corporate card, which shows the value of ancillary services delivered beyond processing.

The $35 billion represents a jump from even earlier this year, when the company was valued at $22.5 billion. But, we circle back to the fact that Stripe wants to stay private. The boon of not coming public is that firms do not have to report numbers every quarter, or get caught up in the mindset of managing expectations while keeping an eye on the stock price. The implication, too, is that the public market is a fickle master.

Interestingly, it was reported that SoftBank had mulled an investment in Stripe – the same SoftBank that had (and has) skin in the game with WeWork.

The SoftBank interest, should it materialize into a Stripe stake, may speak of diversification. Or it may speak, too, of an acknowledgment that in the search for disruptive companies, you could do far worse than a firm that works behind the scenes to keep commerce flowing, on an increasingly international scale. Stripe has said it has millions of businesses in its roster, accounting for hundreds of billions of dollars a year in processing volume. Less than 10 percent of commerce is done digitally, so the runway is there for growth. (In contrast, a firm like WeWork may be prone to recessions and business cycles.)

The stark differences in headlines that swirled around the payments firm and the real estate firm show that investors are still willing to put up cash – but the mindset of where value lies may be shifting.

Sizzle

Cross-border: Remittances are paying off. The European FinTech TransferWise has logged profits for three years running, and the latest results show that revenues were up 53 percent year over year to 179 million pounds. The firm also continues to gain the backing of individual and institutional direct investment, having raised $292 million this spring in a funding round.

APIs and banking infrastructure: Payment network giants give strategic backing to the API-driven firm, with backing having come through a $250 million funding raise last year, and Wells Fargo signs on, too, to promote an API-supported data exchange. The strategic partnerships hint at cross-pollination, moving digital payments through direct account-to-account activity.

Digital IDs: The push toward a global network for ID verification moves forward. Trulioo has expanded in recent weeks into new countries, and now gets $70 million in backing through a consortium of financial services firms – Goldman among them. Banking, of course, stands to benefit from streamlined ways of maintaining compliance with AML and KYC.

Fizzle

High cost of credit: New regulations by the FCA mean credit card rates are up to the highest levels in more than a decade – now at more than 24 percent APR, on average. Borrowing costs will pinch consumers, even as the economy slows and Brexit looms.

Freight fraught with macro headwinds: Competition is tough in logistics and the last mile. This past week, the freight giant cut forecasts on the heels of its loss of the Amazon partnership (FedEx now officially calls them a competitor) and a slowing global economy does not help much.

Cloudy business models: The shoe drops, as WeWork postpones its IPO after several rounds of reducing its valuation to become more palatable. The shelving shows that investors are increasingly worried about how at least some “new economy” firms can weather economic cycles.