The IPO climate has been a prosperous one for many of the world’s largest VC-backed companies, with many endeavours scrambling to take advantage of the best public market conditions since the height of the dotcom boom at the turn of the century.
However, not all fast-growing tech outfits are in such a rush to join in on the action. Instead of leaping into an IPO, in March, fintech giant Stripe opted to bring in significant private capital at a sizable market value. The payments processing company raised $600 million, amounting to a valuation of $95 billion, making Stripe the second most valuable VC-backed company in the world, behind only ByteDance.
Stripe is in good company, Elon Musk’s SpaceX raised $850 million in February, amounting to a valuation of $74 billion, while Klarna also gained $1 billion in investments for a valuation of $31 billion. Like Stripe, despite speculation, no companies have indicated any immediate action towards going public.
Will Stripe Stay or IPO?
Although Stripe’s latest funding round indicates that the company won’t IPO in the immediate future, there’s still plenty of scope for the payments giants to use their new $95 billion valuation to generate a significant level of interest prior to going public. With this in mind, Stripe’s debut may yet go on to become the biggest initial public offering of 2021.
The logic behind a Stripe listing is also solid.
With the pandemic accelerating the transition towards a cashless society, eCommerce activity is continuing to grow. These movements are bringing with it a greater need for payment processing online with Stripe standing as one of the market leaders in this particular field of fintech. Current clients already include the likes of Amazon, Salesforce and InstaCart.
However, there’s an argument to be made that Stripe doesn’t actually need to go public any time soon. With significant levels of private equity money, the company may well find comfort in staying away from the limelight that comes with a stock market listing.
There are some fairly significant perks to be had in remaining private.
For instance, public markets can be difficult to navigate with periods of severe volatility and intense scrutiny from investors. With revenues and losses all openly shared for investors, the appeal of staying private stems from the freedom of not having to publicly reveal the financial state of the company.
There’s also an argument to be made that Stripe’s valuation could continue to rise by delaying the company’s IPO and avoiding public scrutiny. It may additionally help the company to avoid direct comparisons to its rivals in the publicly listed PayPal and Square.
Fintech Gold Rush Finally Reaches Fever Pitch
In much of the 21st Century, fintech as a category had been relatively quiet on public markets.
Traditional financial systems and brick and mortar banks were relatively accepted as the norm without much intent towards digital transformation. This trend began to reverse towards the latter part of the 2010s, and the arrival of Square and Shopify going public in 2015 accelerated investor exposure towards advanced fintech stocks.
2020 was a record year with as many as eight fintech IPOs arriving for investors to sink their teeth into, but the wave of offerings in the realm of finance is only growing. In the first four months of 2021, there have already been seven fintech IPOs, with more than 15 further companies appearing set to join the party and go public - including Stripe.
With this in mind, the fintech gold rush appears to only be gathering momentum, and that 2021 is all but guaranteed to be another record-breaking year for investors.
Fintech has performed exceptionally well in terms of generating IPO proceeds over the past three years. In fact, the majority of fintech IPO proceeds since 2018 have come from 2020’s listings.
According to Maxim Manturov, Head of Investment Research at Freedom Finance Europe, the current COVID-19 climate has led to a unique investing landscape where stocks like Stripe’s may perform admirably.
“When the pandemic started, the market was mostly driven by tech stocks, the so-called stay at home stocks,” said Manturov. “Currently, when the skies are mostly clear and most economies are winning the battle against the pandemic thanks to the vaccines, many sectors that experienced correction or suffered during the COVID lockdown started recovering.
Tech companies can still give good trading opportunities, though, so a healthy mix of various industries is the best option for your investment portfolio.”
Stripe’s Strong Future
Stripe may be playing its cards close to its chest, but the company’s October 2020 hiring of CFO Dhivya Suryadevara, previously the CFO at General Motors, is a strong indicator that Stripe is readying for an upcoming floatation at some stage in 2021. In late 2020, Stripe also worked to beef up its management team in hiring chief revenue officer, chief people officer and chief risk officer.
In 2021 so far, Stripe has also appointed two new board directors, a former governor of the Bank of England Mark Carney and Christa Davies of Aon plc.
Stripe CFO Dhivya Suryadevara has been buoyant about Stripe’s performance in the wake of the company’s latest funding round and performance following COVID-19. With 14% of commerce being conducted online today, Suryadevara said: “While Stripe already processes hundreds of billions of dollars per year for millions of businesses worldwide, the opportunity ahead is much larger for Stripe than it was when the company was started 10 years ago.”
With a company valuation of $95 billion and great business prospects, Stripe’s IPO will be an event to remember - when it eventually arrives.
