November 30, 2016
By John Stewart
Stripe Inc.’s latest funding round, in which the privately held San Francisco-based company nearly doubled its valuation to $9.2 billion, shows what startups can do if they’re innovating in the right sector of payments, experts say.
John (left) and Patrick Collison, Stripe's president and chief executive, respectively.
Just six years old, Stripe provides tools for payments online and in mobile commerce. With its $150 million financing over the weekend, it is now worth more than twice the valuation of fellow startup Square Inc., only a few months older but with a concentration in processing in-store payments for small merchants. As a privately held company, Square peaked at a value of $6 billion in 2015, but since going public a year ago it has drifted down to $4.31 billion as of Tuesday.
“Network effects Square sought within an ecosystem of millions of small merchants and more than a hundred million cardholders thus far haven’t panned out,” notes Eric Grover, principal at Minden, Nev.-based payments consultancy Intrepid Ventures.
Indeed, facilitating e-commerce payments, and particularly mobile transactions, seems to be where the action is among investors. Stripe has enjoyed a steady climb in valuation from $3.5 billion just since early 2015. With it latest funding round, it has become by far the most valuable privately held payments startup, distancing itself from such ventures as India’s Paytm ($4.83 billion), the U.S.-based Mozido ($2.39 billion), The Netherlands’ Adyen ($2.39 billion), and Sweden’s Klarna ($2.25 billion). All of these companies specialize in handling mobile and e-commerce payments.
On top of its basic application programming interfaces, Stripe has been especially active recently in rolling out new services. In September, it emerged the company has been using instant-payment routines from MasterCard Inc. and Visa Inc. to let clients like car-hailing service Lyft pay drivers immediately. And a year earlier it introduced a service called Relay to process in-context payments on buy buttons .
“Stripe's impressive valuation comes from its success and leadership in the e-commerce payment-facilitation market,” says Gil Luria, director of research at Los Angeles-based Wedbush Securities. Stripe did not respond to a request for comment.
Stripe’s lofty new valuation could also have knock-on effects for companies offering similar payment services. PayPal Holdings Inc., for example, also concentrates on e-commerce and mobile payments and owns units like Braintree, often seen as a Stripe rival, and Venmo, a popular person-to-person payments service.
PayPal, which returned to the public markets in the summer of 2015 after years as part of eBay Inc., has not yet realized that potential. It debuted on the Nasdaq 16 months ago at a $52 billion valuation but closed Tuesday at $47.8 billion. Observers aren’t fazed.
“Stripe's valuation especially bodes well for PayPal,” says Luria. Stripe and Braintree, he says, “are the only two [companies] that can power the innovative new platforms such as Uber, Lyft, and Airbnb in the seamless way consumers have grown accustomed to.”
Grover agrees. “Stripe’s heady valuation testifies to the market’s enthusiasm for sustainable, high-growth payments stories that are profitable or will be,” he says. “Braintree similarly serves high-growth e-commerce businesses that ought to be baked into PayPal’s valuation.”
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