LONDON (Reuters Breakingviews) - Stripe’s $95 billion price tag makes sense in relative, if not absolute, terms. Like its listed rival Adyen, the privately held payments company founded by Patrick and John Collison has almost tripled in value since last April. Yet increasing competition means the new kings of digital commerce can’t all be winners.
In roughly a decade, Ireland’s Collison brothers have built a company that’s worth more than Barclays and Deutsche Bank combined. Stripe’s software allows merchants to accept digital payments in a range of currencies for a small fee. The sector has boomed during lockdown, as more transactions moved online.
Stripe’s new valuation, unveiled on Sunday as part of a $600 million fundraising, looks rich even by the standards of Dutch rival Adyen. The Collisons have kept their company’s financial statements a closely guarded secret. Yet market intelligence firm CB Insights in 2020 estimated that Stripe would process about $350 billion of payments that year. Its enterprise value would therefore be just over one-quarter of annual transaction volumes. On the same measure, Adyen’s $68 billion enterprise value is a more modest one-fifth of the payments it handled last year.
Investors in both companies are effectively betting on a decade of breakneck growth. To earn a 10% annualised return from holding Adyen’s equity, for example, shareholders would need the company to be worth 140 billion euros in 2030. Assume by that point that today’s payments darlings are valued, after adjusting for cash, on PayPal’s 11 times forward revenue multiple – a rough proxy for a mature company in the sector. That would imply an average top line growth of more than 33% per year, Breakingviews calculations show.
Global digital payments are only increasing at a rate of about 12% per year, according to Statista. That means it’s unlikely that Stripe, Adyen and other competitors like Checkout.com can all simultaneously keep growing so quickly. The bigger they get, the more they will compete head-on, driving down prices. Stripe, for example, will use its cash infusion to expand in Europe – Adyen’s biggest market by revenue.
The Collisons are already looking for ways to differentiate themselves, such as offering banking services in partnership with Goldman Sachs. That may help fend off competition. Yet their new, sky-high valuation sets an even higher bar for success.
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