Stripe’s annual letter it provides the outline of a business that is healthy and growing. Stripe is big enough that when looking at its growth, we have to weigh it against the overall growth of the payments space in general. By this measure, the company is outperforming its market.
Important development points
Stripe notes that it crossed the Total payment volume measurement of $1 trillion in 2023, a big and round number, albeit imprecise. Certainly the limit is remarkable, but when combined with recent growth figures, it becomes even more impressive. In 2023, its payment volume increased by 25%, according to the letter. If the company actually processed exactly $1 trillion last year, that would translate to $800 billion in processing in 2022 and $200 billion in TPV earnings in a single year. At Stripe’s size, that’s quite an effect.
Stripe’s fee structure starts at 2.9% with a 30-minute surcharge for domestic card transactions. That means even when accounting for volume discounts, the added payment volume last year equated to huge new revenue for the privately held company.
This revenue translates into cash flow, a very important metric for investors. The company says in the letter that it was “potentially cash flow positive in 2023 and expects to be again in 2024,” meaning it likely doesn’t need to raise more capital before going public. That may be part of the reason it’s not pursuing a near-term IPO: Public offerings are fundraising mechanisms, and Stripe is currently cash-strapped.
Two other data points stood out.
There are now 100 companies using its service and processing $1 billion or more annually with Stripe. These companies make up about 10% of its total payment volume, which suggests some customer concentration — a concern for some investors, though it doesn’t breach our risk radar — but more importantly, it means Stripe is managing to hold on to large accounts for a long time. Any company processing such a large volume of payments through Stripe could decide to build an internal stack or go with a more DIY option. However, the fact that so many large accounts are sticking with Stripe shows that customers won’t necessarily “graduate” from its payment service offerings. This bodes well for future growth and revenue stability.
Also, offerings that fall under the “Revenue and Finance Automation” bucket are expected to reach $500 million in annualized revenue this year—these are tools that help businesses manage billing, taxation, and revenue recognition. This run rate would be enough for this business unit to be a listed company in its own right. This gives Stripe not only massive scalability on the payments side, but also a software story that can be told beyond that core functionality. Revenue diversification that unlocks fast-growing, potentially high-margin revenue is an investor’s delight. Expect this issue to come up when Stripe finally goes public.
Amazing launch success
We continue to see venture capital funding at record lows. However, Stripe says that doesn’t discourage people from starting new companies. It actually set a record for startups in 2023. The US is leading the way there, but there have also been steps in Canada, the Netherlands and Sweden, according to the company.
These startups find success even without VC backing. For example, Stripe says that startups founded in 2022 (the most recent full year of data it had) were 60% more likely to start collecting revenue within the first year, while 57% more likely to process 1 million dollars within the first year of those established in 2019.
That’s pretty impressive when you consider that 2023 began with some people saying that predictions for startup success that year would result in more frequent reassessments of budgets and plans and a run to break even.
Stripe also toots its own horn when it notes that one in six new Delaware companies is incorporated into the Stripe Atlas. Among them, more than 50,000 were working to earn $5 billion annually.
The future
All in all, it’s been an interesting year for Stripe, which is now valued at $65 billion. As much as we expect a Stripe IPO soon, that’s not likely to come for at least another year.
He made a rather unorthodox acquisition of Okay, a startup that developed low-code analytics software to help engineering leaders better understand their teams’ performance. Of which, TechCrunch’s Mary Ann Azevedo wrote, “By Stripe deciding to acquire a startup that helps engineering leaders create performance dashboards to measure how their teams are doing, it feels like the company is very serious about ensuring that its own engineering team works efficiently enough to not only move faster, but also be more productive.”
“Relationship” was also a big theme throughout the letter. The company provides ample examples of how it continues to develop services to help companies build closer relationships with their customers and improve the overall payment experience.
Additionally, Stripe continues to say that the company is still early in its journey. It aims to “be the most trusted part of a business’s stack.” That’s a lofty goal, but its development so far shows that customers are finding that it fulfills that goal adequately.
