The lifeless US tech market badly needs a jolt from Stripe, once hailed as a public company potentially worth $120bn. Rising interest rates and falling ecommerce growth suggest the fintech start-up is unlikely to provide that jolt.
Last valued at $95bn, the payments business has already lost its spot as the most valuable US private company. That now belongs to Elon Musk’s SpaceX. Last year, Stripe lowered its internal valuation. A further blow is expected. Instead of listing, Stripe is reported to be seeking private funds at a $55bn valuation.
The down round could be partly explained by a broad tech market sell-off. Since Stripe last raised funds in March 2021, the Nasdaq Composite index has fallen 15 per cent. High inflation is likely to keep interest rates elevated, maintaining downward pressure.
Stripe is experiencing sector-specific problems too. Its tools are used by Amazon and other customers to process online payments, from which it takes a fee. Ecommerce boomed in 2020 and 2021, but has since failed to live up to expectations. Last year, US online sales flatlined as a proportion of total retail sales. In the last quarter, Amazon reported a dip in online store sales.
This is not a good time for Stripe to release its financial details in a pre-listing S-1 document.
Nor is it a good time to raise funds. Shares in Stripe’s European payment processor peer Adyen are down 50 per cent from their high point late last year. But like Airbnb before it, Stripe is under pressure from shareholders itching to cash out. Since Ireland’s Collison brothers founded Stripe in 2009, it has rewarded employees with restricted stock units. If it does not list, some of these workers will demand that Stripe changes the terms of expiring RSUs — and covers the associated tax bill.
If Stripe does opt to swerve an IPO, this year may equal 2022’s low tally for listings. Last year, global IPO proceeds fell 61 per cent on the previous year, according to data from EY.
The tech sector may be experiencing a lasting change. Low interest rates underpinned a start-up model in which companies raised funds for fast expansion, putting their products into as many hands as possible. Growth trumped monetisation. With near-term investments now paying out high yields, impatient investors are demanding earlier rewards.