2016 IPO Prospects: Is Stripe Lining Up Next?

| About: Stripe (STRIP)

Summary

Stripe began in 2009 when brothers John and Patrick Collison wanted to set up an online platform to simplify the process of accepting payments for websites and apps.

Besides tying up with social media giants Facebook and Twitter, it also has tied up with Apple for Apple Pay and Alibaba for AliPay to support in-app and e-commerce purchases.

Stripe is venture funded so far with $280 million raised from investors.

According to a recent Accenture survey report, 18% of North Americans use mobile payments technology on a regular basis. It is a much higher percentage for millennials and higher-income households, of which 23% and 38%, respectively, use contactless payments at least once a week. But the market is a fast growing one. eMarketer forecasts the total value of mobile payment transactions to increase 210% this year to $27.05 billion.

Stripe's Financials

San Francisco-based Stripe ((Private:STRIP)) already is riding on the growth of the market. Stripe began life in 2009 when brothers John and Patrick Collison wanted to set up an online platform to simplify the process of accepting payments for websites and apps. Its application enables companies to set up credit card processing capabilities on their digital pages by embedding a simple code.

Like other mobile payment service providers, Stripe earns revenues by levying a transaction fee. The fee is charged at 2.9% of the transaction value plus a commission of $0.30 per transaction. It does not disclose its financials, but analysts estimate that the company processes about $20 billion in transactions a year. At that rate, its revenues would be close to $450 million as of 2015. In 2013, revenues would have been closer to $43.5 billion given its transaction levels. It is able to support transactions in more than 100 currencies globally.

Stripe is venture funded so far with $280 million raised from investors including Visa, Thrive Capital, Khosla Ventures, Founders Fund, General Catalyst Partners, Sequoia Capital, Allen & Company, Y Combinator, SV Angel, Aaron Levie, Chris Dixon, Elad Gil, Peter Thiel, Elon Musk and Andreessen Horowitz. Its last round of funding was held in July 2015 when it raised $90 million in a round led by Visa at a valuation of $5 billion. In December 2014, the company had raised $70 million at a valuation of $3.5 billion, having grown from a $1.75 billion valuation round held in January 2014.

Stripe's Competition

According to a report by Finro, Stripe is the second biggest digital payment solutions provider after PayPal (PYLP) and PayPal-owned Braintree. Based on information the researcher collated from top 1,000 websites, PayPal and Braintree together were used by 41.6% websites followed by Stripe's 14.3%.

Stripe has managed to create a big market for itself by building a list of impressive partners. Besides tying up with social media giants Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR), it also has tied up with Apple (NASDAQ:AAPL) for Apple Pay and Alibaba (NYSE:BABA) for AliPay to support their in-app and e-commerce purchases.

Last year, Stripe released a new product Relay to its merchants. Relay simplifies the process of adding a "buy" button directly to the apps for developers. The product was aimed at making it easier for consumers to purchase products from mobile devices considering that browsing for products is now happening more on these devices.

But the competition in the industry is unrelenting. The PayPal-Braintree duo was expected to process nearly $50 billion in transactions in 2015. They also have an impressive customer list with names like Uber (Private:UBER) and Airbnb (Private:AIRB). Since its last financing round, valuations across the industry have gone down. Another mobile payment service provider Square (NYSE:SQ) went public early this year at a valuation of $3.9 billion compared with the $6 billion valuation it was trending at prior to listing. For comparison, Square reported net revenues of $1.27 billion for 2015 with a net loss of $1.24 per share. But Square's performance has improved in the recent months as it is currently trading at a market capitalization of $4.9 billion. Stripe hasn't filed yet for an IPO, but it must surely be watching Square's IPO performance from the sidelines to figure out its next move.