Stripe’s Annual Letter Provides an overview of a healthy, growing business. Stripe is large enough that when considering its growth, it should be evaluated against the overall growth of the payments space more generally. By this criterion, the company is outperforming the market.
Key growth points
Stripe noted in its annual report that total payment volume will surpass $1 trillion in 2023. These are big, round numbers, even if they are imprecise. Certainly the threshold is noteworthy, but when combined with recent growth figures it becomes even more impressive. Stripe said payment volume will increase 25% in 2023. If the company actually processed exactly $1 trillion last year, that would mean $800 billion in processing in 2022, or $200 billion worth of TPV profits for the year. Given Stripe’s size, this is a significant result.
Keep in mind that Stripe’s fee structure starts at 2.9%, with a 30 cent fee added for domestic card-based transactions. This means that even after accounting for volume discounts, the volume of payments added last year added significant new revenue to private companies.
These returns translate into cash flow, which is the most important metric for investors. “Cash flow was very positive in 2023 and we expect it to be positive again in 2024,” the company said in its annual letter. This means there is little or no need to raise more capital before going public. This may be one reason not to pursue a short-term IPO. A public offering is a funding mechanism, and Stripe is currently starting with cash, limiting its need for more capital.
Two other data points stood out.
First, there are currently 100 companies using the service that process over $1 billion annually through Stripe. These companies account for about 10% of total payments, suggesting some level of customer concentration. While this isn’t off the risk radar, it’s a concern for some investors, but more importantly, it means Stripe could end up with a large number of accounts over time. Companies processing that many total payment amounts through Stripe can build their own internal stack or pursue more DIY options. The fact that so many large accounts are sticking with Stripe means customers won’t necessarily “graduate” from the payment services on offer, which bodes well for future growth and revenue stability.
Second, products in the “Revenue and Financial Automation” bucket are expected to reach $500 million annually this year. This is a tool that helps businesses manage billing, taxes, and revenue recognition. That run rate would be enough for the division to become a public company in its own right. This gives Stripe not only a massive scale operation on the payments side, but also a software story that differentiates it from its core operations. Earnings varieties that grow quickly and potentially generate high margin returns are investors’ catnip. That topic is expected to come up when Stripe eventually files to go public.
Amazing start-up success
We continue to see venture capital funding at its lowest levels. But Stripe says this doesn’t stop people from forming new companies. In fact, 2023 saw a record number of startup formations. According to the company, the United States is leading the way, but progress has also been made in Canada, the Netherlands and Sweden.
These startups are achieving success without VC support. For example, startups founded in 2022 (the most recent full year according to Stripe’s data) were 60% more likely to generate revenue in their first year than those founded, with 57% generating $1 million in their first year. were more likely to be processed. 2019, according to the company.
This is impressive, considering that 2023 began with some saying that the predictors of startup success for the year would come down to more frequent re-evaluation of budgets and plans and a path to breaking even.
Stripe also tooted its own horn, noting that one in six new Delaware companies integrates with Stripe Atlas. More than 50,000 of them were trying to generate $5 billion in annual revenue.
future
Overall, it’s been an interesting year for Stripe, which is now valued at $65 billion. We’re expecting Stripe’s IPO soon, but it won’t be for at least another year.
It’s made a somewhat unusual acquisition of OK, a startup that has developed low-code analytics software to help engineering leaders better understand their teams’ performance. Mary Ann Azevedo wrote: “Stripe decided to acquire a startup that helps engineering leaders build performance dashboards to measure their teams’ performance. “It improves speed and productivity.”
“Relationships” was also a big theme throughout Stripe’s letter. The company provided a wealth of examples of how it continues to roll out services to help businesses build closer relationships with customers and improve the overall payments experience.
Additionally, Stripe continues to say that the company is still in its early stages. It aims to “become the most trusted part of the business stack.” This is a lofty goal, but our growth to date indicates that our customers are well on their way to achieving that goal.