Stripe’s annual letter Provides the outline of a healthy growing enterprise. Stripe is big enough that when we think about its growth, we have to weigh it against the overall growth in the payments space. By this measure, the company is outperforming the market.
main growth points
In its annual letter, Stripe stated that its total payment volume will exceed $1 trillion in 2023, which is not precise but is still large. That threshold is noteworthy, of course, but it becomes even more impressive when combined with recent growth numbers. Stripe said its payment volume will grow 25% in 2023. If the company did process $1 trillion last year, that would mean that volume would reach $800 billion in 2022, giving TPV $200 billion worth of revenue in a year. For Stripe’s scale, that’s a pretty good result.
Recall that Stripe’s fee structure starts at 2.9%, with an additional 30 cents charged for domestic card transactions, which even accounting for volume discounts means that increased payment volume last year generated a lot of new revenue for the privately held company .
These revenues are converting into cash flow, the most important metric for investors. The company said in its annual letter that “cash flow was strong in 2023 and is expected to be positive again in 2024,” meaning it has little need to raise more capital before going public. That may be part of the reason it’s not pursuing an IPO in the near future: A public offering is a fundraising mechanism, and Stripe is currently raising cash, limiting its need for more capital.
Two other data points also stand out.
First, there are now 100 companies using its service, processing $1 billion or more annually through Stripe. These companies account for approximately 10% of their total payments volume, which implies a degree of concentration of customers – a concern for some investors, although it is not on our risk radar – but more importantly, it means Stripe is managing to retain a large number of accounts over time. Any company processing that many total payments through Stripe can build its own in-house stack, or pursue a more DIY option. The fact that so many large customers are sticking with Stripe means customers won’t necessarily “graduate” from the payment services it offers, which bodes well for future growth and revenue stability.
Second, products that fall into the “revenue and financial automation” category are expected to hit $500 million in annual run rate this year – tools that help businesses manage billing, taxes and revenue recognition. This run rate is enough for the business unit to become a public company in its own right. This not only gives Stripe a large-scale operation on the payments side, but also provides a software story for that core operation. Revenue diversity can unlock fast-growing, potentially high-margin revenue, which is a focus for investors. Expect this theme to come up when Stripe finally files to go public.
Surprising launch success
We continue to see venture capital funding at its lowest levels. However, Stripe said that hasn’t stopped people from starting new companies. In fact, 2023 saw a record number of new startups. The company says the U.S. is leading the way, but Canada, the Netherlands and Sweden are also making strides.
Even without venture capital backing, these startups are succeeding. For example, compared to startups founded in 2022 (the most recent full-year data Stripe has), startups founded in 2022 are 60% more likely to start collecting revenue within the first year and were 57% more likely to process $1 million in a year, according to the company, in 2019.
That’s pretty impressive considering we’re starting 2023, a year in which some say predictive factors for startup success will depend on more frequent re-evaluations of budgets and plans and the path to break-even.
Stripe also boasts, noting that one in six new companies in Delaware merges with Stripe Atlas. Of these, more than 50,000 are working to generate $5 billion in annual revenue.
future
Overall, it’s been an interesting year for Stripe, which is currently valued at $65 billion. While we expect Stripe to launch an IPO soon, it’s unlikely to happen for at least a year.
In a rather unorthodox move, it acquired Okay, a startup developing low-code analytics software designed to help engineering leaders better understand how their teams are performing. Mary Ann Azevedo writes: “Stripe’s decision to acquire a startup that helps engineering leaders build performance dashboards to measure their teams’ performance feels like the company is serious about ensuring its engineering teams can be effective Not only can we move faster, but we can also be more productive by working on the ground.”
“Relationship” is also a big theme in Sleip’s letters. The company provided numerous examples of how it is continuing to roll out services that help companies build closer relationships with customers and improve the overall payments experience.
Additionally, Stripe went on to say that the company is still in its early stages of development. Its goal is to “become the most reliable part of the enterprise stack.” It’s a lofty goal, but its growth to date suggests customers are finding it adequately executes on it.
