Stripe's annual letter provides an overview of a healthy and growing business. Stripe is big enough that when you think about its growth, you have to weigh it against the growth of the payments space more generally. By this measure, the company is outperforming the market.
Main growth points
Stripe notes in its annual report that its total payments metric exceeded $1 trillion in 2023, and while imprecise, this number is large and approximate. That threshold is certainly noteworthy, but it becomes even more impressive when combined with recent growth numbers. Stripe announced that payment volume in 2023 will increase by 25%. If the company actually processed exactly $1 trillion last year, then in 2022 processing he would have processed $800 billion and in one year he would have his TPV worth $200 billion. Masu. That's a pretty impressive result for Stripe's size.
Remember, Stripe's fee structure starts at 2.9% and adds a 30 cent fee for domestic card-based transactions. This means that, even accounting for volume discounts, last year's additional payments generated huge amounts of new revenue for private companies.
These revenues are converted into cash flow, a very important metric for investors. “We expect to become significantly cash flow positive in 2023 and to become cash flow positive again in 2024,” the company said in its annual letter, which means it will raise additional capital before going public. This means that there is little or no need for procurement. That may be part of the reason for not pursuing an IPO in the near term. The public offering is a financing mechanism, and Stripe is currently raising capital, limiting its need for further capital.
Two other data points stood out.
First, there are currently 100 companies using Stripe's services and processing more than $1 billion annually with Stripe. These companies account for about 10% of the company's total payments, suggesting some concentration of customers and, while not setting off the risk radar, are a concern for some investors. But more importantly, it means Stripe has been able to maintain large accounts over time. Businesses that process this much total payment volume through Stripe can build their own in-house stack or pursue more DIY options. The fact that so many large accounts are sticking with his Stripe implies that customers will not necessarily “graduate” from the payment services offered by the company, and this could lead to future growth and revenue. bodes well for its stability.
Second, services that fall into the company's “Revenue and Financial Automation” bucket are expected to reach an annual run rate of $500 million this year. These are tools that help businesses manage billing, taxes, and revenue recognition. This occupancy rate is sufficient for the business unit to become a publicly traded company in its own right. This allows Stripe to not only have a large business on the payments side, but also a software story to differentiate it from its core business. Investors love the diversification of earnings, which can generate fast-growing, high-margin returns. We expect this theme to come up when Stripe makes its final public filing.
amazing startup success
Venture capital funding continues to be at an all-time low. But Stripe insists that doesn't prevent people from starting new companies. In fact, 2023 saw record startup formation. The company says the United States is leading the way, but progress is also being made in Canada, the Netherlands and Sweden.
These startups are successful even without VC backing. For example, startups founded in 2022 (the most recent full year of data obtained by Stripe) are 60% more likely to start collecting revenue within a year compared to startups founded in 2022, and 57% more likely to start collecting revenue within the first year. In 2019, the company said it was likely to process $1 million.
2023 has some people saying that predicting startup success in that year will be a more frequent reassessment of budgets and plans, and the path to break-even. That's pretty impressive considering how it started.
Stripe is also sounding its own alarm, noting that 1 in 6 new companies in Delaware has implemented Stripe Atlas. Among them, he had over 50,000 people working towards an annual revenue of $5 billion.
future
All in all, it's been an interesting year for Stripe, which is currently valued at $65 billion. We expect Stripe's initial public offering to happen soon, but it will take at least another year for that to happen.
It made a rather unconventional acquisition of OK, a startup that developed low-code analytics software to help engineering leaders better understand the performance of their teams. Mary Ann Azevedo writes about this: “Stripe, which decided to acquire a startup that helps engineering leaders build performance dashboards to gauge how their teams are doing, is confident that their engineering teams will be able to do more than just move around. You'll feel like you're very serious about making sure you're working faster and more productive. ”
“Relationships” was also a major theme throughout Stripe’s letters. The company provided a wealth of examples of how businesses continue to deploy services to build closer relationships with customers and improve the overall payment experience.
Additionally, Stripe continues to say that the company is still in its early stages. We aim to be “the most trusted part of an enterprise's stack.” This is a lofty goal, but our growth to date shows that our customers recognize that we are well within reach of that goal.