News that T. Rowe Price cut the value of its stake in fintech giant Stripe is making headlines this week, the new data point coming in the wake of similar cuts by other investment houses regarding their ownership in late-stage startups.
However, while it is true that T. Rowe Price reduced the value of its stake in Stripe, part of its Global Technology Fund, the latest reduction in its worth is not unique. Not only has Fidelity also disclosed that it now values its Stripe shares at a discount to prior marks, but the latest T. Rowe Price news also comes after a similar cut in March.
Stripe is not under unique pressure; other fintech companies both public and private have seen their valuations reduced by revamped 409A valuations, new funding rounds, public offerings and a broader selloff in the stock market that has broadsided financial technology companies in many cases. (Recall that Stripe’s interval valuation declined earlier this summer.)
Let’s chat about Stripe’s latest product news and then do a little digging on how T. Rowe Price is valuing its stake in the company.
Stripe in context
Stripe made headlines in recent months for a variety of reasons. Most recently, it reportedly laid off some employees of TaxJar, a startup that it acquired last year. In May, it announced “Financial Connections,” a service that will, TechCrunch wrote, let its “customers connect directly to their customers’ bank accounts to access financial data to speed up or run certain kinds of transactions.” The move was notable in that it put it directly in competition with another fintech giant, Plaid.
Meanwhile, payments infrastructure provider Finix — which started out in early 2020 by selling its payments tech to other businesses — revealed in May that it was becoming a payments facilitator, in addition to enabling other companies to facilitate payments. That move put it in immediate competition with Stripe.
How Stripe’s valuation is developing
Stripe is one of the most valuable companies in the fintech game, period. That makes it not only a prime IPO candidate in time but also a key driver of paper venture returns to date, and, perhaps someday, liquid gains. The value of Stripe, therefore, impacts more than just one company’s price. Rather, Stripe is an obvious bellwether for the fintech startup market more broadly.
It is not surprising that Stripe’s value soared during the pandemic, a period that also saw a huge rush of investment into private fintech companies, a long-running trend that the COVID-19 pandemic accelerated. For example, in September 2019, Stripe disclosed a $250 million Series G round that pushed its valuation to around $35 billion, per Crunchbase data. (The company later added another $600 million to that round in mid-2020.)
But it was in March 2021 that Stripe really told the world that its backers expected it to become one of the most valuable companies on the planet. It was in that month that Stripe disclosed that it had raised $600 million at a $95 billion post-money valuation, a nearly unfathomable price for a private company. (PitchBook data confirms Crunchbase’s figures.)
From the 2021 peak for startup valuations, many fintech companies have seen their fortunes shift. The most famous of such concerns is Klarna, whose valuation reset was among the most stridently negative in memory. Stripe is enduring perhaps less severe, if related, repricing.
Private companies are not alone in the matter. The share price of Block, formerly known as Square, peaked at $276.14 in the last year; Block was worth around $73 per share this morning. Similarly, PayPal’s share price peaked at $296.70 in the last year. It hovered around $95 per share this morning.
Tracking Stripe tells a similar story. Per a filing from the T. Rowe Price Global Technology Fund concerning its year-end marks for its constituent investments, at the end of 2021, the fund valued its Stripe stock at $64.65 per share. A filing detailing its March 31, 2022 quarter cut that figure to $41.07 per share. And its latest filing, released this week, puts an even smaller $23.04 per-share price on its units of Stripe equity. That’s a dramatic comedown in just a few quarters.
In different times, we’d ask if Stripe was perhaps being undervalued by its backers. But given how much damage fintech companies have taken in the wake of a changing interest rate environment and changing investor tastes, perhaps we should be asking if Stripe’s valuation has come down enough.
Yahoo Finance reports that Block is worth 2.34x its trailing revenues and PayPal is worth 4.15x its own trailing top line. Applying Stripe’s December-to-June valuation cut (about 64.4%) to its final private price, Stripe could be worth about $33.8 billion. Given how light we are on reported Stripe revenue data, we can merely infer that if it went public at 4x trailing and our above-calculated valuation, the company would need to have $8.45 billion in trailing revenues. At a 5x trailing multiple, that figure falls to $6.67 billion, a far smaller number but still hardly an insubstantial figure for a private company.
Given single-digit revenue multiples for public-market comps — though you are free to quibble with our selected companies and could find more favorable comparisons if you’d like — you can understand why Stripe is being repriced by its backers; the revenue scale required to support a $95 billion valuation is simply staggering.
For Stripe, the road ahead is replete with in-market battles with competitors, as well as arguing with the public market that it deserves a healthy premium to concerns like Block and Square, two companies that were so recently market darlings. Much like Stripe itself.