Stripe: Thinking Like a Civilization
Mario Gabriele created The Generalist to help its readers understand how technology is changing the world and he is doing an amazing job at that.
I’ve been subscribing to Mario’s newsletter for a while now and I’ve learned a ton about technology since I started reading it.
I highly suggest subscribing (he has a free option and a paid) to The Generalist by following the link below.
https://www.readthegeneralist.com/
Mario works with a team of contributors and they all do great analysis on a lot of the new trends in the tech industry and many of the emerging tech companies as well including Stripe, Nubank, UiPath, Coinbase, Coupang and many more.
My summary here only focuses on Stripe but I highly recommend checking out the other reports also.
Here is the full Stripe report from The Generalist:
https://www.readthegeneralist.com/briefing/stripe
And here is my summary:
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Stripe’s mission is to increase the GDP of the internet but is compellingly overvalued, has real competition and is attempting a balancing act between small/medium sized businesses and enterprises.
The Collision brothers are civilizational level thinkers similar to Musk, Bezos and Buterin [Cofounder/inventor of Ethereum].
The Collision brothers were very gifted intellectuals growing up and excelled right through school before joining a startup called Automatic, a platform to help eBay power sellers. It was eventually bought for $5 million making the Collison brothers young millionaires.
The Collision brothers realized that processing payments was a mess on the internet so they built a solution tailored toward developers to use in their tech stack to help them process payments.
To get the business up and running, the Collision brothers raised $20,000+ from Y combinator.
Stripe was originally called /dev/payments then slashdevslashfinance then after a bunch of brainstorming the name was changed to Stripe.
Stripe has a valuation of $95 billion now and it now offers the following 14 products:
1. Online payments
2. Terminal payments
3. Payments for platforms
4. Subscription management
5. Online invoices
6. Spend management
7. Business financing
8. Card creation
9. Banking as a service
10. Fraud and risk management
11. Custom reports
12. Startup incorporation
13. Carbon removal
14. Sales tax and vat automation
Stripe’s Atlas platform makes it simple for businesses to setup using Stripe’s infrastructure and also allows them to incorporate. Atlas is available in 140 countries meanwhile Stripe payments is only available in 44 countries.
Stripe's offering of other products like Atlas and Stripe Radar allows them to increase their margin especially since Stripe Payments is a low margin business.
Here are some of the charges for different Stripe business lines:
Payments: 2.9% plus 30 cents per transaction
Connect: $2 per user / .25% plus 25 cents per payout
Atlas: $500
Radar: 5 cents per transaction
Sigma: 1.4c - 2c per charge / $0-$100+ per month
Billing: .5 - .8 on recurring charges
Issuing: 10c virtual card/ $3 per physical card/ .2% plus cents per transaction
Terminal: 2.7% per transaction
Tax: .4 - .5% per transaction
Stripe’s business is focused on getting rid of all the complexity for the end-user. Their payments business began by letting their customers accept payments with only 7 lines of code and you can tell that the company is obsessively focused on making their products as simple and easy to use as possible because Stripe cares so much.
Patrick Collison is very well-read and he studies a lot of history (he referred to it as "a way to cheat”) including what makes companies so great and what Amazon was doing in 1999. He also apparently debated Elon Musk on rockets in a conversation leading one person observing to admire his brilliance by just being able to have a discussion on the same level as Elon on a topic (rockets) that isn’t even his main focus.
Patrick is also humble and ambitious. He always wanted to Stripe to be compared not to other Application Programming Interface companies but to Google and Amazon.
John Collison is smart as well but much more straightforward and he does all of the public relations and interviews.
Both John and Patrick make a great team together in running Stripe.
Claire Hughes Johnson is the COO of Stripe and she is also very smart and makes a great compliment to the Collison brothers and she focuses a lot on what makes great teams.
Claire's role is to make sure that Stripe adapts to challenges and that the company stays together and doesn’t fall apart.
Stripe thinks 10 to 30 years out and they believe that they are only in the early innings of this ballgame right now [and I agree].
Other than Coupang, there is likely no other company out there that has a more customer-first approach than Stripe [maybe Amazon?]
Stripe takes a while to hire employees because they are focused on getting the right employees and having "efficiency as leverage" meaning less employees doing more but this has resulted in what employees describe as a very difficult place to work with a poor work/life balance that includes working nights and weekends. The employees Mario Gabriele spoke to still seemed thrilled to be working at Stripe though.
Stripe has a venture capital arm and one of the companies it owns is a company that focuses on building a fast checkout experience called Fast.
The Collison brothers have two rules for investing when it comes to Stripe and those rules are (1.) focus and (2.) genuine return opportunity. The companies they invest in have to be somewhat related to Stripe's goal of "increasing the GDP of the internet" and to payments. The only exception to the Collison brothers' two rules of investing are that they will invest in a business started by a former employee even if it doesn’t comply with their 1st investing rule (focus).
So far, Stripe has invested in 21 companies and made 11 acquisitions with those acquisitions being integrated into Stripe’s product development.
Some of those acquisitions were a company called Paystack which helped Stripe enter the African market and support customers in Nigeria, Ghana and South Africa.
Another acquisition was a company called Touch Tech which helps Stripe comply with European regulations. Recent messaging from Stripe signals that Europe is very important to their short-term growth.
And Mario Gabriele expects more to come from Stripe in the short-term. He expects Stripe to invest in insurance and two geographies - Brazil and Indonesia.
Stripe’s bear case is that they compete in a very competitive space and their valuation is very high as it already discounts many future years of flawless execution. Although compared to its closest rival, Ayden, Stripe still does look cheap based on its near $100B valuation.
Stripe has revenue growth of 70% with $7.4b in revenue and a $95B valuation which is a revenue multiple of 12.8 times compared to Ayden’s 37% revenue growth on revenue of $4.4b and a valuation of $70.2b results in a 15.9x price-to-revenue multiple.
I personally think if Stripe was publicly traded this multiple would expand to 20-30x revenue based on how I am seeing some of the other API high growth tech companies trade at but it looks to me that staying private is lowering Stripe's current valuation.
Mario makes a good point that we don’t know what Stripe is earning though since they are private and don’t need to report this.
He also states that if Stripe were to struggle it would likely come from their ambitions since they have lots of products and are trying to win both the top (enterprise) and bottom (small/medium sized businesses) of the market which is not easy to pull off.
One former general manager notes that there is a very, very small amount of companies that are able to pull off creating great products for both small/medium sized businesses and enterprises but then again, this same general manager also thinks that Stripe does have a good chance of pulling this off.
The enterprise part of the market may be harder to retain since they are more likely to have the recourse and capability to build their own payment stack in house like Airbnb did. When asked why Airbnb built their own payment system in house instead of using Stripe, Airbnb stated that they wanted more control, reduced fees in the long run and to allow them to customize their payment system better.
Here is a great chart of Stripe’s competitors by their business line that was created by The Generalist team based on employee interviews:
Source: https://www.readthegeneralist.com/briefing/stripe
Ayden is Stripe's most direct competitor and Ayden likely has a wider country range, with more coverage of payments support and a better point-of-sale terminal. Ayden also is believed by one general manager to be planning for an omnichannel payment approach for a much longer time period and Ayden has also sealed deals with major companies such as Starbucks and McDonalds.
Stripe has been out-operating PayPal subsidiary, Braintree, and will likely continue to do so since Braintree hasn’t been innovating Braintree very much (Venmo has been unchanged since Paypal acquired Braintree).
Marqeta is much smaller after having IPO'd at $16B but one c-suite customer who evaluated both Marqeta and Stripe says that Marqeta probably has the best technology in the business though Stripe is catching up quickly.
Stripe can grow 10x bigger from where it stands today since there are still a lot of transactions that are done offline but will likely move online, online penetration (60% of the world population) is still very low, many people who have internet today still don’t have access to financial services and online payments and there are still some major national markets that Stripe has the potential to crack such as India, Brazil, South Korea, Indonesia, Turkey, Argentina and Thailand. Stripe also has many current products like terminal, capital, tax and treasury that are very limited in offering and can be greatly expanded to new customers.
All in all, Mario ends with this quote:
"Stripe thinks like a civilization [and] is well on its way to becoming one."