5 ms·

IPO prep perhaps - doing some napkin math: $640B in payment processing * ~3% = 19.2B in yearly revenue growing at 60%. Best public comp. would be probably Bloc

IPO prep perhaps - doing some napkin math: $640B in payment processing * ~3% = 19.2B in yearly revenue growing at 60%. Best public comp. would be probably Block(formerly SQ). They are doing $17.6B revenue @ 86% growth. Stripe last raise valuation: $95B. Block Market cap: $74B. There are some bitcoin revenue shenanigans with Block on what counts and what doesn't. But they are profitable, and Stripe probably isn't - so, its a reasonable comparison I think. I like Stripe a lot (and Block too!), but man - private markets are wild.

axg11 5y ago
Any sources on Stripe not being profitable?
- parentheses 5y ago
  They can be profitable but prioritize growth at this stage. Profits are an eventual goal once public. Not required when all shareholders are private.
- jonathan-adly 5y ago
  No - that's why I said probably. If you are growing at 60%, have access to good talent, funding, and can stay a private company for a 1-2 more years if you need to - then the rational approach is push all your dollars in growing/creating moats. I expect them to be slightly unprofitable, but who knows :)
  - propogandist 5y ago
    did Magic Leap create a moat after they raised 1.4 billion?
ezaf 5y ago
Keep in mind that Block's $17.6B revenue includes CashApp which makes up almost half of their revenue. It looks like the $640B payments processing does not include BaaS & SaaS products offered by Stripe
- gabagool 5y ago
  Dumb question, how does CashApp make so much money? Isn't it a free app with no fees? I have to imagine the free 1-3 business day deposit is highly preferred to the 1-3% transaction free instant-payment-deposit feature.
  - ezaf 5y ago
    CashApp made most of their money through Bitcoin and the exchange fees (something like 70% in 2021?). Additionally, they charge extra for instant transfers in and out of CashApp. I believe its 1.5%. Lastly, they also make money by keeping the Cash in the CashApp/Square network. Since it is all within Block, they will not have to pay interchange fees when a customer pays with CashApp to a Square merchant.
    - reducesuffering 5y ago
      Lots of comments related to Block revenue wrt Bitcoin that needs some context. Block is making inflated revenue because they're legally required to report buying a Bitcoin for $49.5k and selling for $50k as $50k in revenue, even though their profit will be negligible. Since their bitcoin fees, their gross profit is a much better metric, as how many bitcoins they're skimming, adding to inflated revenue metrics, is meaningless.
  - soperj 5y ago
    you can do a lot with 3 days of money.
  - cheriot 5y ago
    There's also money left in Cash App after someone pays you.
  - halfway_there 5y ago
    Block has an accounting quirk where they report Bitcoin that users purchase through CashApp under "revenue". Revenue feels like the wrong place for this number to show up, but the result is that it inflates their revenue number
matdehaast 5y ago
Stripe don’t get even close to the full fee of card transactions. Most goes to the issuing bank. They would be lucky to clear 0.8% of a card transaction and it’s likely much lower
- arcticbull 5y ago
  When Square published its card processing margins in quarterly reports, they kept about 1% - roughly a 33% margin. They have since stopped publishing this metric. For instance here, page 7 [1] in Q4 2016, Square reported a 1.04% transaction margin against 2.94% transaction revenue. [1] https://s29.q4cdn.com/628966176/files/doc_financials/2016/SQ-2016-Q4-Shareholder-Letter.pdf https://s29.q4cdn.com/628966176/files/doc_financials/2016/SQ...
  - matdehaast 5y ago
    Thanks that’s handy to know! At their volume they can obviously get better rates from the bank. I do wonder knowing that what the actual revenue is and perceived IPO valuation. I can’t see it being $100B unless they doing crazy numbers on their other products
    - qwytw 5y ago
      In EU (which I assume is a significant market) the max banks can charge is 0.2/0.3%. Their standard fee is 1.4% + €0.25, so yeah, they should probably end up with ~1% or so. I'd assume their margins in other less regulated markets should be similar
      - amedvednikov 5y ago
        Why can't this law be introduced everywhere else. It makes no sense to pay so much for simple payments.
        arcticbull 5y ago
        Most of interchange goes to the issuing banks to pay for loan origination, defaults, chargebacks and most significantly reward programs. The EU doesn't really have comparable credit card based reward programs since they can't fund them with the smaller interchange. It's kind of six of one, half a dozen of the other.
endtime 5y ago
I recently decided to interview for the first time in a while (and ended up accepting an offer - today is my last day at Google, after over ten years). Anyway, Stripe would have been on my shortlist...except for exactly this problem. My criteria were "mid-sized public companies hiring lots of Googlers" and Stripe obviously didn't pass the "public" part of that. It's hard enough to think about what will happen to an RSU grant if the Fed raises rates or some relevant legislation gets passed; I don't want to have to form an opinion about private valuations on top of that.
- kleinsch 5y ago
  I'm looking for similar profile companies - if you don't mind disclosing, who ended up on your list of companies to talk to?
  - endtime 5y ago
    Coinbase and Roblox - it was a short list. I ended up with compelling offers from each, and would happily have taken either in the absence of the other. That said, in the end I chose Roblox.
    - nostrademons 5y ago
      Hah, I had the exact same list when I went back to work in 2020. Ended up choosing Google again precisely because they were public (Coinbase and Roblox had not IPO'd at the time), and then the stock of the latter two 10x'd after the IPO.
      - endtime 5y ago
        Much harder to come up with that list a couple years ago, nice calls. I don't have the risk appetite required for potential 10x upside - I have a few kids and my wife doesn't have an income. But I don't think 2-3x is necessarily out of the question...
    - sl3232323 5y ago
hibikir 5y ago
An important detail here is that the raise was a whole year ago, back when Block's market cap was far higher: I don't have their issuing/buyback data on hand, but their shares were flying as high as $270 per share, when today they are at $123. So the 95B is probably more than Stripe would be worth today if they raised. Compared to the old Block share price, Stripe's valuation back then was good, but not crazy.
hackernewds 5y ago
This is more about block being undervalued than striping over valued. Besides, the business Block has plenty to be excited about (ability to reinvent themselves and emerge from their existential black swan event during covid) and worried about (volatile philanthropic CEO)

axg11 5y ago

Any sources on Stripe not being profitable?

parentheses 5y ago
They can be profitable but prioritize growth at this stage. Profits are an eventual goal once public. Not required when all shareholders are private.
jonathan-adly 5y ago
No - that's why I said probably. If you are growing at 60%, have access to good talent, funding, and can stay a private company for a 1-2 more years if you need to - then the rational approach is push all your dollars in growing/creating moats. I expect them to be slightly unprofitable, but who knows :)
- propogandist 5y ago
  did Magic Leap create a moat after they raised 1.4 billion?

ezaf 5y ago

Keep in mind that Block's $17.6B revenue includes CashApp which makes up almost half of their revenue. It looks like the $640B payments processing does not include BaaS & SaaS products offered by Stripe

gabagool 5y ago
Dumb question, how does CashApp make so much money? Isn't it a free app with no fees? I have to imagine the free 1-3 business day deposit is highly preferred to the 1-3% transaction free instant-payment-deposit feature.
- ezaf 5y ago
  CashApp made most of their money through Bitcoin and the exchange fees (something like 70% in 2021?). Additionally, they charge extra for instant transfers in and out of CashApp. I believe its 1.5%. Lastly, they also make money by keeping the Cash in the CashApp/Square network. Since it is all within Block, they will not have to pay interchange fees when a customer pays with CashApp to a Square merchant.
  - reducesuffering 5y ago
    Lots of comments related to Block revenue wrt Bitcoin that needs some context. Block is making inflated revenue because they're legally required to report buying a Bitcoin for $49.5k and selling for $50k as $50k in revenue, even though their profit will be negligible. Since their bitcoin fees, their gross profit is a much better metric, as how many bitcoins they're skimming, adding to inflated revenue metrics, is meaningless.
- soperj 5y ago
  you can do a lot with 3 days of money.
- cheriot 5y ago
  There's also money left in Cash App after someone pays you.
- halfway_there 5y ago
  Block has an accounting quirk where they report Bitcoin that users purchase through CashApp under "revenue". Revenue feels like the wrong place for this number to show up, but the result is that it inflates their revenue number

matdehaast 5y ago

Stripe don’t get even close to the full fee of card transactions. Most goes to the issuing bank. They would be lucky to clear 0.8% of a card transaction and it’s likely much lower

arcticbull 5y ago
When Square published its card processing margins in quarterly reports, they kept about 1% - roughly a 33% margin. They have since stopped publishing this metric. For instance here, page 7 [1] in Q4 2016, Square reported a 1.04% transaction margin against 2.94% transaction revenue. [1] https://s29.q4cdn.com/628966176/files/doc_financials/2016/SQ-2016-Q4-Shareholder-Letter.pdf https://s29.q4cdn.com/628966176/files/doc_financials/2016/SQ...
- matdehaast 5y ago
  Thanks that’s handy to know! At their volume they can obviously get better rates from the bank. I do wonder knowing that what the actual revenue is and perceived IPO valuation. I can’t see it being $100B unless they doing crazy numbers on their other products
  - qwytw 5y ago
    In EU (which I assume is a significant market) the max banks can charge is 0.2/0.3%. Their standard fee is 1.4% + €0.25, so yeah, they should probably end up with ~1% or so. I'd assume their margins in other less regulated markets should be similar
    - amedvednikov 5y ago
      Why can't this law be introduced everywhere else. It makes no sense to pay so much for simple payments.
      - arcticbull 5y ago
        Most of interchange goes to the issuing banks to pay for loan origination, defaults, chargebacks and most significantly reward programs. The EU doesn't really have comparable credit card based reward programs since they can't fund them with the smaller interchange. It's kind of six of one, half a dozen of the other.

endtime 5y ago

I recently decided to interview for the first time in a while (and ended up accepting an offer - today is my last day at Google, after over ten years). Anyway, Stripe would have been on my shortlist...except for exactly this problem. My criteria were "mid-sized public companies hiring lots of Googlers" and Stripe obviously didn't pass the "public" part of that. It's hard enough to think about what will happen to an RSU grant if the Fed raises rates or some relevant legislation gets passed; I don't want to have to form an opinion about private valuations on top of that.

kleinsch 5y ago
I'm looking for similar profile companies - if you don't mind disclosing, who ended up on your list of companies to talk to?
- endtime 5y ago
  Coinbase and Roblox - it was a short list. I ended up with compelling offers from each, and would happily have taken either in the absence of the other. That said, in the end I chose Roblox.
  - nostrademons 5y ago
    Hah, I had the exact same list when I went back to work in 2020. Ended up choosing Google again precisely because they were public (Coinbase and Roblox had not IPO'd at the time), and then the stock of the latter two 10x'd after the IPO.
    - endtime 5y ago
      Much harder to come up with that list a couple years ago, nice calls. I don't have the risk appetite required for potential 10x upside - I have a few kids and my wife doesn't have an income. But I don't think 2-3x is necessarily out of the question...
  - sl3232323 5y ago

hibikir 5y ago

An important detail here is that the raise was a whole year ago, back when Block's market cap was far higher: I don't have their issuing/buyback data on hand, but their shares were flying as high as $270 per share, when today they are at $123. So the 95B is probably more than Stripe would be worth today if they raised. Compared to the old Block share price, Stripe's valuation back then was good, but not crazy.

hackernewds 5y ago

This is more about block being undervalued than striping over valued. Besides, the business Block has plenty to be excited about (ability to reinvent themselves and emerge from their existential black swan event during covid) and worried about (volatile philanthropic CEO)