Slava Rubin (00:00)

Hello and welcome to the Vincent briefing on Stripe.

Here we are with Marcelo from Sacra, myself Slava from Vincent, and we are talking Stripe. Since the election and even before the election, everybody has been talking about what's the latest with pre-IPO companies. We've decided to start with a series potentially of many discussions. So this is our first regarding Stripe, the global payments company that's already worth quite a bit of money. But the real question is, what is it really worth?

So here we are to talk about it with Marcelo from Sacra Let's first start with some disclaimer, just so everybody understands. Nothing in this presentation should be construed as an offer to sell securities or a solicitation of an offer to buy securities. All investments involve risk and possibility of loss, including loss of principle and neither past performance nor forward looking information is a guarantee of future results. With that said,

We're going to have an agenda here of letting Marcelo give us an overview. So everybody's on the same page as to what we're talking about in regards to Stripe. Then I'm gonna have a Q &A conversation with him. Everybody here might have their own questions. We already got many of them online in advance, but if you do have questions, feel free to share it in the chat. So here we go, Marcelo, take it away. All right, thank you, Saba.

Appreciate it. So yeah, excited to talk about Stripe. Stripe was founded in 2010 by the Collison brothers. I think it was notable that they started this company when they were in their early 20s. And really, I think the thing to keep in mind about Stripe's trajectory is that before Stripe came along, it was a mess accepting payments online. It was a real pain point for businesses. And Stripe came along and basically said, hey, seven lines of code.

your developers can build on us, build really streamlined and simple payment experiences. And Stripe basically rode that wave. Today, they have a whole ecosystem of back office products in addition to payment processing, but that's really Stripe's story, Payments that are friendly for developers to build on.

So when we look at Stripe, it's just important to keep in mind that Stripe is a machine that runs on total processing volume. the wide majority of its customers are using Stripe as their core payment processor. And what Stripe does is charge a fee on that volume that trickles down to Stripe in the form of gross revenue.

Stripe is taking about less than 2 % of total processing volume as gross revenue. But the number of that companies like Stripe and competitors we may talk about, the number they really manage to is net revenue. And that's what's left over after they pay out fees that are kind of baked into payments processing, most notably the fees that go to the payment, the hard payment networks like Visa and MasterCard.

So Stripe is on its investor roster, basically has a who's who of folks that are well regarded in Silicon Valley. If you look at where smart Money is investing and use that as sort of leading indicator of companies you should be looking at, well, I think Stripe would have been on your radar a long time ago. One announcement that the company made recently that shows a certain degree of financial robustness, in addition to all this cash that it's raised,

is that it is cashflow positive, was cashflow positive in 2023, and expects to be again in 2024.

So yeah, this is where we can start digging into Stripe. I think we all remember the roller coaster. I mean, it really started with the pandemic, a lot of online native names getting run up and staying like that for quite a while. And then we had a big tech downturn in 2022. you.

basically Stripe has been sort of a bellwether for all those shifts. So you can see that reflected here. This chart shows Stripe share price over time and important valuation events at which we can look at share price and look at the multiple. On the right side of the chart, you'll see that we've fast forwarded to 2024 here and we'll spend most time, I think, talking about recent numbers.

But Stripe is basically at a 19x, been hovering around a 19x multiple on net revenue in recent months. And that's really where the market has pinned it ever since it recovered from those ups and downs that I mentioned earlier.

So really what's great about Stripe in terms of looking at it as an analyst is just the amount of products that it has. And the way Stripe works is you have that core payment API that I told you about. And then over the years, Stripe has layered on more and more products. What Stripe wants to do is to help its customers grow because of course, when its customers grow, Stripe grows and benefits as well.

So all its products have a lot to do with automating financial processes in the back office, helping certain types of companies pay out and allocate payments in different directions. For example, marketplaces that need to do collect payments, divide out payouts that go to like say an Uber driver.

and channel all their money in different ways. What Stripe says is, you know, we want to be the company where everyone accepts payments, yes, but also holds money, orchestrates money and sends money out as well. So you have Stripe Billing, Stripe Connect, Stripe's gotten into tax, into back office analytics, a lot of products that it's built in and around that.

for payments API that I talked about earlier.

So here we're gonna talk a little bit about what Stripe relies on, which is the rails that Stripe relies on are really, you could call them incumbent payment rails, right? Stripe has made a point of not really trying to make enemies of Visa and MasterCard. Stripe runs on traditional payment card rails.

Also when Stripe embeds financial services in its products, for example, Stripe Treasury, which is its, you can call it a banking as a service product, or Stripe Capital, which is its lending product, it has to team up with partner banks. These are traditional banks that has to partner with on the backend to handle underwriting and some of the regulatory and backend aspects of providing those financial services.

But what Stripe has done over the years is build infrastructure and more infrastructure to sort of ease customer pain points and improve its own unit economics at the same time. For example, it used to rely on Fiserv for a good portion of its payment processing, which of course, aid into its margins over time. Stripe was able to build more and more of that payments processing infrastructure itself.

and retain those unit economics for itself. It's also built out company incorporation infrastructure. It's able to help other companies provide financial services like lending and banking using Stripe APIs. And most recently, I think it made its most surprising move, which was the acquisition of Bridge, which is a stable coin platform for $1.1 billion. And this is kind of an interesting move.

For one reason in particular is that stable coins, as the chart shows, are already driving more volume than Visa, depending on how you measure them.

So moving quickly now, Stripe's most notable competitors are either payment incumbents who have sort of rolled out API friendly products to compete with it. And these are many US based giant incumbent payment processors, but also in Europe, it has some interesting competitors like Adyen and Checkout.com. And these are companies that started in Europe. And you can see in this chart, a lot of them are very Europe.

Adyen is very Europe focused. But over time, they've started to compete with Stripe on its home turf as well, even as Stripe has gone over to Europe and Asia to compete with companies like Adyen and checkout.

So what do these competitors look like when you look at them through a market lens. What the market's really rewarding here with the multiples it's putting on some of these companies is the growth, the higher amount of growth that Adyen and Stripe have shown. Like I said before, Stripe is around 19x multiple and Adyen is a little bit below that.

So opportunities for Stripe, I've implied a few of them already, but one is expanding that product ecosystem. And if Stripe puts out more products that help their customers back office run more smoothly, it's able to tack on fees and usage and volume-based fees depending on the product onto that

take rate that it gets from the total processing volume and grow the amount of money that it can take from each customer. I think that's the key opportunity for Stripe because it's just been so good at rolling out products that sort of penetrate the back office and get Stripe more integrated with companies own internal infrastructure. Stripe has around 30,000 customers that comes out to about $130,000 per year per customer.

which is big, but could get bigger. Another important opportunity is going up market. It's still building its business with enterprises and companies that process more than a billion dollars a year. And also internationally, you can see in the chart Asia, which is the green bar, it's still a little bit of a rounding error right now in terms of Stripe's total footprint.

So if you look at Stripe's growth into the future, I think the reason to analysts that look at Stripe like myself, we really focused on what total processing volume is because it does put a little bit of a ceiling on what Stripe can squeeze out of that volume in terms of revenue. Even if it does build other products, most of the time those products are

building off of the core processing volume that a company has with them. And then that trickles down to net revenue like I said, Stripe's has been growing at around 25%, it grew 25 % on a net revenue basis in 2023. Our base case is that it will be a gradual deceleration through to 2028. And that's something that's normal for companies as they scale, growth tends to slow down.

But if you go to our bear case, we just have a much faster revenue deceleration. And then in our bull case, Stripe manages to reaccelerate that net revenue figure and build to 35 % net revenue growth at the end of this interval.

That's it. All right. Super helpful background. mean, what I'm hearing here is that this isn't some brand new startup. It's been around for a long time. I don't really think it's a question of whether or not it's going to be successful or not. It's just a question of how big is the market opportunity and what price point should we be entering expecting? What kind of return? Do you think that's fair? I think that's absolutely fair.

has shown itself to be a really good, well-managed, great execution company. It's really how fast will they grow and at what price can I get into this company so that I can get the most upside from that? Yeah. So one of the first things I like to think about is really just, again, the market. How big can this really be?

And I make a joke with folks when they ask me about SpaceX, they say, you what price should I get into SpaceX? And I said, whatever you could get into today. Cause in my opinion, the market size there and the opportunity for SpaceX is just massive. So the question is, you know, they're already doing a trillion dollars with Stripe today. Can you speak to the market? Is this like somewhat growing? Is it massively growing? How big is really this market opportunity realistically if they continue to grow for another decade?

Yeah, so Stride likes to say that the global economy in terms of payments that turn through turnover in the economy every year is around 100 trillion. So it has captured a meaningful share of that already. But the thing is, is that amount in terms of what is happening online, what it can grab.

that is happening online is growing and it's growing fairly quickly. So if you think about the payments market, what's been happening is a lot of activity has been shifting online, which we know, but a lot of activities also have been shifting onto mobile. That shift from offline payments to online payments is happening faster in a lot of geographies like parts of Asia, which we talked about. In addition,

know, companies are doing more and more to integrate their systems with the exhaust of their payments data, so to speak, right? So more and more, you're thinking about, your payments and your back office and your revenue and your revenue automation and your accounting and your tax as one big market, right? So in those adjacencies, think Stripe is growing that as well.

So I think with digital payments just growing very quickly on a global level and Stripe's ability to find new adjacent pain points in the market that it can attack on products and in doing so, they help their customers grow faster, which benefits them too. So there's kind of an inherent flywheel. You see the market growing quite quickly. Yeah. And is it fair to say that this is just one company type, but even the growth and continued expansion of like a

Shopify just shows the opportunity for a Stripe. Not that Stripe has to be connected directly to Shopify, but just the excitement that folks have with Shopify, it's similar that it could be with Stripe. Yeah, that's right. you saw in the pandemic, both Stripe and Shopify just explode. And that was a sort of moving forward of a lot of what's been happening in the economy, That folks are putting their economic activity online.

there's more entrepreneurship, et cetera. And that helps companies like Stripe. Remember that, a lot of businesses are running on Stripe and literally, they're doing everything through Stripe, They get their single pane of glass into their business through Stripe. And a lot of businesses that are operating that way are, SaaS businesses, digital first businesses, different kinds. If I'm long Stripe,

Does that mean I have to be short Visa, MasterCard, PayPal, or can I just belong all of them and then just try to find the place I can make the most money? I don't think you need to be short the other companies. They're actually quite different. Stripe likes to say, and of course this is in their interest, but it says we don't want to sort of knock aside Visa or MasterCard. We want to be like sort of a hub.

and plug into any payments method that's available, including the card networks, including other payment schemes that are proliferating globally in particular besides Visa or MasterCard. So it's very much seized and I think it's true, it's complimentary to the card networks. And then you have businesses like PayPal, I think it has quite a different profile, Braintree, which is the part of their business that's most comparable to Stripe.

is just a fraction of their business. It does a lot of other things. So in terms of perfect comps for Stripe, it would be hard to construct that trade as it is. We actually have a question from the audience, which is a segueing off of what you just said. Can you share about the profile of a customer and the companies that right now Stripe is going after versus some of its competitors, say Venmo, PayPal, or even Adian that you mentioned is probably the closest comp?

I think this is very interesting and where one of the growth levers for Stripe comes into play, which is enterprise customers. Stripe has historically been very strong with SMB and mid-market companies, but a few years ago, it kicked into very high gear, its efforts to go up market and get those enterprise customers, that process over a billion dollars a year.

And those were kind of bread and butter customers for Adyen. So where Stripe is going up market, and international, Adyen is coming over here to the US and going after some customers that Stripe already had. But really you have that sort of, more enterprisey Adyen, less enterprisey, but getting more so Stripe. I think that's one way to think about it.

Great, you mentioned that Stripe has an average of $100,000 client in terms. Yeah, like $130,000. Is that, that's $130,000 on net revenue or on? That's right, yeah, on net revenue, yeah. So what would Adi and me, as an example, do you know? No, I don't have that number, but I can get it to you easily. Okay, would you assume that that's the sort of thing that...

that number is bigger because they have more enterprise clients? No, not necessarily. the way it shakes out with enterprise clients that it's one reason Adyen and Stripe have comparable total processing volume, but Adyen actually takes less of that in the form of net revenue.

And I think the reason is because in part because it has enterprise customers. When enterprise customers go to a Stripe and Adyen. they're saying, hey, we process over a billion dollars in volume a year. Your fee to us is gonna be much, much lower than the 2.9 % plus 30 cents that you advertise on the tin And so while Stripe can get away with charging SMBs and mid-market companies, what it says on the box

they can't with enterprise customers. So, Adyen actually could be washed out in terms of the fact that average revenue per user wouldn't necessarily be higher for Adyen because of its enterprise customers. As well, the take rate that a company like this gets from customers is lower in Europe than in the U.S. and that's where Adyen is strong. So, I wouldn't necessarily expect Adyen to have higher.

average revenue per customer. Yeah, I just want to double click on something you said there, which is Stripe actually is making more money on the money they're processing, right? And that's one of the huge takeaways in terms of the opportunity. With Stripe, there's a billion dollars, sorry, a trillion dollars of TPV, which is total processing volume from TPV to gross revenue. I believe it's 1.8%. Is that right? That's right. Yeah, 1.8 % on gross. But compared to Adyen, I believe they're like half of that, right?

1.8, they're closer to 0.9? The number I have is 1.25%. So they're not quite half. Not quite half, but they're essentially, so that difference is massive. And I just want to make sure the audience understands that, which is for the same trillion, let's call it, Stripe is making a lot more money. Partially that's because they're dealing with smaller customers in the US, partially because they're in the US. Is there any other reasons that they're able to take that? Is it anything where it's the

product is differentiated, they're able to be more competitive, anything that has a moat there? I would actually say there's two other reasons that are also important when you look at these companies side by side. One is that Adyen does a significantly higher proportion of its processing at the point of sale, you know, through payment terminals. Stripe has a product in that area, but it's actually part of the business that Adyen has built up into much, much, much more higher percentage of its business.

And the fees are lower with in-person payments. So the fees that Adyen can collect from that volume will be lower than what Stripe or even itself would be able to collect from online payments. The other reason is that Stripe has been in the total analysis more effective in adding products, for example, in billing.

Stripe's product is a lot more robust. And with every product like tax billing, fraud, Adyen has some of these, but I think Stripe's just been more effective in getting customers attached to those products and building what it can get at the end of the day from each customer in the form of net revenue. Okay, great. I want to make a quick turn to comps. To me, it all comes down to comps. So Liam, if we could pull up the comp bubble slide, that'd be great.

which is, in my opinion, this is just a little bit of a framework of how to think about it. But really I want you to walk us through how to think about comps because when I'm thinking about, this private company, they're gonna go public, what are they gonna be worth, et cetera, et cetera, the public markets are gonna always show very clearly what the price probably could be based on the comps that have been around for years, based on what we think are the closest quote unquote comps. So here we have Adi, which I think is a great example. Then there's private market comps. We try to look at those. You put some other comps in here as well.

So I'm gonna give you an open ended question. How does Stripe compare with its comps on the financials from a public and private perspective? Yeah, so I mean, I think it jumps out at you on this chart, right? That, you know, Stripe is kind of neck and neck with Adyen, but, you know, it might look a little bit expensive and we can talk a little bit about why, I think it's justified for Stripe to have,

think 20X multiple versus Adyen at 17.2X. But the other thing I- Sorry, real quick. So Stripe is at 19.2, Adyen is at 17.2, and this is on the multiple of their net revenue. Is that right? Multiple of net revenue, that's right. And I don't know if we mentioned that Adyen is public, so- And this is for Stripe, this is based on 2023 revenues. It's based on-

It's based on revenue through Q3. So what we did was, yeah, yeah. Well, it's estimated revenue with Stripe. We have to estimate revenue and we have to estimate, you know, TPB, gross volume, et cetera. Stripe gives us some figures. But no, I did this analysis through Q3 2024. So it does include some Q3, yeah, and Q2.

Q1 2024 figures. Got it. So what's the through Q3, what's the net revenue for Stripe then? Yeah, so. For the last 12 months? Yeah, it's 4.75 billion. Got it. And what was it on the previous 12 months? Do you know? So exactly comparable previous 12 months.

No, I didn't calculate that out, but 2023 was 4 billion, right? So what do you think? Got it. So 2023 was 4 billion. What do you think 2024 will finish if it's now a 4.75 for the last 12 quarters? Well, think 2024 will finish at 5 billion. Got it. So we think it's going to go from 4 billion to 5 billion, which is about 25 % growth. Yeah.

Again, I think people are watching that very closely to see where it shakes out. But yeah, that's our baseline. Why is Stripe and Adyen at these huge numbers, 17.2 and 19.2, and then you have Block and PayPal, know, and Fiserv at these like, you know, much smaller numbers? Yeah, that's, I mean, that's what definitely jumps out at you. I mean, the main answer is they're not growing as quickly, right? And so the market's going to reward growth. And I think

you know, bottom line. That's the biggest reason. But I think another reason is that, these are these are different companies. They're not perfect comps. You know, a lot of Block's revenue is related to the cash app. It's a very different business. It's like, you know, there's a lot of Bitcoin involved. markets are going to discount that Bitcoin related stuff differently.

PayPal also, as I said before, it does a lot of different things that Stripe, for example, doesn't do. So outside of Braintree, it's stuff with big retailers and running their backend payment processing. And by that, mean, it's doing it offline and multi-channel on a scale that is very different from Stripe's. And as we said before,

take rates are lower in person and when you work with very large businesses. But I could go on and describe other reasons why these companies, they have different businesses, they're more mature companies, they've glommed on a bunch of different businesses that aren't as related to this core payments processing like Stripe's. So for the audience, if anybody has any questions, feel free to put it in the Q &A, we'll try to include it. So.

What do you think is the right multiple? What is the Marcelo, this is the correct multiple? Right now it's a 19.2, which 19 times 4.75 is a $91.2 billion valuation. So I guess you're saying today Stripe is worth 91.2 according to this. What do you think is the right multiple? Yeah, so I mean, I do think that it's reasonable to have Stripe at 20X.

I think it's a little lower than where it should be. But I'm pulling up my numbers here. I would be very comfortable with Stripe at 20x revenue. So for starters, Because it is a little bit below that. Moving forward, if you think about Stripe at $40 a share, right?

when I looked this morning, it was trading around $36.25 a share in private markets, which comes out to like a 19.4x multiple. If you think about it at $40 a share right now, that wouldn't be, once you do the math, it's not that much higher a multiple on Stripe, It's above 20, it's around 21.4x. So I think there-

Sorry, you said it's trading today at 36 something. That's what enterprise value? That's like 92 billion or something? Yeah, that's exactly 92.2 billion. Okay. Yeah. So today's, let's call it price is 92.2. Yep. Yep. Today's price is 92.2. And, if you think about it as like, let's say, you know, a hundred billion dollar company, right? If you valued it as a hundred billion dollar company right now,

it's not that much bigger in increment on multiple, right? So if you told me, I'm looking at Stripe at $40 a share, I would start to think that's expensive, but I also don't think it's crazy. just to give a range, right? But at 20X, would be at $37 a share, $37.3 a share.

And that I think is very reasonable as far as an entry point goes. 37.3 is what enterprise value total? 20X, 95 billion. 95 billion, okay, great. So today you're like, I'd buy it anywhere between 90 to 95. Obviously we get lower grade. And what I'm hearing though is by the end of the year, we're going to be at 5 billion. So if you take the 20X multiple, it could be trading at 100.

or if it sticks at 19, then potentially it's going to trade a little bit lower, obviously. Right. Yeah, that's right. And what is the, let's call it the, can you go to the assumption slide again on the bull and the bear, Liam? So can you just walk us through a little bit more of the assumptions on, you know, what's the difference between the bull versus the bear? Obviously growth rate is relevant here. And we're talking about growth rate. We're talking about how fast is the

total processing volume gonna grow, which should then just fall down to the bottom line of the net revenue, right? Yeah, that's right. mean, last year, total processing volume was up 25%, gross revenue was up 25%, and net revenue was up 25%. What have been the growth rates since COVID, the annual growth rates? Yeah, we have them here on a slide. If you wanna back up to one of the first charts, we have net revenue

through 20 before the pandemic. So obviously I had that, you know, big pandemic era spike. And let's say I see that. Yeah, go ahead. See the 20 % for 2022. Let's say it plateaus there on that 20%, right? Because it's starting to get big. What's the what's the multiple you put on it at that 20 % which versus a 25, 26 %?

Yeah, at that point, it would have to be somewhere in between Adyen so I'd be more comfortable there with Stripe at somewhere between 17 and less than 20x, Let's say where it is now, probably lower. I just think that that's the most important.

health of growth indicator, And I think that if it grows, when Adyen reported 24 % net revenue growth in its latest results at the beginning of the month, investors just pummeled it down. And I think you would wanna see Stripe closer to 17 if it didn't manage to grow to 25%.

Got it. So today, 4.75 times 17, if we predicted it was going to be plateauing in 25 to 20 % of the years forward, it's more of an $80 billion valuation today. But if you use the $5 billion off of the expected year end of 2024, then it's like an $85 billion. So that's somewhat of, let's call it the bearish base case sort of thing.

But your base case is really that they're going to be sticking to 25 % growth year over year. Is that right? Yeah, it's basically, you know, it's kind of a terminal growth rate kind of base case. It does decline, it declines very slowly. But that is, yeah, that is the base case. Do you think then the stock goes up 25 % year over year for the next three years? Is that kind of the prediction?

if it manages to grow 25 % every year, the base case is that it'll grow 25 % and then start declining. I see. Yeah, yeah. Got it. Go back to those cases, Liam, at the end. So we're almost done here, guys, if anybody has any more questions. So let me ask you this. It's hard to, let's call it time the investment. So do I have to know when the IPO is going to happen?

Can I just buy it and hold it and flip it? I mean, what's your perspective? Is it too late to get into Stripe today? Do I have to know when the IPO is gonna happen? What's your perspective on all of that? Yeah, no, I don't think it's too late. I mean, we talked about the multiple. We talked about how there's plenty of reasons, catalysts for why growth could reignite to above 25%. And, you know,

The IPO, they hired a CFO last year, a very seasoned CFO at the end of last year. They seem to have their ducks in a row. It's something that could happen imminently, but it could also not happen. I think that the company is still being viewed fairly, let's just call it,

it's not being viewed with any sort of irrationality by the private markets right now. But if history is any guide, right, people will get excited about Stripe again, particularly ahead of any IPO. Obviously, I'm speculating here, but the data does show that with companies that have the sort of pedigree that Stripe has in the private markets. So I don't think it's too late.

And I don't think one should bank on an imminent IPO, but Stripe's ready for it. So final question. I get to have you here as my personal analyst and I need to decide what I'm gonna do with deploying my money. So what do you suggest? Should I get in today? And if yes, at what price? How long should I be holding and what kind of...

future returns? Should I be trying to underwrite or not? Yeah, I think my recommendation would be that if you can get into Stripe, $39 a share, under $40 a share, but I'd be more comfortable with 39 or lower. I think the risk reward balances out. think it's

It's one of the generational companies of Silicon Valley. It's been doing everything right. When you clear away the sort of roller coaster evaluation stuff, it's a company that has all the ingredients to grow and possibly beat growth targets again in the future. It's just a moment where you're taking a bet on it having that growth, but I would be comfortable with that bet at $39 a share or lower.

Amazing. Thank you so much. mean, my quick opinions is like you said, this is a generational company. So you either believe in it or you don't. I think they took a big hiccup scare as part of COVID and they had to figure out how they want to reprice, really get themselves profitable, really get those fundamentals more in order. I think that was very positive. The last couple of years have been very strong. The fact that they're able to cashflow positive while diversifying their customer mix is amazing, becoming more global plus.

You know, we kind of said it quickly, but they have generational talent and leadership in the Collison brothers and beyond. So if you believe the internet is continuing to go digital, meaning the world's going digital, that's going to continue to create more payment opportunities. Stripe is an amazing company to bet on. I would really decide about the price. Obviously we missed out as part of, you know, COVID when it dropped down to 50 in terms of billion enterprise value. Right now, if you could get it in the low eighties, there's a real opportunity here.

but I do not think it's a quick flip opportunity. I think this is a buy and hold, and then you will get rewarded for holding for a while, is my opinion. So thanks everybody for joining, and that concludes our session. Thank you.