The phenomenal growth in the adoption of Stripe payments over the last 5 years means it is hot property and the next tech unicorn. Investors are interested in Stripe because it processes hundreds of billions of dollars worth of transactions a year.
Stripe makes money by charging a 2% to 3% fee on each transaction and is often a more cost-effective and powerful alternative to other mainstream payment providers.
What is Stripe?
Stripe is an Irish American financial company founded by John and Patrick Collison. Stripe specializes in providing payment processing software and infrastructure for internet companies.
Stripe’s products include Application Programming Interfaces (APIs) that companies build into websites. The Stripe APIs process the company’s payments and serve as a gateway to Stripe’s payments infrastructure.
Stripe products are popular because brick and mortar stores, online portals, subscriptions businesses, software platforms, and digital marketplaces can use them. For instance, they can install Stripe APIs in gaming platforms, e-commerce platforms, websites, and apps. Retailers can install Stripe APIs in physical point-of-sale (POS) devices such as cash registers and vending machines.
Stripe uses state-of-the-art technology, including machine learning, to make payment processing fast, seamless, and reliable. Stripe could use machine learning to teach its algorithms how to spot fraud and collect sales taxes, for example.
Stripe claims that its platforms operate in over 100 countries and can accept payment in over 135 currencies and other methods. Stripe claims that over 90% of adults have made purchases from businesses that use its technology.
Stripe also claims that its APIs process over 250 million requests a day and up to 13,000 requests a second. That means a Stripe API can process hundreds or thousands at once without crashing. In other words, Stripe is scalable, which means it can service enormous customers such as Amazon.
Stripe Stock
Stripe stock is not available on any stock exchange because it is a private company under the control of its founders, the Collison brothers, and partially owned by venture capital companies. Stripe has attracted enormous amounts of venture capital, including $600 million from Andreessen Horowitz, Sequoia Capital, and others in April 2020.
These venture capital investments are fueling interest in a Stripe IPO.
Stripe Stock Symbol
There is no Stripe stock symbol because it is privately held and not a publicly listed company on a stock exchange. When Stripe eventually goes through the initial public offering (IPO), it will be allocated a stock ticker to begin trading on an exchange.
Stripe Stock Price
The price of a share of Stripe is not information available in the public domain. The price of a Stripe stock is reassessed during each round of venture capital financing, based on the current and future revenues and expected profitability. During a future IPO, the stock price and the number of shares available will be determined.
Bloomberg claims Stripe will have a valuation of $70 billion to $100 billion in its next round of venture capital funding; this is up from the $36 billion valuation in October 2020.
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Will There Be A Stripe IPO?
There is speculation that the internet payments infrastructure provider Stripe could be the biggest initial public offering (IPO) of 2021. Interest in a Stripe IPO is high because some of the world’s biggest companies use Stripe’s software. Stripe claims Amazon (AMZN), Alphabet (GOOG), Lyft (LYFT), Shopify (SHOP), Salesforce (CRM), Instacart, Slack (WORK), and Zoom (ZOOM) use its products.
American hedge fund billionaire Bill Ackman claims he had preliminary discussions with Stripe about an IPO in September 2020. Ackman wanted Stripe to go public in partnership with his Pershing Square Tontine special acquisition company (SPAC).
Ackman claims Pershing Square Tontine has $5 billion to invest in companies such as Stripe. Ackman hopes the SPAC will give him a large ownership stake in Stripe. There is no evidence Stripe’s management listened to Ackman’s proposal.
Another company Ackman approached, Airbnb (NASDAQ: ABNB), ignored him and went with a traditional IPO. Thus, Stripe could hold a traditional IPO through an investment bank rather than work with Ackman.
3 Ways to Profit From Stripe
Many people are eager for a Stripe IPO because other payment processors; including PayPal (PYPL), Square (SQ), and Visa (V), make enormous amounts of money. Unlike Stripe, those companies are publicly-traded.
You cannot buy Stripe stock today, but here are three extremely profitable businesses you can invest in.
1. Square Inc. (NYSE: SQ)
Square (SQ) is the American payment processing company led by Twitter (TWTR) founder Jack Dorsey.
Square is best known for the card-reading devices many small business people in the United States use. Square’s solutions allow merchants to accept credit card payments through phones and other wireless devices.
Square also offers point-of-sale (POS) devices that allow merchants to accept credit card and mobile payments in their stores. Square claims that merchants can accept “any kind of payment” with its terminal.
Square is the company behind the Cash App, a popular mobile payments app that functions as a money-transfer solution. The Cash App is popular because it allows people to buy fractional amounts of stock and Bitcoin (BTC).
The Cash App is attracting many users and generating revenue. Business of Apps estimated the Cash App generated $1.2 billion in revenues and a $281 million profit in the second quarter of 2020. The Cash App generated $875 million in Bitcoin revenue in the second quarter of 2020, Business of Apps estimates. Bitcoin transactions comprised 72% of the Cash App’s revenues in the 2nd Quarter of 2020, Square estimates.
The Cash App had 30 million monthly active users (MAUs) and 90 downloads in 2020, Business of Apps estimates. There also seven million owners of Cash App debit cards in 2020. The Cash App accounted for 27% of Square’s gross profit in 2020.
Business Insider claims the Cash App’s revenues grew by 361% between the second quarter of 2019 and the second quarter of 2020. Business Insider speculates that Square popularized the Cash App by allowing American customers to receive their federal stimulus checks through the App.
The US government paid most Americans a $1,200 cash stimulus to alleviate the economic effects of the COVID-19 pandemic in 2020. The government paid a second stimulus payment of $600 in January 2021.
President Joe Biden (D-Delaware) and the Democrat Party plan a third stimulus payment of $1,400 to $2,000. However, that payment faces strong opposition from conservative members of the US Congress.
Square makes money. It reported a $795.46 million quarterly gross profit and a quarterly income of $49.34 million on September 30, 2020. Square is a growing company its quarterly gross profit from $527.05 million on December 31, 2019, to $794.46 million on September 30, 2020.
Considering the company is valued at $122 billion, a profit of $49 million is relatively low.
Square’s quarterly revenues grew from $1.313 billion on December 31, 2019, to $3.034 billion on September 30, 2020. Square’s operating income increased from $17.35 million on December 31, 2019.
Square has more cash. Square’s quarterly operating cash flow rose from $61.12 million on December 31, 2019, to $412.71 million on September 30, 2020.
However, Square’s quarterly ending cash flow fell from $2.01 billion on March 31, 2020, to $153.86 million on September 30, 2020. Square began 2020 with a quarterly ending cash flow of $444.84 million on December 31, 2019.
The quarterly financing cash flow shows Square borrowed money in 2020. Square reported a quarterly financing cash flow of $918.12 million on March 31, 2020, that fell to $448.69 million on June 30, 2020, and -$35.39 million on September 30, 2020. In 2020, Square’s long-term debt grew from $939 million on December 31, 2019, to $1.759 billion on September 30, 2020.
Square had some value in the form of $2.882 billion in cash and short-term investments and $8.114 billion in total assets on September 30, 2020. In 2020, the cash and short-term investments grew from $1.54 billion on December 31, 2019, and the Total Assets from $4.551 billion on the same day.
Square’s share price exploded in 2020. Mr. Market paid $80.99 for Square on February 13, 2020, and $272.75 for Square on February 12, 2021. I think $272.75 is too a price for a company with $8.114 billion in total assets.
I think the growth rate is the only attractive feature of Square’s stock. I consider Square a poor stock because Mr. Market overprices it, and it pays no dividend.
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2. PayPal (NASDAQ: PYPL)
PayPal (PYPL) is the oldest and best-known name in online finance. A team of entrepreneurs; that included Elon Musk and Peter Thiel founded PayPal in 1998.
PayPal offers one of the most popular digital wallets in the United States. Musk and Thiel are long gone from the company, but PayPal is the leading US online fintech company. PayPal’s popular digital wallet is one of the fastest-growing Fintech apps. Statista estimates PayPal had 377 million active user accounts in the fourth quarter of 2020, up from 305 million, 12 months previously.
Like Square, PayPal offers a suite of popular financial products, including POS terminals and wireless card readers. PayPal is also a lender that offers credit lines (Working Capital) and small business loans to its account holders.
PayPal’s most valuable assets could be its subsidiaries. The most valuable PayPal subsidiarity could be the peer-to-peer (P2P) payment app Venmo. Venmo is one of the most popular money transfer apps on the market.
Venmo is one of the fastest-growing fintech apps in America. Business of Apps estimates the number of Venmo users grew from 3,000 in 2012 to 52 million in 2020. Venmo’s payment volume increased from $2.3 billion in 2014 to $101 billion in 2019.
PayPal is trying to make Venmo into a commercial payment app, and it is estimated that two million US merchants accepted Venmo in 2020.
PayPal got Venmo when it bought the payments processor Braintree Holdings in 2013. Braintree offers a platform that accepts PayPal, Venmo, credit card, debit card, Apple Pay, and Google Pay payments. Merchants access that platform through an API.
Other PayPal subsidiaries include PayPal Credit, the money transfer service Xoom, and the cloud-based financial services provider Paydiant.
Investors love PayPal because it makes money. PayPal reported quarterly revenues of $6.116 billion, a quarterly gross profit of $2.913 billion, and $963 million in quarterly income on December 31, 2020.
PayPal’s business can generate enormous amounts of cash. It reported a quarterly operating cash flow of $1.247 billion, a quarterly financing cash flow of $2.48 billion, and an ending cash flow of $918 million on December 31, 2020. Some of those numbers can be far larger; PayPal reported a quarterly ending cash flow of $16.742 billion on March 31, 2020.
PayPal offers investors an enormous value. The company had $13.083 billion in cash and short-term investments and $70.739 billion in total assets on December 31, 2020.
That value is growing. The cash and short-term investments grew from $10.761 billion on December 31, 2019. The total assets grew from $51.333 billion on December 31, 2019.
PayPal’s share price is growing faster than its value. Mr. Market paid $120.51 for PayPal on February 13, 2020, and $298.37 for PayPal on February 12, 2021. The share price grew because of the growing interest in digital payments created by the COVID-19 pandemic.
I think PayPal is a good stock with enormous growth potential. However, I think Mr. Market overpriced PayPal at $298.37 on February 12, 2021. PayPal has value but not enough value to justify a $298.37 share price.
One drawback to PayPal is that it does not pay a dividend. On the other hand, I think PayPal has a high margin of safety because its value and business grow fast. Those seeking a safe Stripe alternative need to examine PayPal.
3. Visa (NYSE: V)
Visa (V) operates the world’s largest payments platform. Statista estimates there were 2.354 billion Visa debit cards worldwide in the second quarter of 2020. Statista also estimates that one out of three credit cards worldwide was a Visa card in the third quarter of 2020.
Visa claims there were 3.3 billion Visa cards in use in 2018. Visa claims its VisaNet payments platformed processed 188.1 billion transactions in 2018. Visa reported worldwide credit and debit volumes of $3 trillion in the quarter ending on September 30, 2020.
I consider Visa a solid investment because it makes enormous amounts of money. Visa reported a quarterly gross profit of $5.687 billion, quarterly revenues of $5.687 billion, and a quarterly operating income of $3.844 billion on December 31, 2020.
Visa made less money in 2020 than it did in 2019. Visa reported a quarterly operating income of $4.016 billion, a quarterly gross profit of $6.054 billion, and quarterly revenues of $6.054 billion on December 31, 2019.
Visa is a cash-rich company. It reported a quarterly operating cash flow of $3.513 billion and a quarterly ending cash flow of $18.055 billion on December 31, 2020. Visa had $18.935 billion in cash and short-term investments on December 31, 2020.
Visa’s quarterly ending cash flow rose from $12.263 billion on December 31, 2019. However, Visa’s quarterly operating cash flow fell from $3.875 billion on December 31, 2019.
Investors can find value at Visa; the company had $80.426 billion total assets on December 31, 2020. Visa’s value grew in 2020. It had $14.304 billion in cash and short-term investments and $74.781 billion total assets on December 31, 2019.
Visa makes money by providing fintech services to customers in over 200 countries and territories worldwide. Those services include credit cards, debit cards, prepaid cards, gift cards, payment platforms, payment platforms, and mobile payments.
Visa does not issue credit and debit cards. Instead, financial institutions and companies issue cards that carry a Visa brand name. Visa-branded cards offer users access to Visa’s payment processing network.
Sources of income at Visa include data processing, services, and international transactions. Data processing provides 40% of Visa’s revenues, Investopedia estimates. Thus, Visa is a data-processing company.
I think Visa is an excellent stock that Mr. Market overpriced at $209.96 on February 12, 2021. Visa may be a better stock than PayPal and Square because it pays a dividend.
Visa shares will pay a 32¢ quarterly dividend on March 1, 2021. Visa’s dividend rose from 30¢ on September 1, 2020. In total, Visa paid a $1.22 annual dividend and a dividend yield of 0.58% on February 12, 2021.
I believe the dividend makes Visa the best financial technology stock available today. Visa shows payment-processors such as Stripe could become value investments or excellent stocks if their products become as popular and pervasive as Visa’s.
Investors need to watch companies such as Stripe, Square, Visa, and PayPal because they could disrupt the payments industry beyond recognition.
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