Stripe tried to raise more funding at a $55B-$60B valuation
techcrunch.com
techcrunch.com
I still remember when Groupon went public, and soon after it was revealed that they had engaged in all kinds of funky accounting leading to stock crash. Not sure if there is something similar going on here, but raising private funding at such a high valuation doesn't seem normal.
Just your regular not-that-profitable thingy to justify high valuation.
Every time I ask people about this, they say it has an amazing developer-friendly set of APIs. But it’s hard for me to believe nobody has been able to replicate this experience a decade later, when Stripe’s APIs are sitting right there to crib off of.
Speaking from experience at the table at some of these deals, Adyen or other competitors would often approach my employer (large e-commerce company) offering a better deal, but executives would merely take the deal to Stripe and say "match it or we're leaving", and they would.
Given the cost of leaving is only somewhere between $50-200k depending on the complexity of your checkout systems, the client base isn't particularly sticky.
I'm bearish on Stripe for this reason. If they're just racing to the bottom with Adyen and others then where are they going to make money? Their other products are pure garbage (Stripe Radar is worse than useless).
But post IPO they had to open their kimono and everyone found out that it was all just funky accounting. They went from reporting a positive operating income of $60.6 million for 2010 to an operating loss of $420 million for 2010 after proper accounting.
That their fund should’ve managed the risk better?
If your retirement fund was 20% smaller than you wanted, would you spend it all on lottery tickets so that there is a possibility it would be the right size?
https://en.wikipedia.org/wiki/Apr%C3%A8s_moi,_le_d%C3%A9luge
But I don't think that's what's happening here.
But either way fund managers shouldn't be putting near retirees or retirees in high risk investments. I'm sure my parents or grandparents would not be happy with their fund managers if that happened, either.
How does this work exactly, I'm not to keen on these sort of financial matters. Why would the company have to foot the tax bill for the employee's stocks. What's going on here?
The employee received a stock grant that vests according to a schedule: for example, every 3 months after an initial 12-month waiting period. On each vesting date, the employee receives N shares. But this is taxed as ordinary income, which means the company should be withholding taxes accordingly.
This is not a problem if the stock is publicly traded. The stock is liquid and it has an unambiguous valuation. If the employee’s tax withholding rate is 40%, the company can immediately sell 40% of the shares on the public market, use that to pay the taxes, and the employee actually receives 0.6*N shares.
If the stock is not public, paying the tax is a problem because the stock can’t be sold immediately. Yet it has a market value as evidenced by how much investors were willing to pay for it in funding rounds. If you receive 100 shares of Stripe, and each share was worth $100 in the last private sale, the tax man sees that as $10,000 of income. How do you pay the income tax if you can’t sell 40 shares?
I believe this is why Stripe is arranging a private sale. The money goes into paying employee’s tax bills, and the shares come from their vests.
So usually either the scheme allows them (not the company) to sell a number of shares to cover their tax liability, or they need to shell out the cash, which the scheme may allow to be taken from their salary. Neither should impact the company.
But as you write, it's tricky to sell shares if the company is not publicly traded. So perhaps the company has agreed to buy back shares in order to enable employees to easily sell them to cover their own tax liability, which may be what you are suggesting by 'private sale'.
If the company has to borrow to fund these things either the liability is relative large (e.g. because they do as I suggested), or... frankly I'd worry that they can survive at all because they are effectively borrowing just to be able to make payroll.
fwiw ianaa but I believe the employer does pay employer payroll taxes on some/most stock compensation transactions.
So even though it appears the company isn’t actually paying anything when it issues new stock grants to employees, from an accounting POV the company is paying for it all.
(This is why so many growth tech companies report non-GAAP income. The amount of stock-based compensation tends to be so large that it overshadows any profit from product revenue, and executives understandably would rather talk about their margins and retention rates than how expensive RSUs are.)
I don’t know how this affects the tax situation. I would assume that since the RSUs are already booked as an expense, the company can sell 40% of them to get cash, and use that to pay the employee tax withholdings, with no effect to the employee.
The new development here is that Stripe will buy 40% of the RSUs of every employee.
Don't forget that the company, and not the employee, controls the issuance of shares. This means that the can distribute 1, .6, or 0 (in exchange for $$$) of RSU stock to staff. If they do choose to distribute 1 share , it does spark the question that you raise, but since we are talking withholding income, I don't believe that triggers more income, since you aren't paying more to the employee, instead, you are only covering your responsibility as an employer. Its the company's fault that it didn't withhold, that doesn't mean the employee got paid more.
I could see "tax covering" being a problem with the IRS if done when there is certainty with the withholding amount , but in situations where the withholding is unknown and the cash has been used up by the time the tax bill comes due, the company is on the hook and there isn't any extra ordinary income. Companies do send bill to staff to try to recover the shortfall sometimes for this reason.
So that basically means they aren't profitable, right?
Sure that doesn't mean much, but it's better than losing more money on every additional dollar of revenue which seems to be some company's model
However Block, Inc (formerly square) is also not profitable!
https://finance.yahoo.com/quote/SQ with EPS of -0.17
Could be a result of smaller product suite and headcount of Adyen.
It's pretty clear they could cut growth expenses dramatically at at point if they chose.
The general answer is "the company is default alive". But actually looking at cashflow and which expenses can be cut gives a much better idea of that.
If the only funding you can get is a 7% loan then suddenly your math will look very different since you have to pay that interest
The issue is that the large companies who use stripe for payment processing are moving towards using multiple payment processors, which removes the leverage Stripe has to upsell you on their other products. This trend is growing and will ultimately send Stripe the way of PayPal IMO
In the end, Stripe was very complicated for a service that is not end to end complete for delivering digital products and services. The price for Paddle is higher but its a complete service and so much easier to implement.
Some really basic and frustrating things I ran into with Stripe: - invoices only generated for subscriptions, not one off products - email receipts not generated in sandbox mode (undocumented but confirmed with their support)
All in all, i left stripe thinking it’s probably not a product designed for solo devs but is instead for services at scale like Shopify.
is that bad though? I know paypal managed to piss off a lot of people, and the stock is down, but they are making money and don't seem to be going away anytime spoon. They try to keep themselves relevant with acquisitions and so far haven't made any stupid public moves like layoffs. Doesn't seem like a bad endgame?
> It is not clear if any discussions are ongoing.
so perhaps not technically wrong but still