Stripe 2021 Business Update [pdf] | Hacker News Reader

Stripe 2021 Business Update [pdf]

stripe.com

155 pointstosh84 comments

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.

Any sources on Stripe not being profitable?

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 :)

did Magic Leap create a moat after they raised 1.4 billion?

They can be profitable but prioritize growth at this stage. Profits are an eventual goal once public. Not required when all shareholders are private.

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

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.

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.

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.

you can do a lot with 3 days of money.

There's also money left in Cash App after someone pays you.

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

Purchasing Bitcoin as revenue?

I am not sure the justification of it. Ages ago the debate was, if bitcoin was asset, currency or commodity? But how does buying something through an exchange results in the asset's entire price to be recognized as revenue for the company? They are doing it only for Bitcoin, not for any other things. I have no clue because it doesn't make sense.

From the 10-k [0]

...customers access to hundreds of listed stocks and ETFs, as well as the ability to buy and sell bitcoin. Stocks, ETFs, or bitcoin can be purchased...e. For bitcoin buying and selling, we recognize revenue when customers purchase bitcoin and it is transferred to the customer's account.

...During the year ended December 31, 2021, we saw a significant increase in total Cash App revenue, primarily from bitcoin revenue which contributed 57% of total consolidated net revenue in 2021, and 48% of the total increase in consolidated net revenues in 2021

[0] https://www.sec.gov/Archives/edgar/data/1512673/000162828022...

I’m not an accountant and just guessing here, but I’m thinking it’s because it’s treated as a purchase of an asset or a good. Similar to how if you went and bought a refrigerator, the appliance store would book what you paid them for the fridge as revenue.

It seems crypto can have multiple definitions based on what’s most convenient at the time.

I posted to r/accounting.

Two people there said that, it maybe is transaction fees. But they have asked me to look into the numbers. I think they are right, but I still find the phrasing to be quite ambiguous tbh.

https://www.reddit.com/r/Accounting/comments/tzbg6i/what_is_...

They are legally required to report it that way. The quarterly shareholder reports include revenue with and without Bitcoin.

Which is amazingly transparent for a public company to do.

Why, dark patterns of course. They've managed to trick my mother into using the instant feature by moving the UI elements around at least once.

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

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...

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

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

Why can't this law be introduced everywhere else.

It makes no sense to pay so much for simple payments.

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.

In countries without these regulations Visa and Master argued most of these processing fees goes back to customer as cash back or gift or other forms of benefits. In the AUS and EU ruling the court simply decided that is not a business model being accepted in the market. And tell them to put out a fair price of payment processing.

And most of the payment in EU are still done via Debit Card or something similar so they have less leverage.

Along with high level of fraud in US credit card compared to EU.

You are forgetting the $0.30 per transaction. That is pure profit for them too.

Not forgetting it but it doesn’t move the needle much. If you assume an average card transaction size of $10, which is likely higher. That is only 0.3% of processing which may increase revenue by 30% at best.

You're off by an order of magnitude - $0.30 of $10 is 3%, which overshadows the 0.8% by quite a bit. Although I agree that $10 is most likely a low estimate, I'd expect $0.30 per charge to have a very non-trivial impact.

Well spotted. My quick math was very incorrect. Thanks for the correction

Card fees have both a variable (X percent) and fixed (Y cents) portion. For example, a transaction using a Visa credit card might cost 2.7% plus $0.10.

Right but they’re talking revenue, which isn’t net of expenses.

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.

I'm looking for similar profile companies - if you don't mind disclosing, who ended up on your list of companies to talk to?

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.

Open up your mind, and you will be free.

You've set limitations for no reason, based on incomplete data.

I predict you will be out of Robolox and into another company within 18 months. But it will be better than you can ever imagine. - The programming Guru

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.

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...

Hey congrats on your new role, hope everything goes well for you and the transition is smooth

Thanks, so do I. :)

I am going to assume that is because the package includes RSU and you want your RSU to be of more certainty in value. What if your package is just a plain higher salary? Would you still go for a public company or would you also consider private ?

I'd work for a private company that paid me a cash salary equivalent to my expected salary + RSU comp, yes. But I'm not sure where I'd get that kind of salary.

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.

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)

It's odd that people still look to Google or Apple by default for management ideas. Stripe is easily the best run tech company at scale, and might be the best run company in any industry ever.

Just emulating the clarity of Stripe's internal and external communications (like this letter), would be a better use of company time than 99% of corporate strategic goals.

It's kind of you to say that, and people at Stripe certainly try very hard, but there's plenty that's broken or that we're trying to figure out at scale... I don't think those claims are true.

Can you expand on what's broken and how Stripe is trying to address it?

Hi pc, former employee here, from back in the day where meetings could be held in Alabama.

It's not that Stripe doesn't have broken things: I could have made a big list from back when I worked there, and I bet the list is still large. However, you are just underestimating how broken other companies are. I've worked at 10+ companies, some far bigger, and some far smaller than Stripe, and even the smallest ones had a higher percentage of broken things, and the brokenness is often in far more vital places. It's never going to happen, but you'd learn so much from joining me as a professional tourist, and going incognito as a random dev in another big company for 6 months.

But you are showing classic Stripe culture here: I remember a place where everyone was embarrassed about how bad they think their latest shipped email was, and how they have so much to do, while their typical coworkers is instead in awe of how good said shipped email was.

That comment made my day -- thanks :-)

Blind reviews seem to corroborate this. Not the best feedback, but mostly good. I'd recommend going through this anonymous feedback from verified Stripe employees for tips on where to improve.

https://www.teamblind.com/company/Stripe/reviews

Hey PC,

Pretty cool to see a CEO of a famous company here at HN. Especially a humble one with a learning mindset.

I think back in the day I heard you mention that you are a big history buff. I do have a history question for you.

Do you know of any existing public company who were able to fix their problems at scale that did not have to change their flagship product? It seems like new product line were a forcing function to fix broken things at scale. It's as if those who kept their flagship product who had scalability problems had to either use duct tape fixes or make really painful choices.

stripe charge too much

they have no tech to prevent fraud, and you have to pay fees whenever customer chargeback

google/apple provide better services, plus it's built in

Stripe customer for a long time. Stripes chargeback and fraud prevention are by far the best in the industry. We have researched and tried a lot of different solutions so saying this with some confidence

You having to pay bank fees for frauds and therefore bank issuing a chargeback means they are not willing to depend on their "tech", symptom of a poor/inexistent tech

In comparison, with PayPal, if the fraud was detected and the bank issue a chargeback, you have nothing to pay, i have a SaaS since 2008, and never had a single problem with PayPal, the day i added Stripe, that issue started to appear, it disappeared the day i removed Stripe, i don't want to depend on a company that make me loose money (SaaS with low prices, -$15 per fraud, no thank you)

Not really, they are on the "we don't give you back the fee after a refund" train, which is why we're getting rid of them and moving to braintree

>we don't give you back the fee after a refund,.... moving to braintree

Well Braintree don't give you back the fee after a refund either.

I don't do this here, just a bystander, but you made me curious. I looked it up, and you are right, this is from their website:

"Transactions fees charged by Braintree will not be returned for refunded transactions. However, if you signed up prior to 1 August 2018, transaction fees charged by Braintree are returned for fully refunded transactions."

So my boss actually told them, we would use them only, if fees for refunds will be returned. And the deal was made this way.

So I encourage everyone else to do so...

hacker news moment

I don't know. Writing good letters isn't the same as running a company especially well. Internally, Stripe has the same unevenness, cultural anomie, and mediocre middle management of any big company.

> I don't know. Writing good letters isn't the same as running a company especially well.

* Warren Buffett enters the chat*

> Stripe has the same unevenness, cultural anomie, and mediocre middle management of any big company.

“I put numbers on the boards” - Pusha T

Personally think this is an exaggeration. Google an Apple are massively diverse products and have complex structures, cultures and practices

Shopify (SHOP) invested 350M in Stripe. Is that presently the only way to gain exposure to the company pre-IPO?

Well, you could always go work there. You also might be able to buy equity on the secondary markets.

Besides working there? Yes.

If you're a qualified investor you could theoretically buy on the secondary markets, but not in practice. I've read that Stripe (like many startups) has reserved right of first refusal as part of their option grants - that is, they can veto sales of their shares. It's probably going to be very difficult or impossible to buy them.

It’s a brilliant(ly jerkish) strategy to make them a darling of the market by being the thing that most can’t buy and an exclusive club for the ones that can.

WLB there is atrocious I’ve heard as well. The founders will be extremely rich and they’ll probably start their own space programs. Making already rich people happy is the way to wealth in this country. Hope they are kind enough to throw some table scraps to those who live down below the Ring.

Part of the definition of a private company is control over who your stakeholders are. That's what the "public" in "public company" refers to.

I'm at Stripe and my WLB is fine fwiw. It's busy, but my managers and team do not encourage overwork.

It's 5pm Friday here and I'm about to shut down my work laptop until 8am Monday.

I feel like that's not great WLB by today's standards. 8-5 is 9 hours a day (instead of 8), and on a Friday no less, when many folks at other companies easily clock out by 3 to begin their weekend early.

Having right of first refusal doesn't mean they can veto a sale- it means they can buy the shares at the offered price instead. Either way the seller gets to sell their shares.

It makes it difficult to attract buyers though- why go through all the due diligence when Stripe could just exercise their right to buy the shares instead of you at the same price you would have paid?

Still, different from being able to veto the sale and block it entirely.

From the buyer's perspective, it's as good as a veto.

Shopify (SHOP) will be dead in 10 years. Maybe 8. Stripe might surive the decade, but doubtfull. Credit cards are on their way out. (I don't use them anymore. Fuck em.)

What is the alternative to credit cards? Cash? Crypto?

Yeah, weird thing to say.

Cards are dead. So's Shopify. Ask me about my ethereum business?

Not going to happen.

Why do you think that? Just curious

Lol also interested in hearing anything of substance behind this claim.

Credit cards and e-commerce are not the same thing. (Besides that while I'm not a fan of credit cards I wouldn't say they're dead - yet)

I sometimes doubt Stripe can ever go public. It’s gonna break the market. At the end of the day there’s so much liquidity at hand and there are so many companies going public all the time. If stripe goes public, I’d sell everything I own (stocks) to put them in Stripe.

Why? The metrics here does not look that great when comparing to adyen, PayPal, or square.

> In practical terms, getting payments right in the enterprise means things like having a direct relationship with your customer

What does this mean exactly?

I suspect it means it's necessary for Stripe to negotiate tailor-made deals with enterprise clients directly in order to avoid simply being undercut by a competitor product.

Stripe may offer a polished and complete system but if SagePay or whatever are cheaper, larger enterprise clients will think twice, especially if they have the people on their staff capable of taking SagePay's APIs and making them look and work just as nicely as Stripe.

And it's an acceptable tradeoff to charge less per transactions if you're getting considerably more transactions than with a smaller client, and getting a big name partner to put on your landing page.

If I ran a company like Stripe of course I'd liaise with Microsoft or whoever and be like "yo, if I cut x% of transaction charges wanna use my service?" and boom I can say "Microsoft uses our service omfg!" on my website...

and then I have more big enterprise clients on the phone because they'll conclude that my product must work, must work at scale, and must offer something valuable to a big client like Microsoft.

That's probably why a lot of companies on their Pricing pages say something like "Enterprise? Get in touch" rather than simply giving a number. A client with huge demands might need prior preparation/augmentation to the architecture of your actual service delivery in order for you to keep up and supply your service to your existing customers, let alone pricing deals where an enterprise client may have bespoke demands or a special deal.

Lol @ SagePay. They are an utterly poisonous and dishonest business with crap for tools and completely unreliable. I work at a small and very resource-constrained shop that had to extricate ourselves from Sage under legal threats. We use several other payment vendors with good reputations whose products are fine. Stripe is on a whole other level. Their product isn't payments. It's speed, reliability, analytics, comprehensive and precise APIs and peace of mind. They absolutely have the best product on the market by far.

Is this relevant because of Fast? Or something else?

I think it's relevant because it's interesting and was published today.

OP could just be confused. It wasn't obvious to me until I clicked it's a post published today looking back at 2021, the doc itself isn't from 2021.

I was. Thank you!

I COMPLETELY missed "April 2022" on the top right.

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