Aja McClanahan is a personal finance writer who has a story of getting out of over $120,000 in debt. She's been featured in Yahoo! Finance, MarketWatch, U.S. News and World Report, Kiplinger and has written for publications like Business Insider, Credit Karma, Inc., and many others. Aja writes about investing and personal finance for Wealthsimple. In her spare time, she manages her own investment portfolios for herself, husband, and two kids. Aja double majored in Spanish and Economics and holds a Bachelor of Arts degree from University of Illinois at Urbana-Champaign.
If you are looking for ways to diversify your investments, you might be considering investing in one or more of a few recently-announced IPOs, or initial public offerings. An IPO is when a privately-owned company makes its shares available to the general public for sale. Initial public offerings can be exciting opportunities for people to invest in the companies they know and patronize.
Stripe is one of many companies that have announced plans for a 2021 IPO. If you are considering investing in this fintech company, here’s some information that might help you to evaluate this investment opportunity.Get started with Wealthsimple Trade. Sign up today and start building your portfolio.
What is Stripe?
Stripe is a “software-as-a-serve” (Saas) payment processor founded in 2009. According to the company’s website, Stripe’s broader mission covers more than just payments, “Stripe is a technology company that builds economic infrastructure for the internet.” It’s through this infrastructure that businesses big and small can accept payments and manage their business online.
Stripe is a modular payment processing platform that integrates with various software applications to make the exchange of money online more accessible. Companies like Lyft, Amazon, Slack, Glossier, Shopify, Zapier, and Airbnb use Stripe’s software tools to accept payments.
The use cases for Stripe’s current technology are vast and continue to grow. For example, a nonprofit organization might collect money for its fundraising efforts through a salesforce app that uses Stripe to collect and organize payments. A freelancer could invoice a client with Stripe and collect payment electronically directly through a Stripe payment processing page launched from the invoice. These are just a few examples of how Stripe’s technology is being used.
The company’s revenue model currently centers on charging customers a fixed and variable fee for every successful payment. Additional sources of income include:
Company incorporation services for startups
Fees on premium support services
Interest on loan
Profits from startup investments
Stripe currently has two headquarters, in San Francisco and Dublin, with offices in London, Paris, Singapore, Tokyo, and more. The company currently has 4,000 employees and millions of users.
What is Stripe’s current market cap?
Stripe has raised a total of $2.2 billion in funding over 15 rounds. They raised their most recent round of funding in March of 2021. As a result, Stripe’s market cap is estimated to be an astounding $95 billion, making it one of the most valuable U.S. startups.
When is the Stripe IPO taking place?
The company has not yet set a firm date for an IPO. However, there’s speculation that it could be soon. One event that tipped off industry analysts was when Stripe hired Dhivya Suryadevara, formerly of General Motors, to be the company’s CFO.
When there are changes in financial leadership like this, it can be interpreted as a signal that a company is preparing for an IPO. Though no one knows when Stripe’s IPO will happen, there are some markers to look for that might indicate an IPO is on the horizon:
An investment bank is chosen
The investment bank is responsible for structuring the IPO and getting commitments from buyers before opening day (when stocks are officially for sale on an exchange). These buyers could be institutional investors or high-net-worth individuals.
Appropriate documents are filed
Before going public, a company must file an IPO prospectus, or S-1 prospectus, with the Securities and Exchange Commission (SEC). This information contains financial data and an overview of risk factors investors should consider before buying shares of the company.
The “roadshow” begins
In this phase, company management meets with prospective investors to “pitch” the company. Typically, the company’s CFO will be present and field questions from buyers who will likely commit to buying millions of dollars worth of shares before opening day.
A price and number of shares are set
The night before the IPO, the investment bank and company executives will have a final meeting to set the IPO price and determine how many shares they will make available. By opening day, the general public will know the share price and number of shares available for purchase on the public exchange.
So far, none of this has happened with Stripe.
Why are people interested in buying Stripe shares?
Stripe’s business model has gained traction as a company simply by being widely used. Its financial integrations are in place for some of the biggest companies in the world. The most recent round of fundraising and related valuation has it poised to be one of the biggest IPOs in history.
With all this going for the company, it’s only natural to conclude that an investment in the company would be a good idea. While this could be true, it’s essential to understand that the popularity does not always indicate profitability.
It’s not uncommon for a large company to be around for a long time, serving many customers and turning no profit whatsoever. Stock prices on opening day could be very inflated and may not correlate with to the income or asset base. For instance, the S-1 prospectus filing for Acorns, a subscription-based fintech company, projects that it will continue to lose money until 2023, despite filing for an IPO recently.
Because Stripe has not released any financial information, it’s still unclear whether or not the company is profitable. But it’s also worth noting that lack of profitability may not adversely affect stock prices. There are plenty of unprofitable companies that still garner demand for its stocks.
As an investor, you’ll have to decide if investing in this type of company fits within your personal investing plan. If you are a long-term, value investor, you will look for other principled reasons to invest in a stock.
How can I buy shares of Stripe?
As you would with any investment, read the company prospectus to understand its business model, risks, and financial projections before investing. Once you’ve done your research, the steps to invest in the company are easy:
Find a brokerage firm. Online is ideal. Your account can be opened and funded in just a few days once your personal information is verified.
Place an order for the stock according to your investment objectives: market, limit, stop order or buy stop order are common orders used to buy shares
Wait for confirmation that your order has been received and completed
Once you’ve placed your order, and you are an official investor in the company, be sure to check in on your investment from time to time. Make sure the company’s core principles and operating philosophies align with your personal convictions and financial goals. If so, you can always increase your position in the company as time passes. If not, you can always sell your shares as needed.
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