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Could This Payments Company Be the Biggest IPO Ever?

By Jamal Carnette, CFA - Mar 18, 2021 at 8:34AM

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This fintech darling is well on its way to smashing records.

2020 was an insane year for companies going public. Boosted by the tremendous demand for technology and electric vehicle stocks, not to mention the frenzy of blank-check SPAC companies, the number of initial public offerings (IPOs) in the U.S. doubled to 494, raising a collective $174 billion, which was up 150% from the prior year, according to FactSet. High-profile companies like Snowflake, Airbnb, and Rocket Companies received an enthusiastic reception from investors.

Still, there was one high-profile holdout: fintech payment processor Stripe. Last August, Stripe sent speculation into overdrive when the company announced it had poached CFO Dhivya Suryadevara from General Motors to assume the same role at the start-up. At the time, it was widely expected the company was in the final stages of prepping for a public debut. Instead, the company recently tapped the private markets for $600 million at a valuation of $95 billion.

That valuation made Stripe the most valuable U.S. start-up, pushing the company past other buzzy names like the Elon Musk-led SpaceX and grocery delivery service Instacart. However, this newest fundraising effort could put founders Patrick and John Collison on the way to the biggest IPO ever.

Wooden blocks with the letters IPO on them, for Initial Public Offering.

Image source: Getty Images.

An opportunistic raise

Per the terms of the deal, Stripe raised $600 million at a $95 billion valuation, and the press release noted the company would use the funds as growth capital with a focus on European operations. CFO Suryadevara characterized the raise as "opportunistic," and board member Mike Moritz claimed, "It will just sit on the balance sheet."

The latest valuation is 164% higher than the $36 billion figure that came out of the prior round of fundraising in March 2020. Most notably, the named investors in the press release are less like Silicon Valley heavyweights and more like pure financial backers, including investment managers and insurance companies Allianz, Axa, Baillie Gifford, and Fidelity. Expanding the investor pool often results in higher valuations.

The valuation is supportive of a massive raise

Will Stripe have the biggest IPO ever? It depends. It's important to remember that this is based on the total deal size and not the company's market capitalization. The biggest IPO (before adjusting for inflation) belongs to Saudi Aramco, which raised $29.4 billion through a home-country listing. The biggest U.S.-based IPO was the 2014 debut of Alibaba, which eventually raised a total of $25.0 billion.

A $95 billion valuation gives Stripe the ability to have a massive IPO, but it's unlikely the company will beat these records at its current valuation. Companies tend to remain stingy about releasing too many shares during an IPO as they can pursue follow-on offerings for insiders after the lockup period, which is typically 90 to 180 days after the IPO date.

Here are a few higher-profile 2020 IPOs, along with their valuation and the percentage of the company sold in the IPO.

Company

Deal Size

Valuation at IPO

% of Shares
Issued in IPO

Rocket Companies

$2.1 billion

$36.0 billion

5.8%

Snowflake

$3.9 billion

$33.2 billion

11.6%

Airbnb

$3.8 billion

$41.0 billion

9.3%

Data source: Company financial filings. Table by author.

It's unlikely Stripe would want to sell nearly one-third of its shares to beat some arbitrary stock market record, but don't count the company out otherwise. It appears to be investing on a global scale and is producing results that have made bullish institutional investors willing to pay nearly triple the price of admission just one year since the latest fundraising effort. Given that backdrop, it's understandable why many are eagerly anticipating a Stripe IPO.

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Stocks Mentioned

General Motors Company Stock Quote
General Motors Company
GM
$36.00 (1.70%) $0.60
Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$87.23 (0.51%) $0.44
AXA SA Stock Quote
AXA SA
AXAHY
$24.91 (2.22%) $0.54
Allianz SE Stock Quote
Allianz SE
ALIZF
$214.96 (6.16%) $12.48
Rocket Companies, Inc. Stock Quote
Rocket Companies, Inc.
RKT
$8.73 (-1.91%) $0.17
Snowflake Inc. Stock Quote
Snowflake Inc.
SNOW
$138.85 (-1.87%) $-2.64
Airbnb, Inc. Stock Quote
Airbnb, Inc.
ABNB
$113.28 (0.65%) $0.73

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