Rich-valued payments startup Stripe further cut its internal estimates, according to sources familiar with the process. It is now valued at $63 billion.
The decline, first reported by The Information, saw Stripe’s internal stock price drop 40% after peaking at $24.71. The 11% drop came after an internal review six months ago, which put the company at $74 billion.
The valuation change was not triggered by a new funding round, but instead by a new 409A rate change. 409A valuations are set by third parties, which means they are not tied to what a venture backer or other investor thinks. It is a process controlled by the IRS that measures the value of common stock against public market comps to help establish fair market value.
Companies must file a 409A at least every 12 months or when a material event reduces the value. In the case of Stripe, among other latecomers, 409A assessment reviews are now being conducted on a seemingly quarterly basis. Background material developments include the ever-green, and ever-stressful, macroeconomic climate; And let’s not forget that Stripe’s public market comps are certainly showing signs of trouble, with Shopify, Block and PayPal all down from their 52-week highs.
Internal valuation declines provide a different signal from investor-driven markdowns. In fact, many founders and industry experts view a company’s 409A valuation lower than the private investor’s guidance as a good thing. According to analysts, that lower 409A cost is because it allows companies to offer stock options to their employees at a lower cost. Companies can use the new 409A pricing as a recruiting tool, attracting prospective employees with cheaper options and promising to cash out at a higher price when the company eventually exits.
Still, in Stripe’s case, a second internal review may not necessarily be used to attract new talent. In the year By November 2022, the fintech was laying off 14 percent of its workforce, affecting 1,120 of the fintech giant’s 8,000 employees. In August, TechCrunch learned that Stripe, the tax compliance startup it acquired last year, had laid off the staff behind TaxJar.
In a memo about Stripe’s layoffs, CEO Patrick Collison offered his advice for employees to step back: We are optimistic about the near-term growth of the Internet economy in 2022 and 2023 and have underestimated the possibility and impact of a broader slowdown. ” Instead, the valuation reduction could help retain existing employees, or even adjust expectations ahead of an ambitious IPO.