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After much investor anticipation following recent surges in IPO performance, payments giant Stripe is set to capitalize on investor confidence and go public in what may well become a record-breaking initial public offering.
News about Stripe’s imminent listing has stretched all the way back to the summer of 2020, but to date, the company has avoided entering the public market. Speculation mounted following Stripe’s appointment of CFO Dhivya Suryadevara from General Motors, but the payments behemoth instead chose to generate an additional $600 million in equity from institutional investors. The move may have been an inspired one, with the company’s valuation today stretching to $95 billion.
Such a lofty valuation has enabled Stripe to become the most valuable US startup in existence and has helped the company to streak past huge industry players like SpaceX and Instacart. However, perhaps most importantly, Stripe’s valuation may well help the company to deliver the largest IPO of all time.
Stripe’s delay in launching an IPO may well have become even more fruitful, considering the sheer volume of investor excitement surrounding the initial public offerings of tech and sustainable companies.
Over the past year, the rise in prominence of blank check SPAC companies has helped to double the volume of IPOs in the United States to 494 generating a total of $174 billion along the way.
Riding the IPO wave
Stripe’s decision to hold off on an IPO appears to have been a great decision. Over the past year, a huge wave of initial public offerings has flooded the market. Buoyed by investor optimism, Q1 data for 2021 has shown that global dealmaking has risen to $1.4 trillion, thanks largely to the rise of SPACs and their role in enabling more companies to go public in a more efficient manner.
Source: Bloomberg
According to Bloomberg data, the monthly volume of global SPAC IPOs has increased significantly surpassing $25 billion fueling initial public offering mania in the process.
The growth of SPACs has helped to increase equity capital market fees by almost 340% in Q1 of 2021 up to a total of $13.1 billion. This more than doubles the revenues in any Q1 period over the previous two decades and paves the way for a potentially advantageous listing window for Stripe.
When will Stripe’s IPO happen
Although it’s not known when the Stripe IPO will take place, we can be confident that it will arrive amid mass investor interest and a relatively high valuation.
The Covid-19 pandemic has accelerated the push toward cashless payments, and physical money has been increasingly frowned upon for its ability to carry germs within this newly health-conscious society. The current climate is intensifying the need for payment processing online, and it can only mean positive things for the long-term future of Stripe. Its esteemed roll call of clients include the likes of Amazon, Salesforce and Instacart.
Record-breaking offering
A record-breaking listing depends on a few factors. Most importantly, the world’s largest IPO is typically determined by the size of the deal itself, rather than the total market capitalization. Currently, Saudi Aramco holds the title of the largest IPO, with $29.4 billion raised in a home country listing. In the United States, the largest initial public offering belongs to Alibaba, which debuted at $25 billion.
While Stripe’s $95 billion valuation is much higher than the largest IPOs in existence today, it’s highly unlikely that the company will make enough shares available for such a large initial public offering to take place. In all likelihood, Stripe will intend to generate follow-on offerings for insiders after the initial lock-up period has been completed at between three and six months from the date of the IPO.
Purchasing Stripe’s IPO
It may be tempting for retail investors to buy into what could become the world’s largest IPO, but the process of qualifying for initial public offerings like Stripe can be difficult for individuals. The reason for this is because most companies favor institutional investors that have the power to buy scores of shares in one fell swoop.
Head of investment research at Freedom Finance Europe, Maxim Manturov, says,
“Historically, institutional investors get around 90% of all shares, with only around 10% left for retail trades. This is where allocation comes from when the demand is high, the broker will have to reduce order amounts so as to at least partially fill all of them. The allocation ratio, meanwhile, depends on the investor trading activity and volume.”
That said, there’s still a way for the general public to participate in IPOs there are online brokers that allow retail investors to take part in IPOs. However, there’s generally a vetting process to go through and a financial threshold to meet.
Even if buying Stripe’s IPO may be out of reach for retail investors, there will be an opportunity to buy stocks when the company lists on the New York Stock Exchange. If investor optimism in tech-based stocks continues, Stripe’s launch is likely to be one to watch.
Dmytro Spilka is a finance writer based in London. He is the founder of Solvid and Pridicto. His work has been published with Investing.com, IBM, Investment Week, FXStreet, Entrepreneur and FXEmpire.
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