Stripe, a highly valued payments startup, has cut its internal valuation again, according to sources familiar with the matter.. It is now valued, internally, at $63.000 billion.
The cut, first reported by The Information, puts the domestic price per share of Stripe at $24,71, 40% less from its maximum. The 11% cut follows an internal valuation cut that took place six months ago, which valued the company at $74.000 billion.
The valuation change was not triggered by a new funding round, but by a new 409A price change; 409A valuations are set by a third party, which means they are not tied to what a venture capitalist or other investor thinks. It is an IRS-regulated process that measures the value of common stock in comparison to the public market to help establish a fair market value.
Companies are supposed to do a 409A at least every 12 months or whenever a material event may lower their valuation. In the case of Stripe, along with other late-stage companies, 409A valuation reviews are now taking place on what appears to be a quarterly basis. Background material developments range from the ever-green, ever-tense macroeconomic climate; And let's not forget that Stripe's public marketplace comparisons are showing signs of trouble, with Shopify, Block, and PayPal all dipping from their 52-week highs.
Internal valuation cuts offer a different signal than an investor-led downgrade. In fact, many founders and industry insiders see a positive when a company receives a lower 409A valuation than the private valuation investors give it. According to analysts, this is because a low 409A valuation allows companies to grant their employees stock options at a lower price. Companies can also use the new, lower 409A valuation as a recruiting tool, luring potential employees with cheap options and the promise of charging at a higher price when the company finally exits.
However, in the case of Stripe, a second internal valuation cut may not necessarily be used to attract new talent. In November 2022, the fintech laid off 14% of its workforce, affecting some 1.120 of the fintech giant's 8.000 workers. In August, Stripe it had laid off employees at TaxJar, a tax compliance startup it acquired last year.
In a memo on the layoffs of Stripe, the CEO patrick collison shared some of his reasons for downsizing: “We were overly optimistic about the near-term growth of the Internet economy in 2022 and 2023 and underestimated both the likelihood and the impact of a broader slowdown." Instead, the valuation cut could help retain current employees, or even adjust expectations ahead of a desired IPO.
