• In reaction to the current market outlook, Stripe has laid off as many as 1,120 of its workers.
• Stripe has received its second valuation cut in 6 months, with the latest valuation pegging the company’s internal value at $63 billion after an 11% cut in its share price.
• The valuation was done through a third-party estimation using 409A price change under the rules that are put in place by the Internal Revenue Service (IRS).
In November last year, Stripe, an Irish-American financial services and SaaS company, made a difficult decision to lay off 1,120 of its workers in reaction to the current market outlook. This was a sign that the fintech ecosystem was yet to recover from the underlying strain in the sector across the board, and now, 6 months later, Stripe has received its second valuation cut.
The latest valuation pegs the company’s internal value at $63 billion after an 11% cut in its share price, as reported by The Information. Unlike publicly listed companies whose valuation can easily be showcased through their market capitalization, the case is different for private outfits like Stripe. Rather than depend on the market capitalization of its stock, private entities get valued after a funding round or through a third-party estimation using a benchmark of factors.
In the case of Stripe’s recent valuation cut, no funding was raised, and the estimation was done through the 409A price change. This valuation from 409A is done by third parties under the rules that are put in place by the Internal Revenue Service (IRS).
The 409A price change is a method of estimating the fair market value of a private company’s common stock, and the IRS requires companies to use this method for estimating the value of their private stock for tax purposes. This method looks at various factors like comparable companies, competitive market analysis, industry performance, and subjective factors such as the company’s future prospects.
Stripe’s second valuation cut in 6 months is indicative of the tough market conditions that have been created by the current global health crisis. While the fintech sector is slowly recovering, companies like Stripe are still feeling the effects of the pandemic. It remains to be seen how the company will be able to navigate these uncertain times.