Buy PayPal for $530 billion? Stripe's wishful thinking abacus doesn't work

Source: Fintech Blueprint

Compiled and organized by: bitPushNews

Payments giant Stripe and private equity firm Advent International, as well as some other potential players such as Block, are planning to make a bid to privatize PayPal.

PayPal is currently a $50 billion publicly traded company, which is far from its peak of $360 billion. As a comparison, card giants Mastercard (Mastercard) and Visa both have market capitalization of around $500 billion. Stripe's competitor Adyen's market capitalization fluctuates around $35 billion.

Going public can be a tough job. Stripe can enjoy its $160 billion private equity valuation and much less demanding venture capitalists.

The idea is that a consortium formed by Stripe and Advent will package a leveraged buyout plan for PayPal's entire open market capitalization, with a small premium — including approximately $17 billion in equity, $36 billion in debt, and other capital, for a total of $53 billion.

It's unclear why Stripe isn't directly buying the company in its entirety, but this merger may have monopoly concerns. The entity will operate independently, but will obviously be jointly owned by all parties.

This is similar to Tempo's gameplay, which targets retail consumers as an independent but controlled subsidiary of Stripe and takes out one of its smaller competitors (Venmo/Braintree legacy assets).

The following numbers... do they mean something?

Stripe is second only in size to Visa and Mastercard. If you look at the stock's performance over the past 5 years, you'll also notice that only the card organization has retained value, while the rest of the payment processing stack is in a state of loss.

You might be asking why? Because they're in a very different position in the value chain.

These networks have full market penetration in duopolies, so they are used whenever and wherever there is anything new happening in the payments sector. The only exception is cryptocurrencies. So whether it's PayPal, Stripe, or Adyen, it doesn't matter to Visa or Mastercard. They will grow no matter what, so they are immune to competition for market share among their upstream service providers.

So downstream, you have Stripe, PayPal, and Adyen, which all have transaction volumes between $1.5 trillion and $2 trillion, but the three have very different rates of change and growth. PayPal is managed by professional managers, and its talented startup gang — Elon Musk (Elon Musk) and Peter Thiel (Peter Thiel) — have apparently left long ago to run the world and launch space rockets.

Stripe, on the other hand, still runs on the founder's aura (mana) and outperforms professional managers at all times.

Let's take a look at these companies from a high level of fundamentals.

From a revenue perspective, PayPal is the larger company—with total revenue of $33 billion, of which net revenue was $150 million. But its transactions are valued at only 1.2 times the total revenue multiple, as it has been struggling to grow and has instead been eaten by various competitors, from Stripe to the impenetrable Google Pay and Apple Pay.

Once hyperscale businesses have devoured a feature, good luck in retaining your independent market share. Moreover, all payment processing startups targeting the checkout process are actually stealing PayPal's job.

Stripe, on the other hand, continued to grow, and with its $6 billion revenue, its transaction valuation reached a revenue multiple of 27 times, almost 3 times that of its listed counterpart Adyen. This whole thing is a game of price-earnings ratio/valuation multiples, and multiples are a derivative of the cost of capital, which in turn depends on growth expectations.

It's unclear if PayPal can do better, but this isn't a particularly good result.

Maybe Tether and Circle can create a consortium, buy it for $100 billion, then stuff it with stablecoins and DeFi lending agreements — which, in my opinion, is the only path to the next phase. But that path was also full of perils and obstacles.

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