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in this market specifically in these middlemen highly transparent middlemen markets it's very difficult to hide the cheese meaning the ability to get to an extremely precise valuation model is pretty easy basically what happens is you grant an RSU which is effectively W-2 income when it's realized with an expiration date but that expiration date forces you to be public so that that RSU can be exchanged for value and that's like a 10-year window so then these guys have to go in and modify that date and push it out by another four five six years or whatever that is a deemed event by the IRS that then creates withholding tax issues right so you then have to you then have to withhold tax on behalf of the employees and so that Collective number is the 4 billion that stripe is trying to raise so anyway why does it matter yeah why does this why does this all matter like why do we care thank you that's where we're getting to I posted a link this is a 2013 interview that Zuck did with Michael Arrington of TechCrunch and if you go all the way back the apprehension to go public was one thing that we really anchored to a lot at Facebook in the early days and at the time I don't know if you guys remember but there was these Arcane laws around the number of shareholders that you could have and I think the issue specifically was that after 500 shareholders you have to publicly release your financials and so we did all kinds of things to make sure we never hit the 500 cap and we tried to push the IPO data as far out as possible because we thought that it would keep people more focused and then in 2010 or 11 I told this story a couple times one of the things that I was advocating for pretty aggressively was trying to Launch a mobile operating system to compete with IOS and Android and we had put together all this work and brought in Intel and ATT and all these people and it came down to the fact that we needed a couple billion dollars to float this thing and we didn't have that money so the only solution to that would have been to go public but it wasn't the right moment in time and Zach was uncomfortable with it a year after going public one of the things that he said publicly in this TechCrunch thing was wow I should have just gone public sooner it wasn't nearly the bad thing that I thought it was going to be and when you look subsequently at how much money they've spent in AR and VR spending half a quarters of that cash could have given them the chance to disrupt Android and iOS in 2010 and 11 which in hindsight is obviously a no-brainer BET right so even though I think we at Facebook were the ones to really put this in the water table about not going public I think a lot of startups should have gone back to First principles to really question whether waiting as long as possible actually makes sense so I was curious about the stripe situation so I asked my team to do a little bit of work on how would you value this thing if it were going public and the interesting thing about stripe is that it operates in a really transparent middleman business so what's interesting about stripe is that so many of the people in the ecosystem are public and so what that means is you can build a pretty accurate mosaic of how well or not well that business is doing by interpolating all the other data from all of these other companies that are public and are forced to report and so there's like a couple of really interesting things that jump off this page and so the first thing that we did was we looked at what is the future profitability look like acts of growth and what's interesting is that you look at companies like visa and MasterCard that are doing quite well and have done really well for a long time but you look at this outlier in Adian and adyan is probably the most obvious competitor to strike and the thing that is demonstrated here is how incredibly profitable this business is and how much operating leverage they have which means that their Opex is relatively constrained acts of their long-term sales keger what you start to get a sense of is the operating leverage that this business has and so all of this basically Nets out to three interesting takeaways when stripe got underwritten at 96 billion dollars it's this data point right here where you know you see your stripe previous round 5x Enterprise Value to divided by 2024 divided over there they're long-term they're long-term ebitda exactly by their sales assistant and then if you look at the 55 billion dollar valuation it's down so what it looks like is happening is appropriately so people are doing the right thing which is they're re-rating the stock right by approximately 50 60 percent but what's interesting is not where they are in terms of where they used to be but the interesting thing is where they are relative to their most obvious competitor audience so Nick please bring up the next one so this is where things get really interesting because we looked at what was odd yen and what was Stripes gmv per employee a couple of years ago before all hell broke loose in the private funding markets and what you see is they were pretty equivalent businesses and they had roughly the same amount of employees but this crazy thing happened which is that if you look at the gray bar this is the number of employees at stripe has it went crazy from a little over 2000 to almost 8 000 so a four action of employees X in 24 months they added 6 000 people just pause for a second on that six thousand people in 24 months in 700 days or so right three people a day and if you do the same calculation for Auden it shows that they a little bit less than Group by about 75 percent and then if you look at the growth of gmv and you impute how productive is each employee basically this is the the story of what's happened to stripe and audience which is that ajin has found operating leverage right so they've found and maintained incredible profitability and stripe has added an enormous number of employees now the question is why right so it turns out that these guys at the Top Line are growing roughly the same except adien actually takes meaningfully less on a per transaction basis than stripe does and the reason is that audience Services these large head customers I think big bulky folks that have huge amounts of transactions and so as a result have pricing power and stripe has some of those customers as well in fact they just announced that they're going to process a large portion of Amazon's payment volume but what's happened at the same time is that those kinds of deals aren't necessarily that profitable and so you have to hire a lot more people to build a lot more features so that you can generate revenue from the long tail of customers all of these smbs and this is the tale of these two companies which is that stripe has some head customers but many many tail customers Adrian has mostly had customers fewer tail customers and so the leverage in the business is that audience has most of these employees in Europe where the cost of these folks is much much cheaper and they have less than half the number and so as both of these companies continue to grow you have one that has maintained and frankly raised their long-term profit projections because they see it in the business even at lower transaction costs and stripe which is having a little bit more trouble so I thought it was a really interesting expose the takeaway for me is that if you were sitting inside the company and obviously hindsight is 20 20.
the most profitable thing they could have done from an Enterprise Value perspective would probably have been to go public in 2018 2019. because they could have raised max value at Max valuation cleaned out all these options issues and have a huge balance sheet of cash with which to do stuff whether it's Acquisitions or other things because the thing that I struggle with is is there going to be long-term profitability in all of these tail products because if you look in the SAS ecosystem and SATs I'll hand the ball to you there's companies building all this other stuff and these Point products are probably pretty good too well In fairness to stripe they were very honest about this and they were like we overestimated got confident and we over hired and they found that all the coordination costs this access point became too high that's exactly what the Collision said in their memos so I think that they're trying to course correct and get back to this I think the point that I'm making unemotionally I don't own stripe nor adjun I don't have a horse in this race is more that in this market specifically in these middle men highly transparent middlemen markets it's very difficult to hide the cheese meaning the ability to get to an extremely precise valuation model is pretty easy you know this was half a day's work that we did and the point is all this data is out there and so it means that if you're going to go public as a company like this you have to be quite thoughtful about how outside and folks will value you because the terminal buyer is very very sophisticated and pretty smart about how to think about spaces like this the interesting thing about that space we talked to one of our friends at our poker game who runs a large consumer-facing business and I don't know if you were there for that conversation not freeberg but I was you were there yeah and one of the interesting things he said is we are at a level of scale where we just bid these guys against each other and these things tend to now be lost leaders for them which is to say effectively that cost structure becomes really important so your CAC becomes very important because your ltvs are capped right and the ltvs are capped because these companies have enough negotiating leverage to say well if you want my business here's the cost of doing this business which makes a ton of sense if you're any large purveyor of services that require Payment Processing infrastructure so one of the interesting Dynamics I think we're learning in this market is how it's really not a market right there are segments and there's embedded profitability in each segment so to your point free bird this is the sum of at least three or four different LTV to CAC ratios right right looks very different which is why you have to build a ton of features and the head just wants Pure Play and it's all about cost First because all of these guys want to pick up every nickel and dime that's on the floor because for them on billions of transactions is Meaningful to them it's an it's an it's an EPS miss or or beat right for them which has huge implications to their stock this is a market that I think is going to be really fascinating
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