> In making these changes, you might reasonably wonder whether Stripe’s leadership made some errors of judgment. We’d go further than that. In our view, we made two very consequential mistakes, and we want to highlight them here since they’re important:
> - We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.
> - We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.
That first point is key, and I think they're being... less than honest.
The reality is there's very little evidence for an actual "broader slowdown". GDP growth in the US was decent in the last quarter despite a huge decline in home sales and headwinds from inflation, and unemployment remains at record lows. There's certainly some signs for concern, but the only real, persistent decline has been in the stock market (which, honestly, is why this whole period is kinda weird).
The truth, when I look at these stories, is many of these tech companies expected the major changes during COVID, which lead to huge boosts in revenue for a lot of tech companies, to persist post-COVID, and that simply didn't pan out. The result is a lot of businesses with bloated workforces predicated on long-term financial projections that haven't panned out.
But, Stripe can't admit they made a major strategic blunder--the exact same blunder made by companies like Peloton--so they have to blame it on "a broader slowdown" since then they have an exogenous factor they can point to rather than admitting they were just caught up in the techno-optimism of a transformed post-COVID society.
> But, Stripe can't admit they made a major strategic blunder
They quite literally say that?
“In our view, we made two very consequential mistakes, and we want to highlight them here since they’re important:
We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.
We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.”
There has not really been a broader slowdown in credit card processing volumes. Visa and MasterCard had good earnings and guidance last week. What’s really happened is exactly what BaseballPhysics said - the pace of Stripes share gain has slowed dramatically post-COVID.
What senior management says publicly, what they say internally, and what the actual truth is are not necessarily the same thing. The GP I think is suggesting what they're saying publicly is not necessarily the truth.
Why would I look outside? That's how you find out the weather.
I looked at the data. US GDP growth was positive in the third quarter. Unemployment is at record lows.
Again, there are headwinds. Inflation is high and as a result consumer confidence is low. That's bad. But the only people crying "recession" are people paying too much attention to the stock market. The real story is far more complex, and there's very little sign of a broad based economic slowdown.
Would you care to provide the data you're using to back up your claims?
For example, Lyft and Shopify who are one of the largest customers of Stripe is slowing down in their revenue growth. You can just look at their financials in the past few quarters. They even have layoffs themselves.
That majorly has negative impact on stripe's revenue.
Cool, two companies, one (Shopify) which saw a huge bump in revenues during COVID thanks to a rise in internet purchasing and is seeing the numbers slump back to normal as shopping habits revert to the mean, and the other (Lyft) that's in an industry that declined throughout COVID due to pandemic concerns and hasn't surged back in the face of competition from both Uber and traditional cabs.
Again: I have data about the entire economy. That data tells a story that's mixed but relatively positive.
You have two specific examples, each of which represent a corner of entire economic sectors, and those sectors represent only a fraction of the total economy.
And I'm supposed to conclude that you're the one who has it right?
> Cool, two companies, one (Shopify) which saw a huge bump in revenues during COVID thanks to a rise in internet purchasing and is seeing the numbers slump back to normal as shopping habits revert to the mean, and the other (Lyft) that's in an industry that declined throughout COVID due to pandemic concerns and hasn't surged back in the face of competition from both Uber and traditional cabs.
Why would your explanation matter?
The conclusion still remains. Their revenue slows down. Therefore, stripe's revenue slows down.
For sure, it is not growing faster.
You didn't contradict my point at all.
> Again: I have data about the entire economy. That data tells a story that's mixed but relatively positive
Stripe's revenue growth does indeed slows down. There is no dispute of that.
If Stripe was making 1 trillions USD more, they wouldn't have laid off people, obviously.
Now I or the founders claim it is because the macro economic is bad. You might contradict this part.
Well you have been taunting it for 2 comments now. Can you share your evidence? Or we should continue quibble a bit more first?
Yes, Stripe customers have seen slowing growth post-COVID which is why Stripe’s pace of share gain has slowed. Macro, ie nominal consumer expenditures, has remained strong.
You threw out random metrics and claimed it is still growing therefore Stripe's revenue should not slow down.
I claimed that two of the largest Stripe customers have their revenue slowing down, and this slows down stripe revenue. These 2 are just examples. Uber, Doordash, and many more companies who are Stripe customers also have their revenue slowing down.
Do you think you metrics is more relevant than stripe customers' revenue?
Stripe earns when their customers earn. My metrics is the most direct one.
Also, online purchase is only 15-20% of all purchases by volume. And we haven't accounted for Paypal, Square, and etc. Your metrics is crap...
You’re saying Stripes growth slowed because their customers growth slowed. Given the nature of Stripes business, this is tautological.
I’m saying, Stripes deceleration is not due to macro (ie overall macroeconomic conditions), but a result of post-Covid normalization in the business results of its customers. This is obvious, as overall nominal PCE have not slowed.
> The reality is there's very little evidence for an actual "broader slowdown". GDP growth in the US was decent in the last quarter despite a huge decline in home sales and headwinds from inflation, and unemployment remains at record lows.
I thinks as a payment processor, they are in a better position than most to predict sales trends. This effect might be restricted to their segment of the market. But if the payments they process are down significantly, then does it matter (to Stripe) if parts of the economy that they aren’t involved in are more robust?
I’m not excusing actions, but they have more data on the economy than most, just from their position in it. They may have thought (their part of) the market was going to keep growing (the mistake), but that doesn’t change the fact that it isn’t.
Stripe’s reach as a processor probably isn’t broad enough to see those kinds of trends. Their processing fees are quite high so there’s huge industry sectors that will just never touch them.
Stripe processes in the area of $350-400bln annually, which is equivalent to about 1/10th the GDP of the U.K. That's absolutely enough volume to see macro trends as it relates the classes of merchants they support.
Who said anything about being the largest? The question was whether they have sufficient data to make predictions about future trends, especially as it applies to their business.
Beyond pc explicitly admitting that they made the mistake you're saying they didn't, Stripe and other payment processors, especially internet payment processors, are extremely sensitive to economic forecasts. I can think of three obvious reasons that current market conditions would tell them to prepare for a macroeconomic downturn:
1) The housing market is the largest asset base in the world's wealthiest country and changes in that market reliably predict macroeconomic downturns (1).
2) E-commerce transactions are supported more than the economy as a whole by discretionary income. Interest rates drastically change consumers' spending habits; when rates rise, discretionary spending drops as consumers save more (2). You can infer that the GDP of e-commerce decreases at a rate higher than the larger economy because of that drop in spending.
3) Stripe has a very high retention rate for its customers. That counterintuitively increases the volatility of its stock because of increasing interest rates (3)
Beyond the appeal to intuition you made around tech companies assuming that post-COVID demand would remain, there are plenty of reasons that a payment processor that primarily services e-commerce would need to downsize. They are simply more sensitive to macroeconomic conditions.
> The reality is there's very little evidence for an actual "broader slowdown".
I wish I could be in your bubble. In mine, people have been spending more on less month after month. Businesses are seeing slowdowns. Things are going to be even worse when the winter heating starts.
>The reality is there's very little evidence for an actual "broader slowdown".
I'm not sure about 'broader slowdown' but in the industry I'm in we've seen a massive slowdown in signups and expansions in the existing customers. When we speak with our customers, especially banks, they are seeing massive slowdowns on their side.
Someone has bad metrics here, and when most of our customers across a wide range of industries are laying off, then I'd say that's pretty broad.
I always wonder if the chicken or egg comes first. Maybe I'm living in a bubble, but I didn't see any broad slowdown until companies started laying off, saying there's this broad slowdown that's totally coming soon. Now, with people being laid off and tightening their spending, leading to an actual slowdown, the prophecy is fulfilled!
The last recession had a pretty clear cause you could point your finger at: The collapse of subprime mortgages. This one (presumably we're about to experience one) and the first dot-com crash didn't seem to be caused by anything besides a critical mass of businessmen agreeing "Well look at that, we're headed into an economic slowdown!"
Inflation goes up, cost of borrowing money goes up (cars, mortgages) -> less money to spend on non-essentials and the essentials get pared down to the minimum.
One thing that i think hits Stripe harder than most is all the people who quit their jobs to do their own thing. You know they all setup Stripe accounts for e-com and other invoice/payment functionality. I think reality is pushing them back to regular day jobs and those new Stripe accounts are going to sit with zero transactions.
The blog post literally says Stripe has higher transaction volume than ever.
Anecdotally my indie friends all report modest revenue growth this year while my big tech friends report more work for less money (due to equity grants decline).
From the data I see, the “reality” is not the failed indie dev but the failed inefficient big tech company.
I think the fact that they used "internet economy" and not "economy" in their letter is basically a shorthand way of conveying exactly what you say here, though in a less self-flagellating way.
Agree 100% with you. Also having talked to recruiters there I found them absolutely disorganised. At least here in APAC. Might be better stateside.
They gave me the impression of not really knowing what org to build and job descriptions/titles/org changed wildly during talks (and then abruptly ended, leaving me with a terrible impression).
The one thing they kept going on about though is how they're the biggest bestest most promising of unicorns and how much they'd be in 'super growth mode'
>GDP growth in the US was decent in the last quarter......and unemployment remains at record lows.
That is correct. However, I work as a consultant and deal with a lot of senior execs at large companies (mostly non-tech) and I can tell you that they are all in a panic right now and expect an absolute economic bloodbath next year. It's going to become a self-fulfilling prophecy. It really feels like Wile E Coyote after he's run off a ledge but hasn't realized it or started falling yet. Very weird.
Anecdote here, but I sell vintage clothing, electronics, and furniture on the side and have noticed a substantial downturn in sales this year. Lower than pre-pandemic levels.
The stock market didn’t really decline. There was a speculative play at the beginning of the pandemic that allowed the shitheads that run that game to do a reallocation of capital from “pandemic hit” industries to tech. That’s why tech ballooned to stupid levels. I say speculative because while it may have been right to reallocate away from, say, Airlines stocks, there was no good reason to run up tech to those absurd levels.
Tech didn’t get hit by interest rates, it’s just a reallocation of that influx of money back to other sectors. People didn’t stop using tech. Now they reallocated out of tech (the way it was supposed to be around 2019), and all these shithead companies are saying “we’re fucked, our stock tanked”. No, your stock went back to healthy levels, your stock was just a bank for two years, that’s all.
Yup, good points. The stock market has been pretty damn volatile, which is to be expected given the broader geopolitical context, the chaos of the post-COVID recovery, etc, but the stock of a ton of these tech companies just reverted to the mean, which is exactly what you'd expect if the changes during COVID failed to persist.
I would argue CEOs generally find it optimal to "overgrow" during boom periods and "cut" during bust periods. This is why we see the routinely observe the pattern. It is not because a bunch of confused CEOs are constantly making mistakes. This was expected, even planned for (if not explicitly). This is how startups work. Overgrow, then cut, then overgrow again. Layoffs, especially around moonshots or non-revenue-generating teams, are only problematic for PR purposes.
It's true but it would be nice if they were honest about it. It makes sense as a strategy because, if the bust doesn't come (or as soon as you think), then you'd much rather be in the position of having grown to take advantage of it than not.
It seems to me they are moderately open about it. "We expected things to keep growing, acted on that, it didn't, now acting on that."
I suppose they could say "we thought the economy might contract in 2022 as it would eventually, but that risk was more palatable than not growing and missing out vs our competitors if the contraction didn't happen."
> We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023
A lot of this was driven by covid-cautious WFH culture. Someone working from home in the Bay Area in January 2022 might not realize the extent other industries are back in the office and other regions are done with covid.
> - We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown.
> - We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in.
https://stripe.com/br/newsroom/news/ceo-patrick-collisons-em...