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Stripe faces $3.5B tax bill as employees' shares expire

bloomberg.com

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Re: Stripe faces $3.5B tax bill as employees' shares expire

#71

Post by kodah »

morepork wrote: post #70
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I wonder whether there could be space here for a bank to come in and specialise in loans to cover the tax bill, using the currently pre-IPO stock as security

Pre-IPO stock is about as secure as super glue based on toothpicks and bubblegum.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#72

Post by KptMarchewa »

throw3823423 wrote: post #48
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I don't understand why there's tax on unrealized gains there.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#73

Post by MajimasEyepatch »

throw3823423 wrote: post #48
noahmbarr wrote: post #22

(Uninvolved growth-stage CFO perspective) The IRS mandates that stock option grants expire after 10 years. My best guess is these early employees are quickly approaching those grants' 10 year mark, and face an exercise or "lose it" situation. If you exercise, you have to pay the gain. For early employees, this could/would be a massive bill -- probably well into the 7-8 digit range for some early hires. Stripe seems t…

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I don't think it really changes the overall point you're making, but these would presumably be ISOs, not RSUs.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#74

Post by valzam »

KptMarchewa wrote: post #72
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I don't understand why there's tax on unrealized gains there.

The gains are realised, you just aren't getting cash but company stock. The 'gain' is the difference between option strike price and market value of the shares. Since stripe is privat the market value is a bit murky but that doesn't deter the IRS.

EDIT: spelling

Re: Stripe faces $3.5B tax bill as employees' shares expire

#75

Post by georgelyon »

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#76

Post by MajimasEyepatch »

morepork wrote: post #70
throw3823423 wrote: post #48

Earlier quoted context omitted.

It's pretty accurate: Employees don't have a few million in change, each, to turn the RSUs into plain stock. I don't think the issue is making employees wealthy or not: It's 10 year old RSUs, so most of them are owned by former employees. But consider the size: If the tax bill is 3.5B, the full size of the grants we are talking about here is over 10B! last valuations in the press are at something like 60b. So 1 in 6…

I wonder whether there could be space here for a bank to come in and specialise in loans to cover the tax bill, using the currently pre-IPO stock as security

Some companies are doing that, like https://vested.co/.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#77

Post by dilyevsky »

rvnx wrote: post #66

The company brings only 127M USD / yr in fees. To generate this income, they are losing money. 10M USD / month in income for a valuation of 95B USD sounds really insane (even at 50B USD valuation). This could be the real reason why the employees are not so excited to purchase the shares even at a supposedly deep-discount @ 10B USD.

I think you lost couple zeros there

Re: Stripe faces $3.5B tax bill as employees' shares expire

#78

Post by mertd »

georgelyon wrote: post #75

I've always been curious, what happens if they just let these shares just expire? It wouldn't look great for Stripe, but presumably they would just get back for free (modulo taxes) any shares employees could not afford to exercise. The value of those shares alone could be pretty enticing to the people in charge.

Good luck hiring or retaining anyone after that while Stripe is still private.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#79

Post by abhv »

gkoberger wrote: post #67
rvnx wrote: post #66

The company brings only 127M USD / yr in fees. To generate this income, they are losing money. 10M USD / month in income for a valuation of 95B USD sounds really insane (even at 50B USD valuation). This could be the real reason why the employees are not so excited to purchase the shares even at a supposedly deep-discount @ 10B USD.

Do you have a source on this? Nothing I could find is within an order of magnitude of your number. Two weeks ago, Bloomberg said they process $1T in payment volume and expect to turn a profit this year. https://www.bloomberg.com/news/articles/2023-02-16/stripe-is...

Stripe charges 2.9% + 30c per transaction.

From that, about 1.3% + 5c per tx go to interchange + assessment fees.

This leaves about 1.6% + 25c for the payment processor.

14.3 on 816b is about 1.7% which is consistent.

On 1T, that means about 17b in revenue.

Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which includes their total comp, insurance, federal + state taxes, and operating overheads amortized over all employees). So their cost of labor may be around 7-8b/year.

They may have other acquisition and marketing costs, but it means the co can feasibly be earning >8b before taxes, depreciation, amortization, etc.

That number could justify a 80b valuation.

If their current round cap is 55b, then my #s on costs are off, or the multiple has dropped to 6-7. Please debug.

Re: Stripe faces $3.5B tax bill as employees' shares expire

#80

Post by itake »

abhv wrote: post #79
gkoberger wrote: post #67

Earlier quoted context omitted.

Do you have a source on this? Nothing I could find is within an order of magnitude of your number. Two weeks ago, Bloomberg said they process $1T in payment volume and expect to turn a profit this year. https://www.bloomberg.com/news/articles/2023-02-16/stripe-is...

Stripe charges 2.9% + 30c per transaction. From that, about 1.3% + 5c per tx go to interchange + assessment fees. This leaves about 1.6% + 25c for the payment processor. 14.3 on 816b is about 1.7% which is consistent. On 1T, that means about 17b in revenue. Lets assume they have 7000 employees (i've seen 6000-8000 in searches). As rough estimates, these SFO-based SWEs + knowledge workers cost 1m/yr on average (which…

I’m a bit surprised their employees cost so much. I’d imagine engineers might, but other orgs like Hr, sales, recruiting, or support (which should be most of the headcount) would be compensated way less.
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