The payment processing company Stripe is laying off 1,000 employees, or about 14% of its workforce. The layoff returns Stripe’s workforce to its February level of just under 7,000 employees.
Stripe co-founders Patrick and John Collison admitted that it simply overextended itself this year in an email to employees. The company will especially cut back on recruiting since it expects to hire fewer people next year. It will also pay 14 weeks’ worth of severance and will also issue unpaid bonuses and unused paid time off.
“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,” they said.
They also admitted that some operational inefficiencies crept into the company as it tried to grow. Now Stripe needs to trim back.
According to the co-founders, the company’s valuation dropped from $95 billion during its last fundraising round to $74 billion. Valuations for online payment processors generally dropped now that COVID-19 lockdowns are over, and the growth of ecommerce sites has slowed down.
Businesses used Stripe to process $640 billion in transactions in 2021. The co-founders acknowledged that payment processing is not an easy service to turn off even if a business is facing a financial squeeze. However, a company may change services if it is unsatisfied with its current one.
Stripe is not the only online financial services company laying people off.
Rivals include Paypal Holdings, which has also reduced its staff recently in an effort to placate shareholders by trimming costs. Paypal estimates that it will save $260 million in salaries, benefits, and payroll taxes this year by reducing its staff.
Chime Financial, a smaller digital banking company, is also laying off 160 people, or 12% of its staff.
Several digital asset companies like Coinbase, Crypto.com, Gemini, and BlockFi are also laying off employees, often citing this year’s significant downturn in crypto markets. Some companies, like Crypto.com, may have overspent on marketing. (Yes, that Super Bowl ad with The Martian star Matt Damon does seem silly in retrospect.)
However, layoffs are not always a magic bullet.
Some experts did warn that layoffs could end up backfiring if done incorrectly. If layoffs are handled incorrectly, companies could lose the employees who are responsible for maintaining their products. The Journal of Business Research published a 2017 study suggesting that companies could increase their risk of bankruptcy by handling layoffs in a way that is too disruptive for its remaining workforce.
Bloomberg warned that layoffs cost PayPal $71 million in Q2 2022. The expenses included restructuring costs. PayPal also hinted that it would pay for an assessment of its facility needs in the wake of layoffs. (It didn’t say so aloud, but white collar workers have increasingly pushed for more remote working.)
Everstake CEO Sergey Vasylchuk said that downsizing crypto companies mostly lay off “marketing people, junior developers, and project managers,” especially ones who are overpaid or don’t actually do much. However, this comes with the risk that they could lose experienced developers or managers who actually know what’s going on in their departments.
Stripe saw growth, but can’t keep up the momentum.
Stripe has attempted to keep up with the latest in online payments, including enabling cryptocurrency payments. It integrated payments with USD Coin (USDC), a stablecoin tied to the U.S. Dollar that is backed by Circle and Coinbase. Stripe also selected OpenNode to integrate fiat-to-bitcoin payments.
Stripe’s revenue has tripled since the start of the COVID-19 pandemic. It onboarded 75% more customers in Q3 2022 than it did in the same quarter in 2021.
However, the current macroeconomic environment is making it difficult to keep up the momentum. Stripe cited inflation, higher energy prices, reduced funding for startups, and increasing interest rates as reasons for the layoffs. Supply chain disruptions also took their toll by impacting the businesses that use its payment processing services.
Stripe will probably keep moving forward, though at a slower pace. It just needed to make some trims, including laying off 14% of its workforce in an effort to streamline its operations.