Stripe may be the most important unknown Big Tech company, but the battle to secure its business is even more fascinating. Amazon.com stands to benefit from their growing partnership, notes Jon Markman, editor at Weiss Ratings Daily.
Executives at Amazon.com (AMZN) announced recently that the company is expanding its payment arrangement with Stripe. The deal also commits Stripe to Amazon Web Services, the giant cloud computing platform.
At its core, Stripe is an infrastructure business. For a fee of about 3%, the company, based in Dublin, Ireland, helps other businesses process online debit and credit payments.
Businesses add the Stripe application programming interface to their website, customers enter their payment information and presto, the payments begin. Unlike PayPal Holdings (PYPL), its main competitor, Stripe does not require buyers to set up a third-party account.
In fact, Stripe’s application programming interface killed payments friction, and an empire was born.
Meanwhile, in the wake of the 2009 financial crisis, a wave of startups emerged. These new digital businesses relied on application programming interfaces to quickly build scale.
The Stripe API quickly became integral to Lyft (LYFT), a ride-sharing business, and to Shopify (SHOP), an online storefront host and hundreds of other small companies trying to process online orders. The deep-pocketed venture capital investors were not far behind.
A funding round in 2016 raised $150 million, at a valuation of $9.2 billion. The investment was co-led by CapitalG, the investment arm of Alphabet (GOOGL), according to a report from The Wall Street Journal.
Analysts were curious when Amazon quietly partnered a year later with Stripe. Now that strategic deal is getting bigger and making more sense. According to a Stripe press release, the new partnership with Amazon dramatically expands the prior agreement.
Stripe will become the payments partner for Amazon in the U.S., Europe and Canada, and will be responsible for a significant portion of payments across its subsidiaries like Prime, Audible, Kindle, Amazon Pay, Buy With Prime and others. In return, Stripe agrees to expand its use of AWS.
Winning the deal with Stripe, a company now valued at $74 billion, is a really big deal for AWS. It is a foundational business.
Investors often overlook AWS, yet the infrastructure business had $20.5 billion in sales during Q2 of 2022 alone. Despite its huge size, the revenues are still growing at 33% year over year. AWS now accounts for 16% of Amazon net sales. Profits for the division were $5.4 billion.
Recommended Action: Investors should consider buying Amazon shares.