Adyen: An Emerging Fintech Giant

Investment paper:

Adyen (ADYEY) is a little-known fintech company. However, it is growing rapidly and could become an important player in the industry. The company benefits from the huge fintech market. It continues to expand rapidly thanks to digital transformation. The company’s latest earnings results continue to show strong growth with excellent margins, even as it faces a challenging macro environment and earnings have stalled due to higher spending. Rising interest rates and other macro concerns have caused the stock to drop significantly, but the current valuation is perfectly set. 

Why Adyen?

Adyen is a Dutch-based financial technology company founded in 2006, that helps your customers process payments across a variety of channels and methods, including mobile, point of sale (POS), credit card, and wire transfer. Its integrated platform also offers other services such as card issuance, risk management, reporting and fraud prevention, allowing customers to do it all in one place. Unlike other prominent fintech companies like Mastercard (MA) and PayPal (PYPL), which mostly works behind the scenes. Most of your transactions may be processed by the company without your knowledge. For example, all payments on Spotify (spot) or McDonald’s (MCD) are actually done through Adyen. Its customer list includes Microsoft (MSFTMore), reserved holdings (BKNGMore), and Uber (uber).

Fintech is one of the most important segments in digital transformation, with significant growth opportunities. Emerging industries such as e-commerce, ride-hailing, and food delivery are only enabled by digital payments. These industries continue to expand rapidly, providing a strong tailwind for the fintech market. According to Allied Market Research the Fintech Total Addressable Market (TAM) is expected to grow from $110.57 billion in 2020 to $698.48 billion in 2030, growing at an impressive CAGR of 20.3%, according to rate).

The fintech market is very crowded, but the company’s growth continues to outpace its peers. Adyen’s big advantage is its simplicity and scalability. The company’s single-platform approach allows customers to simplify payment processing procedures and improve efficiency. It also offers a very convenient integration process via drop-in or API. This reduces the friction of onboarding new customers and makes it easier for companies to expand their global presence without significantly increasing CAPEX spending. This, alongside his large and expanding TAM, should continue to drive growth going forward.

Finance

Adyen reported that Financial earnings in the second half of 2022 sales growth continued to be very strong, but earnings were very weak due to higher spending. The company’s turnover was €721.7 million, up 30% year-on-year against €556.5 million. This growth is due to strong throughput, which he increased by 49% from €300 billion to €421.7 billion year-on-year. This is a 62% increase from €41.8 billion to €67.6 billion year-on-year, as more customers adopt POS terminals for newly released unified commerce.

Commenting on POS growth, CFO Ingo Uytdehaage said:

POS volume was €67.6 billion, up 62% year-on-year and accounting for 16% of total volume processed. This figure highlights the continued desire for advanced multi-channel experiences and the unique ability of a single platform to meet this need. To stay on the cutting edge of the consumer journey, we relentlessly explored new avenues for innovation in the second half of the year. As a result, we have launched several iterations of our products, including online checkout, rolling out new terminals, and piloting an embedded financial services suite.

Earnings were somewhat softer due to increased spending on expansion. Total costs increased by 77.9% from 218 million euros to 387.8 million euros year-on-year. Wages and salaries costs increased by 91.7% year-on-year from €109 million to €193.4 million due to increased employment. Hiring may be brought forward as management signals a slowdown in hiring ahead. As a result, operating profit increased from €333.7 million to €333.8 million year-on-year. Operating margin dropped from 60% to 46.7%. Net profit was €26.5m compared to a net loss of €13.8m last year.

Take-out for investors

Despite the stock price decline, Adyen’s valuation is still growing strongly. The company currently trades at a forward PE ratio of 65x and a forward EV/EBITDA ratio of 42.9x, significantly outperforming payment processors such as Mastercard, Visa and Shit4 Payments (FOUR). The average forward PE ratio for the three companies is 35.9, representing a significant discount of 44.8%. The company’s fundamentals are strong and the expanding market should continue to provide a strong tailwind. Producing best-in-class growth and profits in the face of a weakening economy. However, the current valuation looks perfectly priced, limiting potential upside.

Editor’s Note: This article describes one or more securities that are not traded on any major US exchange. Please be aware of the risks associated with these stocks.