Company Reports

Adyen reported a limited first-quarter business update providing net revenue and volume figures which were good, in our view. Nevertheless, the stock dropped more than 10% at the market opening. Large price movements on the day of earnings releases are not uncommon for Adyen, typically driven by what we believe to be the market extrapolating short-term movements too far into the future. We surmise the market is getting hung up on the divergence of volume growth and net revenue growth, which suggests a declining net take rate. We maintain our EUR 1,660 per-share fair value estimate and wide moat rating. At a price/fair value of about 0.75 at the time of writing, we believe shares are attractive again.

Adyen posted a good second half of 2023 after breaking its traditional semiannual reporting schedule and releasing good numbers for the third quarter in November already. As such, the good performance was not entirely unexpected. However, we think another confirmation that Adyen is on track to return to its growth trajectory and widening margins again will be appreciated by investors. Outside of good top-line growth (net revenue up 23% year over year) and EBITDA margins recovering to 48% from 43% in the first half as hiring has started to slow, Adyen has also shown noteworthy operational progress that we believe is supporting our bullish view on the stock. Lastly, we believe Adyen has taken investor criticism to heart and improved its communication strategy. We maintain our EUR 1,660 per share fair value estimate and wide economic moat rating.

Adyen’s management will be pleased with how its investor day turned out, not least due to the share price reaction. Apart from the usual update across the different business segments and how Adyen believes it is differentiating itself from competitors, we believe an improved guidance delivery, a clearer buildup of its assumptions underlying guidance, and more detailed commentary around the competitive pressures in the U.S. have rectified many of the missteps of previous earnings calls. We retain our EUR 1,660 per share fair value estimate. We anticipate that the investor day will have weakened the bearish narrative put forth on Adyen over the last quarter. Importantly, we don’t think the view that Adyen’s competitive advantage is not applicable in the U.S. holds water. Indeed, Adyen made a good case for why it anticipates further above-market growth in the U.S. Regular quarterly updates over the next year paired with an expanding EBITDA margin should rebuild confidence in Adyen’s growth story, closing the valuation gap to our fair value estimate.

Adyen published a third-quarter business update outside of its normal semiannual reporting schedule. Figures presented were limited to volumes and net revenue in the third quarter as well as growth rates across its business segments. Overall trends have been in line with those presented at the first half of the year. Processed volume increased 21% year over year while net revenue increased 22%. Digital volumes were up 21%, with the U.S. showing stable trends to those in the first half. Important to highlight here is that Adyen again grew above the market in the U.S. Unified commerce saw volumes increase 25% while platforms grew 15% (120% if we exclude eBay volumes). The take rate remained stable at 17 basis points relative to the same period a year ago, which suggests that Adyen did not engage in any price competition in the U.S. The largest change in the limited business update was a change in guidance. While Adyen was previously setting targets for the medium term and investors were lost at what exactly that would mean, the payment services provider now specified a clear time frame up to and including 2026. Importantly, Adyen reduced guidance significantly. Net revenue that was previously guided to be growing between the mid-20s and low-30s percent per year was now lowered to between low-20s and high-20s. EBITDA margin is guided to improve above 50% by 2026, the previous target was set at above 65% in the long term. Our assumptions are fully aligned with the updated guidance, and as such we do not make a change to our fair value estimate of EUR 1,660 per share. Our wide moat rating is also unchanged.

Adyen is capturing the e-commerce market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

Adyen’s earnings call did not seem to ease investors’ concerns, as its share price continued to slide during the call, ending close to 40% down for the day. Although we agree that management was too soft on potential rectifications of what the market believes to be a step change in Adyen’s outlook, we think the selloff is exaggerated. We took a fresh look at our model and pulled down our revenue growth estimates, now assuming that Adyen will see growth decline further in the digital segment, albeit still double-digits until 2029. We also adjusted our cost assumptions up slightly to account for the additional hiring expected this year and the lagging effect of this hiring, which will weigh on margins through 2024. On the flip side, we lifted our interest income assumptions, which is a nice boost to Adyen now that rates have left close-to-zero territory for good, offsetting some of its investments into staff. Taken together, our changes lower our fair value estimate to EUR 1,660 per share from EUR 1,870. With shares trading around EUR 900, we view Adyen as cheap. Moreover, we believe our assumptions of 22% revenue growth over the next five years and 16% over the next 10 years leaves room for surprises to the upside. To reach our fair value estimate, Adyen can miss its mid-20s percent revenue CAGR and above 65% EBITDA margin guidance for the medium term.

Adyen’s share price is down about 26% on Aug. 17 as we are writing this, as the payment services provider reported EBITDA of EUR 320 million for the first half, down 10% from the year-ago period. Revenue growth of 21% also did not mirror the strength we expect to see from Adyen. In particular, 23% growth in North America disappointed, as the region had been a growth driver for Adyen lately. Higher net interest income on the back of higher interest rates offset the growing cost base (up 66%) entirely due to the continued high pace of hiring, resulting in flat earnings per share. Nevertheless, management will have to field difficult questions about the mismatch of slowing revenue growth and heavy investment in the business depressing margins (EBITDA margin declined to 43% versus 59% last year). Before adjusting our model, we will wait for greater granularity around the revenue growth outlook for North America as well as the pace of further hiring this year, which we hope Adyen will provide during its earnings call later today. Given what we know now, and with the view that Adyen’s margins should recover in mid-2024, we don’t expect to make a material change to our EUR 1,870 fair value estimate. Our wide economic moat rating is unchanged.

Wide-moat Adyen reported 2022 EBITDA of EUR 728 million versus consensus expectations of EUR 821 million as collected by FactSet and our own EUR 800 million estimate, sending shares lower by about 15% at time of writing. The culprit behind the expectations miss is easily found in the elevated hiring pace Adyen followed during the year and especially so in the second half of 2022. While we had anticipated that Adyen will continue the elevated hiring pace it had kicked off in the first half of 2022, it added 395 full-time equivalents during that period—the payment provider had another 757 employees join its team in just the second half alone. This comes down to a whopping 53% headcount growth if we compare year-end figures, versus the 35% growth we had assumed for 2022. We surmise that the heightened hiring pace, while peers left and right are cutting or freezing hiring, and the resulting contraction in the EBITDA margin (55% in 2022 versus 63% in 2021) has the market feeling jittery on Adyen. We remain more constructive on Adyen’s outlook and believe that investors should take advantage of the current weakness in Adyen’s share price. Indeed, outside of the faster-than-expected hiring, performance for Adyen in the second half was in line with our expectations and our view of progression for the merchant acquirer. As such, we don’t expect to make a meaningful adjustment to our EUR 1,870 per share fair value estimate. Shares trade in 4-star territory. We laid out the core themes of our investment thesis in our Stock Pitch Report: “Adyen—As the market mulls Adyen’s outlook, investors should take advantage” published on Jan. 3, 2023, and believe that our thesis is fully intact even after the Feb. 8 announcement.

Adyen is capturing the e-commerce market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

Adyen is capturing the e-commerce market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

Wide-moat Adyen reported first-half year EBITDA of EUR 356.3 million, up 31% versus the same period a year ago. Nevertheless, results disappointed somewhat as EBITDA was on a sequential basis (EUR 357.3 million) driven by higher operating expenses. Higher salaries to retain talent, expanding the employee base by about 18%, as well as a resumption of travel to meet clients have weighed heavily on profits as operating expenses grew 47%. We maintain our fair value estimate of EUR 1,770 per share.

Wide-moat Adyen reported a strong set of results for the second half of 2021, even by its own standards. Total processed volumes of EUR 300.00 billion increased 72% year over year, allowing Adyen to breach the half a trillion euros mark in processing volume on an annual basis for the first time in 2021. Net revenue of EUR 556.5 million grew 47% compared with the same semester a year ago as the net take rate declined to 18.5 basis points from 21.7 basis points, partially offsetting the strong volume growth effect. EBITDA grew 51% with the EBITDA margin reaching 64%.

Adyen is capturing the e-commerce market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

For the first half of 2021, wide-moat Adyen reported a whopping 67% volume growth year over year, supported by strong growth in North America as well as a relatively soft comparable base in the first half of last year. Net revenue increased 46% to EUR 445 million, lagging volume growth as the net take rate compressed. We raise our fair value estimate to EUR 1,430 per share from EUR 1,100 previously after giving our model a thorough update. We view shares as overvalued.

Adyen is capturing the e-commerce market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

Wide-moat Adyen reported full-year 2020 EBITDA figures of EUR 403 million, up 27%. Operating performance in 2020 was good and in line with our expectations. We plan to revisit our forecasts shortly, which may lead to a modest increase in our fair value estimate. While our base case is primarily driven by what feels tangible to us--the fast growth of the merchant acquiring business and the midmarket strategy as well as the push toward in-store solutions--we now believe that optionalities, mainly in the form of issuing solutions, have gained some materiality. Nevertheless, given the remaining high uncertainty discount we think is adequate for these potential new revenue streams, we expect a material valuation gap to remain between what we and the market believe is a fair price for Adyen even after our model update.

Adyen reported a short third quarter update including top line and volume figures. The development of Adyen during the coronavirus pandemic is supportive of our outlook on the group in general and its strong competitive position. We maintain our fair value estimate of EUR 1,100 per share and wide moat and positive trend rating.

We are relaunching coverage of Adyen with a wide economic moat and positive moat trend ratings, reflecting our high level of confidence in the company’s ability to sustain and enhance its competitive positioning. Our new fair value estimate is EUR 1,100 per share, which corresponds to an implied 2021 enterprise value/EBITDA multiple of 64, reflecting our view of Adyen’s strong growth profile ahead. Toward the end of our explicit forecast period of 10 years, our valuation implies an EV/EBITDA multiple of 18, which is roughly in line with software-as-a-service companies we cover. We think SaaS companies are a better comparison to Adyen given similar growth profiles and scalability of their business models versus the traditional payment service providers. Even given our bullish stance on the company’s prospects, shares are rich at current levels.

Adyen is capturing the e-commerce payments market by storm by solving the complex payment needs of large and global merchants. It combines the entire merchant acquiring value chain, including the settlement into a single platform, offering local acquiring services globally, reducing costs for merchants, and allowing its clients to scale worldwide in an instant. In our moat section of this report investors will find a more detailed description how Adyen serves its clients.

No-moat Adyen published first-half 2020 results with net revenue up 27% versus the same period a year ago. EBITDA grew 12% to EUR 141 million compared with the first half of 2019. On a sequential basis, the coronavirus impact was felt, with revenue increasing only 2% versus the second half of last year and EBITDA falling 8%. This is meaningful for a company that is on a high growth trajectory, but overall, we see this as a strong set of results. Adyen’s high exposure to large enterprises with a heavy tilt towards e-commerce platforms has been a blessing during coronavirus lockdowns hitting economies globally. Online volume growth and merchants shifting from in store to online largely offset payment volume declines in harder-hit verticals such as travel. In sum, processed volume declined to EUR 129 billion from EUR 135 billion in the second half of 2019. We are placing Adyen under review to accommodate a change in analyst coverage and plan to publish our updated view by Sept. 2.