Tomorrow it’s make or break for Adyen


It has to happen tomorrow, it’s O’clock for Adyen.

The company announces the new strategy, copy paste from its own agenda:

You better believe that the entire sector is watching, because it is a drama this (autumn) year with digital payment shares, so to speak. PayPal was canceled, Worldline even went down almost -60% on Q3’s and we think that Adyen’s -39% on Q3’s was a lot. CAB Payments even did -72% on figures.

Our analyst Martin Crum already explained loud and clear a month ago what is at stake tomorrow. Quote:

On that investor day, Adyen will mainly have to convince the market of the feasibility of its medium-term objectives. This applies, among other things, to the CAGR – Compound Average Growth Rate – of 25 – 33% of turnover and the Ebitda margin of more than 65%.

To start with the simplest part: the targeted Ebitda margin of more than 65% in the long term is ambitious, but in our view achievable. Although Adyen reported an Ebitda margin that had shrunk to ‘only’ 43% (1H22: 59%), this had everything to do with a significant expansion of the employee base.

To give you an idea: had Adyen chosen not to expand the employee base by about 16%, the Ebitda margin would have been well above 50%. Although this is still a long way from the long-term target of more than 65%, it is certainly not the currently reported 43%.

The less straightforward part of making valuations for Adyen lies in revenue growth projections. The medium-term objective is crystal clear – a bandwidth between 25 and 33% – but the group has certainly not achieved this in the past six months, with 21%.

Competition in the US is stiffening and is also partly based on price. That is something that Adyen does not agree with, but it is at the expense of turnover growth.

The investor day will hopefully provide more insight into how the group expects to achieve an average turnover growth of 25 to 33%.

In short, those fantastic rising profit and turnover figures are over, because the sector has become much more mature and competitive. Not to forget: rising interest rates have put paid to the endless valuations placed on lucrative growth stocks like Adyen.

To complete the picture: the expected growth in free cash flow and margins has also come to a standstill.

Finally, the valuation versus interest:

Adyen should hardly disappoint, because despite the uproar the price has had, the fund is still much, much more expensive than the peers. Block comes a little closer (and made one last week buy back of $1 billion).

Share buybacks and especially dividends would be a huge surprise, because Adyen has always been clear that growth, growth, growth is the ambition. The group has to compromise between that ambition and the grumbling shareholders, because they still have to rely purely on the share price. And that’s not such a happy story this year.

To what extent are those astonishing growth figures and margins indeed still feasible in the coming years? Should Adyen be forced by the market to choose a slower path and greater return for shareholders? Almost, judging by that appreciation. The nightmare for tomorrow is that from now on we will value Adyen at the same price multiples as their sector peers.

It seems to the undersigned that there is more in advance downside than upside is for tomorrow, but Mr. Market has a mind of its own. In any case, it is clear to Adyen that it cannot continue its own idiosyncratic course indefinitely, but must listen to the market. We already knew this at the IPO in 2018, when Adyen did not show up to ring the gong according to tradition.

Pride and arrogance come before the fall on the stock market. He is simply the boss when it comes down to it. Adyen, which did not aspire to be listed at all but wanted to offer existing shareholders an exit, has also known about this since this year. And tomorrow we’ll know whether we’ll still be with a hyper-profitable growth stock, or with just another cyclical dealing.

Arend Jan Kamp is senior content manager at IEX. The information in this article is not intended as professional investment advice or as a recommendation to make certain investments.

The article is in Dutch

Tags: Tomorrow break Adyen


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