Square (SQ 0.69%) is often a top stock for fintech investors. The online payments company went public at just $9 in late 2015, and is now worth roughly $210 per share with a market cap of $97 billion.
However, investors might be less familiar with Square's European counterpart Adyen (ADYE.Y 1.14%), which went public at 240 euros in 2018. Its Amsterdam-listed shares now trade at nearly 1,900 euros ($2,240), valuing the company at more than 57 billion euros ($67 billion).
Over the past 12 months, Square's stock has surged about 300% as Adyen's stock has risen roughly 150%. Square has clearly been the mightier growth stock, but will it keep outperforming Adyen this year?
The differences between Square and Adyen
Square and Adyen's core businesses both process mobile, online, and point of sale payments for merchants. However, Square differs from Adyen in three main ways.
First, Square serves consumers with its Cash App, which provides peer-to-peer payments, bitcoin (BTC -1.15%) trades, and free stock trades. Adyen's main app doesn't provide direct peer-to-peer payments, and it doesn't plan to offer bitcoin purchases or integrated stock trades anytime soon.
Square also issues physical debit cards that are linked to users' Cash accounts. Adyen helps merchants issue their own virtual cards, which are basically branded mobile wallets for single businesses.
Second, Square provides a wider range of seller services for analytics, payroll management, and other tasks. Adyen mainly focuses on processing payments instead of selling add-on business services.
Lastly, Square sells first-party POS systems that either run on iOS devices or as stand-alone systems. Adyen's own POS devices are developed by Verifone, but it also provides integrated payment features for other third-party POS systems.
Simply put, Square is a more diversified fintech play, while Adyen resembles a smaller version of PayPal (PYPL -1.76%). eBay (EBAY 0.02%) notably switched from PayPal to Adyen as its online payments provider three years ago, and it plans to complete that transition this year.
How fast is Square growing?
Square's revenue surged 101% to $9.5 billion in fiscal 2020, even as many small businesses closed down during the pandemic.
It attributed most of that growth to the expansion of its Cash App, which ended the year with 36 million active customers (up 50% from a year ago), and soaring sales of bitcoin on the platform.
Those strengths offset the softer growth of its core transaction-based revenue, which rose just 7% as many small to medium-sized businesses temporarily closed in the first half of the year.
However, Square's increased dependence on its lower-margin bitcoin revenue squeezed its margins, and its adjusted earnings grew just 5%. Its adjusted EBITDA increased 14% to $474 million.
Analysts expect Square's revenue and adjusted earnings to both increase 45% this year as the pandemic passes and restores the balance between its bitcoin and transaction-based businesses. That recovery depends almost entirely on the U.S. market, which accounted for 97% of its revenue last year.
How fast is Adyen growing?
Adyen's revenue rose 28% to 684.2 million euros ($806.4 million) in fiscal 2020 as the shift to online sales throughout the pandemic offset its loss of brick-and-mortar POS payments.
However, Adyen didn't benefit from surging cryptocurrency prices like Square, and it seems more interested in expanding overseas than launching new services. That conservative approach, along with its lower travel and operating expenses throughout the pandemic, enabled Adyen to grow its full-year earnings 11%. Its adjusted EBITDA increased 27% to 402.5 million euros ($474.4 million).
Analysts expect Adyen's revenue and earnings to grow 39% and 62%, respectively, this year, as the pandemic passes, its brick-and-mortar businesses recover, and it reins in eBay's remaining customers.
Adyen's business is much more geographically diversified than Square's. During fiscal 2020 it generated 62% of its revenue from Europe, 19% from North America, 10% from the Asia-Pacific region, and the remaining 9% from Latin America. That diversification, along with its simpler business model, makes Adyen more of a direct threat to PayPal instead of Square.
Which fintech stock is a better overall value?
Neither stock is cheap right now. Square trades at over 110 times forward earnings and seven times this year's sales. Adyen trades at nearly 140 times forward earnings and 60 times this year's sales.
But if I had to pick one of these fintech stocks over the other, I'd stick with Square for its stronger revenue growth, lower valuations, and bolder expansion plans. Adyen has carved out a niche as a viable alternative to PayPal, but Square is simultaneously disrupting peer-to-peer payments, crypto and free stock trades, and cloud-based enterprise software with its expanding ecosystem.
It's too early to tell if Square's grand ambitions will pay off, but I'd rather pay a premium for those possibilities than Adyen's more conservative strategies.