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Why Paysafe Stock Fell 19% in May

By Demitri Kalogeropoulos - Jun 7, 2021 at 1:43PM

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Investors weren't happy with the company's latest earnings update.

What happened

Paysafe (PSFE -2.21%) shareholders lost ground to the market last month as the stock fell 19% compared to a 0.55% uptick in the S&P 500, according to data provided by S&P Global Market Intelligence.

The slump pushed investors in the payments processing specialist deeper into the red, with shares down about 20% so far this year compared to a 12% increase in the broader market.

A woman holds a smartphone in one hand and her credit card in the other.

Image source: Getty Images.

So what

Investors weren't thrilled with the latest results from the fintech company. Paysafe said on May 11 that revenue inched higher by just 5% in the fiscal first quarter as net losses held at close to $50 million.

Payment volume rose 8%, which was right around management's target. The losses weren't a surprise, either, as Paysafe is busy investing in its growth areas like online gaming. "We are pleased to deliver solid financial results in the first quarter," CEO Philip McHugh said in a press release last month. "We made excellent progress on our strategic initiatives."

Now what

McHugh and his team left their 2021 outlook unchanged, and investors' sour reception of the stock likely reflects hopes that the payment processor would instead have lifted its forecast. Its U.S. gaming niche saw a 66% revenue spike, after all, and Paysafe is gaining a bigger foothold in cryptocurrencies.

The company's latest earnings update didn't threaten that broader growth story. In fact, Paysafe has a good shot at growing both sales and profitability if its new financial bets work out. The challenge for management is that Paysafe's digital payment processing segment is weighting down the rest of the business. That division reported a 13% sales decline last quarter and a 30% drop in adjusted profits.

Executives have said that Paysafe can sustainably achieve double-digit sales growth in the context of rising profit margins. While May's earnings report didn't show progress on either score, the company has just completed its merger and has finished making other changes like paying down debt and appointing a new board of directors.

It's not clear yet whether Paysafe's new posture will help deliver the growth that management is targeting, and so investors understandably took a step back from this fintech giant last month.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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