eBay (NASDAQ:EBAY) and PayPal Holdings (NASDAQ:PYPL) were once considered inseparable. Even after spinning off PayPal in 2015, eBay continued to use PayPal's payment processing services.

That all changed in early 2018 when eBay decided to replace PayPal with a smaller Dutch competitor, Adyen (OTC:ADYE.Y), as its primary payment processor in a three-year transition. That announcement stunned PayPal's investors and thrust Adyen, then a private company, into the spotlight.

That June, Adyen capitalized on its growing fame with an IPO in Amsterdam. The fintech stock was priced at 240 euros ($282), opened at 400 euros, and is worth about 2,158 euros ($2,552) today.

A smartphone user holds a credit card.

Image source: Getty Images.

If you had spent $1,000, or about 842 euros, to buy 3.5 shares of Adyen's mid-June 2018 IPO, your modest stake would be worth nearly 7,571 euros ($8,988) today (a 799% increase). Let's see why Adyen has continued to impress the bulls, and why the stock could have even more room to run over the next few years.

Smaller and simpler than PayPal and Square

Like fintech giants PayPal and Square (NYSE:SQ), Adyen charges flat fees to process payments. However, PayPal and Square generated roughly 26 times and 12 times as much revenue, respectively, last year.

Adyen's platform is also simpler. It doesn't provide cryptocurrency trades or peer-to-peer payments, as PayPal and Square do within their apps, and it doesn't offer any stock trading services like Square's Cash App. It also hasn't adopted Square's practice of putting Bitcoin (CRYPTO:BTC) on its own balance sheet.

Adyen doesn't issue branded physical cards like PayPal and Square's Cash App. Instead, it helps merchants issue their own virtual payment cards, which function as branded mobile wallets.

Adyen generated most of its revenue in Europe last year, but it's gradually expanding across North America, Latin America, and Asia. That geographic diversification makes it more similar to PayPal than Square, which generated 97% of its revenue within the U.S. last year.

How fast is Adyen growing?

Adyen was founded 15 years ago, and its simpler approach to the fintech market attracted $266 million in three funding rounds as a private company.

Unlike many other fintech companies, Adyen generated stable profits for several years prior to its market debut. That's why it didn't issue any new shares during its IPO -- its shareholders merely sold their existing shares, equivalent to 13.4% of the company, to institutional investors.

If we examine Adyen's revenue, processed payment volumes, EBITDA, and net income growth over the past three years, we'll see why it attracted a stampede of bulls.

Growth (YOY)

2018

2019

2020

Net Revenue

60%

42%

28%

Processed Volume

47%

51%

27%

EBITDA

83%

54%

27%

Net Income

84%

56%

11%

Data source: Adyen. YOY = Year over year.

Adyen's growth decelerated last year as the pandemic shut down many businesses. But this year, analysts expect its revenue and diluted EPS to grow 41% and 66%, respectively, as the pandemic passes. Next year, they expect its revenue and earnings to grow another 37% and 42%, respectively.

Adyen could eventually grow into its valuations

Adyen's growth rates are impressive, but the stock trades at more than 150 times this year's earnings and nearly 70 times this year's sales.

Those frothy valuations indicate lots of growth is already priced into Adyen's stock. PayPal is growing slower than Adyen, but its stock trades at about 50 times forward earnings and 14 times this year's sales.

Square is growing faster than Adyen thanks to its rising Bitcoin revenue, but it trades at 115 times forward earnings and six times this year's sales.

Investors shouldn't fret too much over the near-term valuations of growth stocks, but Adyen could underperform PayPal and Square -- as it did over the past 12 months -- until it grows into its valuations.

However, the global fintech market could still grow at a CAGR of 23.4% between 2021 and 2026, according to Market Data Forecast, so Adyen, PayPal, and Square could continue to attract investors with their different fintech strategies. Adyen in particular could remain an attractive choice for investors who think PayPal is too big and Square is too dependent on Bitcoin and the American market.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.