What happened
Shares of Paysafe Limited (PSFE +2.67%) fell 74.1% in 2021, according to data provided by S&P Global Market Intelligence. The S&P 500 was up roughly 27% for the year, so Paysafe underperformed by a wide margin. In reality, it's hard to find many instances in which the stock was up -- it declined steadily throughout the year. However, its downward slide was punctuated with three sharp drops, all coinciding with the releases of its quarterly financial results.
So what
Paysafe is a payment-processing solution used in industries like iGaming and e-commerce. It went public via a special purpose acquisition company (SPAC) called Foley Trasimene Acquisition Corp. II. The deal was announced at the end of 2020 but didn't close until March 25 of 2021. Therefore, for part of the year, Paysafe was still trading as Foley Trasimene. And because of that, not everything was known about Paysafe prior to the closing of the SPAC merger in March.
Image source: Getty Images.
Cautious optimism early in 2021 soured once Paysafe started reported financial results -- which caused the stock to fall 74% by year-end. The company reported results for its first quarter, second quarter, and third quarter in May, August, and November, respectively, and they were met with sharp declines in the stock price each time.
Paysafe stock is partly down due to meager revenue growth. Through the first three quarters of 2021, revenue is only up 5.6% from the comparable period of 2020. However, the stock is also down because the company's operating loss has worsened, despite generating higher revenue. So far through the company's 2021 fiscal year, it's reported an operating loss of $298 million, compared to an operating loss of just $7 million in the first three quarters of last year.
If there's a silver lining with Paysafe's results thus far in 2021, it's that it's had to write down a whopping $324 million on impairment charges for intangible assets. That isn't great, but shows that the company's steep operating loss largely results from non-cash charges.
Speaking of cash, Paysafe has been free-cash-flow positive in 2021, generating $233 million. That's down 2.6% from the same period of 2020 -- but remember, revenue has been up slightly. However, it paints a far more optimistic picture than its operating loss and stock price would have you believe.
Now what
Since going public, Paysafe has acquired viafintech, PagoEfectivo, and SafetyPay. The exact cost is unknown, but these acquisitions were bought for more than $550 million combined.
This growth-by-acquisition strategy has challenges. It's important not to overpay and to successfully integrate the acquired businesses into the company. Watch for how Paysafe succeeds here by monitoring revenue growth and adoption in markets like Latin America -- where PagoEfectivo and SafetyPay operate.
However, it would appear Paysafe insiders are confident with the strategy. In December, the company's executives, including the CEO, purchased over 700,000 shares on the open market. In January, Cannae Holdings purchased 5.7 million shares to go with the million shares it already owned -- and it now owns almost 9% of Paysafe.
Paysafe shareholders will certainly hope this insider bullishness will be rewarded when the company reports fourth-quarter results in the near future.
