Adyen (ADYE.Y 1.97%), the Dutch digital payments company that convinced eBay to ditch PayPal (PYPL 1.96%) back in 2018, lost nearly 40% of its market value over the past three months as rising interest rates sparked a grueling rotation away from higher-growth tech stocks.
PayPal's messy fourth-quarter report in early February exacerbated the pain by dragging down Adyen and its other fintech peers. But has Adyen's steep decline, which reset its valuations to more sustainable levels, made it a worthwhile investment for patient investors again?
The differences between Adyen and its rivals
Adyen provides an end-to-end platform for payments, data, and financial management services. Its software can be directly integrated into existing online, mobile, and in-store payment platforms with a few lines of code. That integration enables merchants to accept over 250 payment methods, including credit cards, debit cards, mobile wallets, and other payment apps.
Image source: Getty Images.
Adyen doesn't provide a dedicated consumer-facing app like PayPal, nor does it provide peer-to-peer payment services like PayPal's Venmo and Block's (SQ 5.04%) Cash App. It also doesn't provide any cryptocurrency trading services, stock trading tools, or physical debit cards.
Instead, Adyen's backend services enable merchants to issue their own virtual payment cards, which function as branded mobile wallets, and maintain their own payment and data systems.
That behind-the-scenes approach makes Adyen more comparable to PayPal's Braintree, Shopify Payments, and Stripe. It also makes Adyen easier to analyze than PayPal and Block, which both have a lot more moving parts.
How fast is Adyen growing?
Adyen posted its full-year numbers for 2021 on Feb. 9. Its growth in revenue, processed volume, and earnings before interest, taxes, depreciation, and amortization (EBITDA) all accelerated significantly from 2020, when the pandemic shut down many brick-and-mortar businesses.
|
Growth (YOY) |
2018 |
2019 |
2020 |
2021 |
|---|---|---|---|---|
|
Net Revenue |
60% |
42% |
28% |
46% |
|
Processed Volume |
47% |
51% |
27% |
70% |
|
EBITDA |
83% |
54% |
27% |
57% |
Data source: Adyen. YOY = Year-over-year.
Ayden's growth improved throughout 2021 as those headwinds waned, and it maintained its long-term outlook for growing its annual revenue at a compound annual growth rate (CAGR) "between the mid-twenties and low-thirties in the medium term" by roping in more businesses.
However, Adyen's take rate -- or the percentage of each transaction it retains as revenue -- dipped from 22.5% in 2020 to 19.4% in 2021. It attributed that decline to a higher mix of lower-margin retail customers, which partly offset the growth of its higher-margin enterprise customers.
On the bright side, Adyen's EBITDA margin still expanded from 59% in 2020 to 63% in 2021 as its operating leverage improved. It also reiterated its long-term guidance for boosting its EBITDA margin "above 65%".
It's growing a lot faster than PayPal
Analysts expect Adyen's revenue and EBITDA to both rise 38% in 2022, and for its net income to grow 42%. Based on those estimates, Adyen's stock trades at 38 times this year's sales and 80 times forward earnings.
That makes it a lot pricier than PayPal, which trades at just five times this year's sales and 27 times forward earnings. However, analysts expect PayPal's revenue and earnings to increase just 16% and 1%, respectively, this year, as it grapples with its final decoupling from eBay (which ends in the second half of 2022), competitive challenges, and various macroeconomic headwinds.
Adyen's stock looks more attractively valued than it did three months ago, but its high valuations could still expose it to rising inflation and interest rates.
Is it the right time to buy Adyen?
Adyen is arguably a simpler and better-run fintech company than PayPal or Block. It's not suffering a major slowdown like PayPal, and it isn't obsessed with the volatile Bitcoin market like Block.
But Adyen's stock is still priced for perfection at these levels, and its upside potential could be capped by the market's limited appetite for high-growth stocks. I'd recommend nibbling on Adyen at these levels, but investors should realize they're still paying a hefty premium for this fintech favorite -- even after it was nearly cut in half over the past three months.
