Adyen, the European counterpart to Stripe in the payment processing sector, witnessed a dramatic 39% drop in its share value on Thursday, resulting in the loss of 18 billion euros ($20 billion) from the company's overall market capitalization. This significant decline followed the company's report of its slowest recorded revenue growth.
The primary concern driving this decline stems from the growing presence of competitors, particularly in North American markets, who are offering more cost-effective alternatives. This heightened competition has cast a shadow over Adyen's future prospects.
Historically, Adyen has been regarded as a growth-oriented stock due to its consistent pattern of reporting revenue growth of 26% in each successive half-year period since its initial public offering in 2018.
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Optimism was soaring when Dutch payments company Adyen went public on the Amsterdam Stock Exchange in 2018. The company was capitalizing on the surging growth within Europe's technology sector and outpacing its massive U.S. competitor, PayPal.
Since then, Adyen has navigated through a tumultuous journey, including the challenges brought about by the global pandemic that significantly impacted volumes from its travel-related clients. The company took bold strides into the North American market, where numerous high-profile merchants are located, and bolstered its workforce by hiring hundreds of employees to fuel its expansion.
However, as the macroeconomic landscape evolved in 2023, Adyen's growth strategy encountered substantial hurdles. These challenges have come to the forefront in a significant way.
In response to the company's report of its slowest recorded revenue growth, its shares plummeted by 39% on Thursday, leading to the erosion of 18 billion euros ($39 billion) from Adyen's market capitalization. This sharp decline prompted investors to offload the stock. The downward trend continued on Friday, with the stock closing down an additional 2.9% following the drastic drop experienced on Thursday.
What exactly is Adyen?
Recognized among the top 200 global fintech companies by CNBC and Statista, Adyen is a payment services firm that operates on a global scale. Its clientele includes well-known names such as Netflix, Meta (formerly known as Facebook), and Spotify. In addition to its primary services, Adyen also offers point-of-sale systems tailored for physical retail stores, and it manages payments both online and in-store. Adyen goes beyond the typical role of a payment processor – it operates as a payment gateway. This entails using advanced technology to empower merchants to seamlessly process card payments and transactions within their online stores. For each transaction conducted through its platform, Adyen takes a small percentage as a processing fee. The company was co-founded by Pieter van der Does, who currently serves as the Chief Executive Officer, and Arnout Schuijff, a former Chief Technology Officer.
What has recently occurred?
Adyen reported its first-half-year results last week, which fell significantly below expectations. The company's revenue for the period was 739.1 million euros ($804.3 million), marking a 21% increase year over year but also representing the slowest sales growth on record for Adyen. Analysts had anticipated revenue of 853.6 million euros and a year-on-year growth of 40%, according to forecasts from Eikon Refinitiv. Traditionally, Adyen has been considered a growth stock, consistently demonstrating revenue growth of 26% in each half-year period since its debut on the stock market in 2018. "With higher inflation, leading to higher interest rates, there has been a bit of a shift of focus — less focus on growth, more focus on bottom line," stated Adyen Chief Financial Officer Ethan Tandowsky on CNBC's "Squawk Box Europe" last Thursday. Tandowsky emphasized that the company experienced "limited churn" and no major customers had departed from the platform. Nevertheless, concerns have arisen over competitors in local markets, particularly in North America, offering more affordable services, which has negatively impacted the company's outlook. In a shareholder letter this week, Adyen mentioned that its EBITDA (earnings before interest, tax, depreciation, and amortization) margin declined to 43% in the first half of 2023 from 59% during the same period a year ago. The company attributed this drop to weaker growth in North America and increased employment costs, including wages, as it engaged in extensive hiring during the period. Tandowsky maintained that Adyen prioritizes "functionality" over its peers, even though these peers might provide cheaper services. He believes that the company's ability to develop superior functionality efficiently will lead to gaining the expected market share.
Structural challenges.
At the core of Adyen's challenges lies a business heavily reliant on customers committing to a single platform for all their payment requirements. Additionally, the company must persuade these users that its offerings are superior to those of competitors. According to Adyen's half-year 2023 report, many of its North American customers are trimming costs in response to economic pressures such as rising interest rates and increased inflation. "Enterprise businesses prioritized cost optimization, while competition for digital volumes in the region provided savings over functionality," Adyen stated in a letter to shareholders. "These dynamics are not new, and online volumes are easiest to transition back and forth. Amid these developments, we consciously continued to price for the value we bring." Adyen also reported that its profitability was impacted by an ambitious push to expand its workforce. EBITDA stood at 320 million euros, marking a 10% decrease from the first half of 2022. During the first half of the year, Adyen hired 551 employees, bringing its total full-time workforce to 3,883. Some of the company's rivals have significantly reduced their hiring efforts. In November 2022, Stripe laid off around 1,100 employees, constituting 14% of its workforce. Presently, Adyen's primary challenge is competition from emerging players willing to offer lower rates compared to its services. In an interview with the Financial Times on Thursday, Adyen CEO Pieter van der Does noted that merchants are "exploring local providers" to cut down on expenses. "We are not contracting; we are growing at a slower pace," he added. Traditionally, Adyen has maintained a lean business approach, hiring fewer employees overall compared to its major competitor Stripe, which boasts roughly twice the staff count. Simon Taylor, head of strategy at Sardine.ai, suggested that Adyen might encounter a "natural ceiling" in terms of business size before needing to reduce margins to stimulate growth again. "Ultimately, they're subject to the same macroeconomic challenges as everyone in e-commerce," Taylor told CNBC. "And they still managed to achieve 21% growth. Established players would consider that an impressive feat."
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