Similarly, I was playing around with some Adyen figures prior to the earnings release and also feel that Adyen - although a seemingly a great company - is overvalued.
For me, they'd need to accelerate revenue growth to 40-50% and maintain over the next 4-5 years to justify this valuation, and I'm struggling to see that - partly for the reasons you mention above.
Interestingly, Visa is on a 31x EV/EBITDA currently vs. a January 2020 S&P 500 overall EV/EBITDA of 14-15x....
Bull Case:
- Worldwide trend of cash sales moving to electronic increases pace
- Sideways expansion into other areas of processing, as you mention
- Continuation of smaller merchants / businesses losing market share to the bigger players (i.e. payments move from small merchants to big ones which helps Adyen)
- Expansion into new/emerging markets
- Movement of card holders from big (legacy?) banks to Fintech accounts
Bear Case:
- Competition from other processors
- Reduction in pricing power due to competition as merchants play processors off against each other
- Interest rates increase, reducing company value in adjusted DCF calculations
Thanks for the interesting information and opinions. I agree with you that Adyen is on the high side of valuation.
Two questions:
1. What do you think of Adyen Issuing, and how do you think that would affect your thoughts on the future achievable revenues for Adyen considering it allows Adyen to profit from the interchange fees and the backend processing and functions too?
2. On your statement "Chase Paymentech still will deliver superior authorization rates for Chase Manhattan cards. Similarly, BofA’s payments business will deliver higher authorization rates for BofA-issued cards than the authorization rates that Adyen can get on those cards. Reasonably sophisticated merchants realize this." This is interesting. Do you have any data on that, or sources to support that? Would be interesting to see how different are the authorisation rates.
Thanks Matt. Then is it fair to say that, given that we don't know, a fairer statement would be to say that it's unclear if Chase and BoFA have advantage on authorisation rates for their own issued cards, compared to Adyen, particularly because we (or at least I) don't know if their acquiring and issuing side is actually seamlessly integrated back end? Or are you still of the view that they are likely have better authorisation rates? I'm just trying to understand what's the case here based on pure facts without any speculations. Thanks!
Similarly, I was playing around with some Adyen figures prior to the earnings release and also feel that Adyen - although a seemingly a great company - is overvalued.
For me, they'd need to accelerate revenue growth to 40-50% and maintain over the next 4-5 years to justify this valuation, and I'm struggling to see that - partly for the reasons you mention above.
Interestingly, Visa is on a 31x EV/EBITDA currently vs. a January 2020 S&P 500 overall EV/EBITDA of 14-15x....
Bull Case:
- Worldwide trend of cash sales moving to electronic increases pace
- Sideways expansion into other areas of processing, as you mention
- Continuation of smaller merchants / businesses losing market share to the bigger players (i.e. payments move from small merchants to big ones which helps Adyen)
- Expansion into new/emerging markets
- Movement of card holders from big (legacy?) banks to Fintech accounts
Bear Case:
- Competition from other processors
- Reduction in pricing power due to competition as merchants play processors off against each other
- Interest rates increase, reducing company value in adjusted DCF calculations
Thanks for the interesting information and opinions. I agree with you that Adyen is on the high side of valuation.
Two questions:
1. What do you think of Adyen Issuing, and how do you think that would affect your thoughts on the future achievable revenues for Adyen considering it allows Adyen to profit from the interchange fees and the backend processing and functions too?
2. On your statement "Chase Paymentech still will deliver superior authorization rates for Chase Manhattan cards. Similarly, BofA’s payments business will deliver higher authorization rates for BofA-issued cards than the authorization rates that Adyen can get on those cards. Reasonably sophisticated merchants realize this." This is interesting. Do you have any data on that, or sources to support that? Would be interesting to see how different are the authorisation rates.
Thanks!
Fun Liang
funliang@moneywisesmart.com
P.S. You might enjoy this short analysis video of mine on Adyen too.
https://youtu.be/01mfYxbhLu0
Thanks Matt. Then is it fair to say that, given that we don't know, a fairer statement would be to say that it's unclear if Chase and BoFA have advantage on authorisation rates for their own issued cards, compared to Adyen, particularly because we (or at least I) don't know if their acquiring and issuing side is actually seamlessly integrated back end? Or are you still of the view that they are likely have better authorisation rates? I'm just trying to understand what's the case here based on pure facts without any speculations. Thanks!