By | August 9, 2023
Adyen sinks as sales miss wipes $20 billion in market cap

(Bloomberg) — Adyen NV shares fell as aggressive competition in North America contributed to the slowest revenue growth since its initial public offering, wiping more than 18 billion euros ($19.6 billion) off its market value in a single day.

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Shares in the Dutch payment processing company fell a record 40.6% to €875 at 16:49 in Amsterdam, the lowest since May 2020. Trading was temporarily halted due to volatility several times during the day.

Price competition, higher inflation and interest rates hampered revenue growth in the first half of the year, the Amsterdam-based fintech company said on Thursday. Net sales rose 21% to 739.1 million euros in the period, compared with an estimate of 776.5 million euros in a Bloomberg survey of analysts.

Adyen has been a reliable growth stock, with revenue rising at least 26% in each half-year since listing in 2018 until the most recent period. The disappointing results, which were also hit by inflation and rising interest rates, suggest that maintaining such momentum will be a challenge.

Revenue growth in North America, which accounted for a quarter of the company’s sales during the period, more than halved to 23%. Adyen’s digital clients have focused on profitability more than growth in the U.S., Chief Financial Officer Ethan Tandowsky said in a phone interview.

“It had some impact on the growth that we saw,” he said. “In a market like this, some customers choose to see if they can find a lower-cost vendor that can offer similar functionality.”

It “will be difficult for Adyen to accelerate growth” in the second half of the year as competition and currency headwinds will remain a factor, Jefferies analyst Hannes Leitner said in a note.

What Bloomberg Intelligence Says:

Adyen’s disappointing first-half net sales – a 5% miss compared to the MODL consensus – along with a slowing North America segment (25% of total) and digital volume, are contributing to concerns that the Ebitda margin will again miss estimates (a 6 percentage point miss) as the hiring pressure continues. This suggests that the reiterated long-term 65% Ebitda margin target will face greater skepticism, making analysts’ estimate of 49% this year and 28% net income growth look steep.

Tomasz Noetzel, BI Financial’s analyst

Adyen’s profit margin missed expectations due to its industry-defying hiring pressures and inflationary pressures. The margin on earnings before interest, taxes, depreciation and amortization – a measure of profitability – was 43% in the first six months of the year. That compared with an average estimate of 48.6% among analysts surveyed by Bloomberg.

Adyen added about 1,150 employees last year and has said it will hire a similar number in 2023 as it prepares for its next phase of growth. Hiring at the payments company sets it apart from larger peers that have announced job cuts to cut costs amid rising interest rates and economic uncertainty.

Adyen, whose rivals include Stripe Inc. and PayPal Holdings Inc., is “building the team that can realize the long-term potential” rather than optimizing profitability, the statement said. The company expects to slow down hiring at the beginning of next year.

In contrast, PayPal said in January it will cut 2,000 jobs and Stripe announced a 14% workforce reduction late last year.

“This is a company where the cost is very much under our control,” said Co-Chief Executive Officer Pieter van der Does, trying to reassure investors during an earnings call on Thursday. “We drive at the lowest cost so we could join the price fight. We don’t think that’s the right strategy.”

Adyen, which handles transactions for companies such as McDonald’s Corp. and Hennes & Mauritz AB, confirmed its guidance for the Ebitda margin of over 65% in the long term. It continues to expect net income to grow at a rate between the mid-20s and low-30s over the medium term.

–With the help of Henry Ren.

(Updates with shares and additional CEO comments in penultimate paragraph)

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