Adyen reported a huge first-half loss on Thursday. The news caused the company to lose $20 billion in market capitalization.
Pavlo Gonchar | Stick Pictures | Lightrocket | Getty Images
Spirits were high when there was a Dutch payments firm Adieu It was put into circulation on the Amsterdam Stock Exchange in 2018.
The company was riding a wave of growth in Europe’s technology sector and took on competition from US mega-rival PayPal.
Since then, the company has gone through a stormy ride, including a global pandemic that has significantly knocked down the volume of travel customers.
The firm expanded aggressively in North America, home to its most high-profile merchants, hiring hundreds of employees to turbocharge growth.
As the macroeconomic environment changed in 2023, Adye’s growth strategy was challenged in a big way.
The company’s shares fell 39% on Thursday, wiping 18 billion euros ($39 billion) off Adye’s market capitalization, as investors dumped the stock after the firm reported its slowest revenue growth on record.
The stock fell another 2.9% on Friday after a sharp decline on Thursday.
What is Adyen?
Identified as one of the top 200 global fintech companies globally by CNBC and Statista, Adyen is a payment services firm that works with clients including. Netflix, Meta and Spotify.
It also sells point-of-sale systems for physical stores and handles online and in-store payments.
More than a processor, Adyen is known as a payment gateway, meaning it uses technology to enable merchants to make card payments and transactions through online stores.
The company takes a small cut of every transaction that goes through its platform.
It was co-founded by the firm’s chief executive Pieter van der Does and former chief technology officer Arnout Schuijff.
Adyen last week reported results for the first half of the year that fell well short of expectations. The company’s revenue of 739.1 million euros ($804.3 million) for the period was up 21% year-on-year, but marked Adye’s slowest sales growth on record.
According to Eikon Refinitiv forecasts, the analyst expected revenue of 853.6 million euros and 40% annual growth.
Adyen is typically viewed as a growth stock after reporting consistent 26% revenue growth in each half-year period since its stock market debut in 2018.
“Higher inflation, leading to higher interest rates, has been a bit of a shift in focus — less focus on growth, more focus on bottom line,” Adyen Chief Financial Officer Ethan Tandowsky told CNBC’s “Squawk Box Europe” on Thursday.
Tandowsky insisted that the company had “limited bankruptcy” and that none of its major customers had left the platform.
But concerns that rivals in local markets, particularly in North America, are engaging in cheaper offerings have weighed heavily on the company’s prospects.
Adyen said in a letter to shareholders this week that its EBITDA (earnings before interest, tax, depreciation and amortization) margin fell to 43% in the first half of 2023 from 59% in the same period a year ago.
The company said this led to softer growth in North America and higher employment costs, such as wages, as it increased hiring during the period.
Tandowsky insisted the company focuses more on “functionality” than its peers, even though those peers may offer cheaper services.
“The efficiency with which we can develop new functionality, functionality that outperforms our peers, will drive us to gain the market share we expect.”
At the heart of Adye’s challenges is a business that is heavily dependent on customers’ willingness to stick with a single platform for all their payment needs. The company must also convince those users that what it is selling is better than what the competitor is offering.
In its 2023 half-year report, Adyen said many of its North American customers are cutting costs to cope with economic pressures such as higher interest rates and higher inflation.
“Enterprise businesses were prioritizing cost optimization, while competition for digital volumes in the region drove savings over functionality,” Adyen said in a letter to shareholders.
“These dynamics are not new, and it’s easiest to shift volumes back and forth online. Amid these developments, we’ve continued to consciously value the value we bring.”
Adyen also said its profitability suffered as it pushed to aggressively ramp up hiring. EBITDA decreased by 10% compared to the first half of 2022 and reached 320 million euros.
Adyen added 551 employees in the first half of the year, bringing its total number of full-time employees to 3,883.
Some of the company’s competitors have significantly reduced hiring. In November 2022, Stripe laid off 14% of its workforce, or about 1,100 people.
The main challenge Adye faces now is competition from competitors who are willing to offer lower rates than what it provides.
Speaking to the Financial Times on Thursday, Adyen CEO Pieter van der Does said merchants were trying to “explore local providers” to cut costs.
“It’s not that we’re shrinking — we’re growing at a slower pace,” he said.
Adyen has historically been a lean business, preferring to hire fewer people than its main competitor Stripe and nearly doubling its staff.
Simon Taylor, head of strategy at Sardine.ai, said Adye may face a “natural ceiling” to what business size it can reach before it has to cut margins to grow again.
“As a result, they’re exposed to the same macro headwinds as everyone else in e-commerce,” Taylor told CNBC. “And they’re still up 21%. Incumbents would kill for it.”