A suit on the pants. A jaw blow. Analysts used big words to describe Adyen’s price fall on Thursday. The shares of the Amsterdam payment service provider lost 38 percent in value after the announcement of the half-year figures. Almost 19 billion euros in market value went up in smoke. But what does this ‘crash’ really say about the company? Three questions about Adyen.
1 Adyen, what should I know about that?
Adyen is a little known name among consumers. At most, they have ever seen the name on their account statement. That’s what the company does: handle payments from retailers and companies that offer their services online.
The company was founded in 2006 by a group of entrepreneurs, including current directors Pieter van der Does and Arnout Schuijff. The idea was to set up a payment company that could handle all payments for online stores. Until then, if they wanted to accept both iDeal payments and credit card payments, for example, web shops had to work with different companies to get that done.
The idea of a one-stop shop for all payments has proven to be a great success so far. Over the years, the Amsterdam-based company has managed to collect an extensive international customer base, such as H&M, Uber, eBay, Booking.com, Spotify and Thuisbezorgd.nl.
As a result, the company grew rapidly. In 2018, twelve years after its foundation, it went public. The company then processed 159 billion euros in payments. In 2022, that amount had increased to 767.5 billion euros. And unlike many other fast-growing tech companies, Adyen also managed to make a profit on all turnover. Where in 2018 a profit of 131 million euros was made, in 2022 that was 564 million euros.
The rapid growth and high profit margin resulted in an impressive turnout on the Amsterdam stock exchange. The share was floated on the stock exchange for 240 euros in 2018, and rose to 455 euros on the first trading day. At the peak of the price in corona year 2021 – when the payment company benefited from the enormous boom in online sales – an investor lost almost 2,750 euros for an Adyen share.
2So what’s going on now?
In short: Adyen appears not to have lived up to the sky-high expectations of investment analysts. The payment company announced on Thursday that turnover grew by 21 percent in the first half of the year, while a year earlier a plus of 37 percent was recorded. Moreover, the operating profit margin was ‘only’ 21 percent. The company aims for a long-term margin of above 65 percent. A year earlier, that margin was almost reached in the first half of the year (59 percent).
The lower growth and profit was due to fierce competition in the important US market – companies are looking for cheaper payment providers due to rising interest rates and high inflation. At the same time, Adyen’s costs rose as the company hired significantly more staff to facilitate future growth.
A stock market valuation is determined by people who buy and sell now – not investors who invest long term and don’t market their shares. Short-term investors often base their buying or selling decisions on investment analysts who recommend buying, holding or selling and setting a price target. Many analysts have lowered their price target after the bad numbers and advised customers to sell. This resulted in many sell orders on the Amsterdam stock exchange on Thursday.
3 What does this mean for the company?
The directors of Adyen did not seem immediately concerned about the lesser financial results. “We’re still growing, aren’t we?” said chairman of the board Van der Does in an analyst interview. The company believes that sales growth and profit margins will return to previous levels in the coming years. For example, the company says it will no longer hire so many new employees next year.
And among analysts it is not just a black eye. Most analysts continue to see Adyen as a thriving company that has better growth potential than many competitors thanks to good home-built technology. Most analysts still use a price target for Adyen of above 1,000 euros per share. That is considerably more than Friday’s closing price of 870 euros. According to some analysts, this makes the company attractive to buy again. Deutsche Bank analyst Nooshin Nejati even calls Adyen “the most beautiful house in a (temporarily) ugly neighborhood”. “We consider Adyen to be the most scalable and cost-efficient player on the market. We expect market share gains as the dust of the price war [in de VS] has descended. Therefore, we see the almost 40 percent drop in share price as a good long-term buying opportunity.”
A version of this article also appeared in the August 19, 2023 newspaper.
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