New segment: the Quick Read

Adyen

We are excited to introduce a new segment: the Quick Read. The idea is simple. We spend a LOT of time studying companies, and often have an opinion about certain markets or companies. In this segment, we’ll be regularly sharing our views and opinions on a wide variety of investing-related topics in a digestible format. We hope you’ll find it useful. Enjoy!

In short, Adyen is a global payment company that allows businesses to accept e-commerce, mobile, and point-of-sale payments. The company’s technology platform acts as a payment gateway, payment service provider, and offers risk management and local acquiring. The shares are listed in Amsterdam (ticker: ADYEN, ADR ticker: ADYEY).

The payment solution provider market in general has been having a tough time over the past few years for a variety of reasons, some company specific, others more structural. But the main reason is deteriorating fundamentals. The share price reactions after earnings releases of some of the players has been brutal, as can be seen below.

Adyen was recently one of the victims, with the company’s earnings report in August showing a year-on-year revenue increase of 23%, trailing behind its own mid-term projections of ~30% growth. Adyen’s offering is top-notch, but it’s not the cheapest out there. After a few very strong years for the sector, the cycle has turned, and customers have been looking for cheaper alternatives in order to cut costs. This had an exacerbated impact on margins, as Adyen has been aggressively hiring; lower revenues on a higher cost base is generally not a good combo. Despite Adyen’s reputation for superior quality, the cost factor has prompted customers to consider alternatives (in the US).

But the rationale for this post is not to discuss the sector, but rather Adyen’s much-anticipated Capital Markets Day (CMD) which will be held tomorrow. The decision to hold the CMD is a good sign of Adyen’s dedication to engage with its shareholders (it does not really have a good reputation on that). Expectations are very high, to say the least.

Adyen needs to address hot topics, such as more frequent reporting, its (preferably more tailored) approach to the US market, new growth and profit targets, and provide some clarity on how the Dutch expat tax change could affect the company and its earnings.

One of the primary focal points is Adyen’s performance in the competitive US market. The company’s results suffered from intense competition from companies like Braintree. Adyen needs to demonstrate a clear understanding of these challenges and present a coherent strategy for tackling them.

The choice to host this CMD in San Francisco, despite Adyen’s Amsterdam headquarters, is perhaps a strategic one, reflecting the importance of the US market in Adyen’s global strategy. This event is not just a routine engagement but a critical moment for Adyen to address its (US) struggles, to justify its value proposition, and to present a persuasive strategy that will not only retain existing clients but also attract new ones.

Another layer of complexity in Adyen’s narrative is the differentiation of market needs. The US market is large and more commoditized - a stark contrast to the more complex and fragmented landscapes of Europe and Asia where Adyen’s products have historically added relatively more value for merchants. The larger volume and commoditization of the US market suggest that Adyen’s relatively higher fee structure may be a hurdle in gaining traction. In this context, Adyen will have to consider a revised pricing strategy in the US to secure the desired market share. It has to do that, given the desire to push into the midmarket, leveraging its platforms and marketplace services. Whether Adyen will address this head-on during the CMD or adopt a wait-and-see approach remains to be seen.

Lastly, Adyen will also be providing an operational update. It would be a good time for the company to shift to quarterly reporting, and add some disclosures; e.g. the company has never released details of its TPV and revenue stream distributions across different industries, such as e-commerce, travel, and subscription services. The CMD might be a good time to address this.

In summary, Adyen’s CMD represents more than just a routine event; it is a strategic forum that will need to shape investor sentiment and the company’s direction.

Will it address all the above? Expectations are high, but the past is not on investors’ side.

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