Sunday, February 25, 2024

Stripe rival Adyen’s shares soar 21% as European payments giant posts profit beat, slows hiring

Adyen reported a big shortfall in first-half sales on Thursday. The news led to a $20 billion rout in the company’s market capitalization.

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Shares of the European online payments giant Adyen surged on Thursday, after the company reported strong sales growth and better-than-expected profit for 2023.

Adyen, which competes with Stripe, PayPal and Block, told shareholders in its 2023 annual letter that it had slowed the pace of its hiring to address concerns about spending too aggressively to expand its team, while its margins were compressed.

“We believe we have really built a strong team to seize the opportunity that lies ahead of us in the years to come. We have of course done this at a time when others have not. And we think we’re really well positioned given that,” Ethan Tandowsky, Adyen’s chief financial officer, told CNBC’s “Squawk Box Europe” on Thursday.

“It was always intended that this would be an accelerated two-year investment cycle, which we closed at the end of 2023. So while we will continue to make strategic investments in the team in the years to coming, it will be at a much faster pace. a slower pace than the last two years,” Tandowsky added.

Shares of the company closed up more than 21%.

Here’s how the company performed in its annual results:

Net revenue: 1.626 billion euros ($1.75 billion), up 22% year-on-year. This broadly matches expectations of 1.636 billion euros, according to LSEG, formerly Refinitiv.

EBITDA (earnings before interest, taxes, depreciation and amortization): 743.0 million euros, up 2% year-on-year. Analysts forecast EBITDA of €254.3 million, per LSEG.

Adyen said its net revenue growth was driven by “continued growth in our existing customer base, consistent with our underlying fundamentals of enlargement and expansion”.

The company also said it “significantly expanded” its partnership with a single existing, unnamed digital customer, which contributed to better overall sales growth.

Adyen announced new global partnership deals with financial technology company Klarna and music streaming platform Spotify last year.

The company said it had gradually slowed the pace of hiring significantly during the second half of the year and was focusing on recruiting outside Amsterdam within technical and sales teams.

The move was intended to address investor concerns that the company was spending too aggressively on hiring while its peers were cutting capital spending.

“Without being specific on 2024, but with confident commentary on medium-term execution, we believe stocks will see some relief this morning given that constant currency growth is well ahead of the weakly guided growth of the 20s in 2024, while ramps at Klarna and Shopify should further de-risk,” Jefferies analysts said in a note Thursday morning.

Adyen is one of several payments companies that have faced a host of challenges in 2023, including higher inflation, rising interest rates and slowing consumer spending. These same factors are putting pressure on the valuations of once-attractive payments companies such as Stripe, one of Adyen’s closest competitors in the United States, as well as PayPal, BlockAnd World Line.

Stripe’s valuation was reduced to $95 billion in early 2023, from $95 billion at the height of the Covid-induced fintech boom in 2021.

In August 2023, Adyen reported first-half results that showed revenue growth of 21% year-over-year, its slowest rate on record.

Investors have questioned the attractive pricing the company offers for its payment solutions, which include digital and in-store transactions.

Adyen has persisted in reducing its payment fees, while its competitors in local markets, particularly in North America, have established themselves with lower fees.

Investors were closely watching the company’s margin progress to see if it was focused enough on keeping costs reasonable.

Adyen’s EBITDA margin rose to 48% in the second half, “reflecting our deliberately slowed hiring,” the company said, adding that it still hired 313 new employees for the period.

Adyen had a total of 4,196 full-time employees at the end of 2023.

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