Adyen: Back from the Dead

H2 23 earnings

Adyen, my now largest holding, reported the long-awaited FY 23 results this week. The company has been a tremendous success story from its 2018 IPO until the height of the 2021 bubble, growing 500% at a 75% CAGR. Since then, the stock has consolidated and crashed by more than 50% in a day last August. I’ll briefly go over why the stock crashed:

• Weakness in the NA segment

• Deceleration of growth to 21% and declining EBITDA

• Increased spending on headcount and CapEx → margin compression

• An accounting change (gross revenue to net revenue)

The mixture of missed expectations, confused algorithms (as a payment business, they have a lot of money flow through, so this accounting change reduced revenues by 90% optically), and an expensive valuation turned Adyen into the greatest opportunity of 2023.

Why is Adyen a great business?

Adyen operates in a secular tailwind (digital payments) with a very long-term-oriented management team and stringent quality standards. The company still requires all candidates to have an interview with a board member before they are hired and they have their entire software stack developed in-house without any M&A. This enables them to be the low-cost provider with the fastest development times to deal with customer wishes and implement long-term relationships.

Investor Day

At the Investor Day, Adyen basically reiterated their statements from the H1 earnings call: They think long-term and are investing during the downturn in tech, as they already guided last year. These problems are temporary and the growth path is clear. The Investor Day really wasn’t spectacular, but it regained the market’s confidence. The slide below eloquently showcased why they expect to continue growing at a strong pace: Most growth comes from market growth and share of wallet gains. The share of wallet, in particular, is important because Adyen ramps up its sales with customers mostly after the first year. This is why their investment in S&M and tech staff didn’t directly translate to revenue growth but added to the cost structure. New customer wins are a rather small contributor to the growth and the headwind from the declining take rate (as customers grow volume with Adyen, they charge a lower take rate). This was enough to send the stock up 50% in the following week.

FY 23 earnings

The FY 23 results finally muted the concerns the market had. As seen below, growth on all fronts reaccelerated (Adyen only reports twice yearly instead of quarterly). While Processed volume and revenue were almost flat in H1 Q/Q, both metrics accelerated and drove 29% Y/Y processing volume and 23% net revenue growth.

EBITDA rebounded from a decline to a 14% Y/Y increase, with margins expanding from 43% to 48%. As management reiterated at the Investor Day, existing customers drove most growth through the land-and-expand strategy—business as usual.

Let’s dive deeper into the results and what they mean for the valuation of Adyen, given the 30% pop in the share price.