Adyen Earnings H1 2023
Financial highlights
Net revenue +21% to €739.1m
EBITDA -10% to €320.0m
EBITDA margin 43% down from 59%
Free cash flow -20% €247.7m
Net income +0% €282.2m
Business highlights
Processed volume +23% to €426.0b
Digital volume +23% to €267.1b
Unified commerce volume +36% to €109.2b (POS volume +49% to €67.0 billion)
Platforms +3% to €49.7b (Excl. eBay +82%)
Volume churn < 1%
Full stack volume 79% up from 78%
Lower growth in North America due to increased competitive pressure
North America’s contribution has been an increasingly important contributor in recent years, representing about 25.4% of net revenue
The higher interest rate environment caused more companies to scrutinize costs and focus on the bottom line, leading companies to experiment with cheaper payment partners
The US online market is the most prone to price competition; it has a relatively less complex, large domestic market with a relatively small number of payment methods, compared to the relatively more complex European market with relatively more countries, currencies and payment methods
Continuing to invest countercyclically to build for the long-term
As Adyen doesn’t do acquisitions, hiring is how they grow the company. Although Adyen was hiring during the COVID-19 pandemic period (2020: 1,747 FTE1; 2021: 2,180 FTE; 2022: 3,332 FTE), they claimed it was a very competitive market and would have liked to hire more; while the wider tech industry engaged in headcount reductions and hiring freezes, Adyen committed to hiring 1,200 FTE in 2023, and ~1,000 FTE in 2024
Adyen hired 551 FTE in this half, growing the team to 3,883 FTE. Of the new joiners, 75% were in tech roles with the rest mostly in the commercial side
Accelerated hiring and muted growth to temporarily depress EBITDA margins, but Adyen believes it’s really important to make these investments today to expand the product suite and functionality, for long-term market share gains
Adyen’s competitive advantage is their low cost per transaction
Adyen’s single platform leads to higher cost efficiency than the competition as they have the highest return on the hours of a single engineer; what one engineer does is available worldwide. This arguably translates to having the best functionality and product with a very low cost. However, the disadvantage here is that it takes time to build
While Adyen could engage in a price war given its low costs, the current strategy is to compete on building the best payments platform and focusing on the total cost of ownership. Aside from the authorization rate, total cost of ownership may be difficult to measure as there are relatively intangible aspects too – examples include increased efficiency from streamlining back-office functions to get one set of reporting and reconciliation, customer support and finance department functions
Platforms segment gaining traction
Adyen for Platforms, growing 82% year-on-year excluding eBay volumes is driven by embedded payments; Adyen expects the Embedded Financial Products (EFP) suite to contribute materially in the longer-term
The embedded payments opportunity with platforms is really massive; Adyen believes they can ride the wave to be the payment services partner of choice when SMBs get picked up by large platforms
We know that growth will not always be linear, and while we saw net revenue growth decelerate in H1, we did not see any substantial developments that structurally change our medium to long-term opportunity.
- Adyen’s shareholders letter, H1 2023
Mr. Market certainly did not like the results! Adyen’s share price fell about 39% in a single day on 17 August 2023. While the market was adverse to muted net revenue growth, temporarily depressed EBITDA margins and increased investment, I believe Adyen is making the right moves. Adyen has historically made strategic decisions with a long-term perspective; they aren’t afraid of sacrificing short-term margins and they don’t try to optimize for short-term results. For example, back in 2015-2017, Adyen invested heavily in acquiring licenses and point-of-sale (POS) development which really started to pay back in 2018-2020.
Only time will tell whether Adyen’s focus on the quality of the product rather than engaging in a price war is the right move; management wasn’t entirely closed off to a price war in the future which provides Adyen some strategic room. van der Does did say that they have seen competitors pricing low in the past and while there are times when that works, some merchants do return to Adyen.
That said, Adyen’s employee costs may become structurally higher. The majority of Adyen’s employees are in Amsterdam (~58%); Adyen’s plans to ramp up hiring globally means they will be hiring in more markets which are often more expensive than in the Netherlands.
Another point which I’ve long suspected is that van der Does may be planning his transition to leave his executive role at Adyen, ever since he wrote in his letter in November 2022 that he would be away for a medical procedure, followed by the appointment of the then CFO, Ingo Uytdehaage, to the co-CEO position in April 2023. We’ve seen a similar transition at Netflix when Ted Sarandos was made co-CEO with the then CEO, Reed Hastings in July 2020, only for Hastings to give up his CEO role in January 2023. van Der Does did seem frail on the webcast; he also lost his train of thought mid-sentence during one of the questions. I sincerely wish him a speedy recovery and the best of health.
On a somewhat smaller note, an interesting insight that I wanted to share was from the author From Growth to Value, where they suggested that analysts generally have some degree of inhibition when asking questions on calls due to the relationship of the investment banks and the company; in this case, Adyen doesn’t do acquisitions and they have no debt on their balance sheet, suggesting that analysts don’t have to hold back during the Q&A. I did get the feel that the analysts were more direct; maybe there’s some truth there.
All in all, Adyen’s in investment mode, has great financial health with no debt and the long-term secular trends appear intact; the market correction could be considered a great opportunity in hindsight.
Disclaimer: Please note that none of the information provided constitutes financial, investment, or other professional advice. It is only intended for educational purposes. I have a vested interest in Adyen N.V.. Holdings are subject to change at any time.
Full-time equivalents (employees)