Adyen Earnings, Payments is Not a Commodity, Lowering Total Cost of Ownership & The Flywheel

Adyen Earnings (H2 2024)

Dear readers,

Here’s a quick update on Adyen’s earnings report last week. Have a good week!

Adyen Earnings

From Reuters:

Feb 13 (Reuters) - Adyen's (ADYEN.AS) shares rose as much as 15% on Thursday after the Dutch payments company reported full-year core earnings above market expectations, and forecast higher net revenue growth and continued margin expansion in 2025.

The Amsterdam-listed shares were the top gainers on the pan-European STOXX index (.STOXX) at 0345 GMT. Two traders cited the strong set of results and revenue forecast as drivers for the share price surge.

They reached their highest level since August 2022, adding 6.8 billion euros ($7.09 billion) to the company's market cap, based on LSEG data.

Adyen has weathered a post-pandemic drop in online spending that has knocked investor confidence in the digital payments sector thanks to a more diversified customer base and partnerships with companies like eBay (EBAY.O), and Cash App in North America, Zalando (ZALG.DE), in Europe and Starbucks (SBUX.O), in Mexico.

For long-time followers of Adyen, this turnaround is particularly satisfying. Back in August 2023, the company’s stock plummeted 39% in a single day as the market reacted negatively to, in some ways, a perfect storm. As Adyen faced competitive headwinds, Adyen significantly ramped up hiring, taking a short-term hit to profit margins. I wrote then:

While the market was averse 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.

…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…

The market correction, in hindsight, was an incredible buying opportunity. From a low of around €700, Adyen now trades at the €1800 range, reflecting the success of its strategy. Importantly, the recent earnings beat confirms that the company’s long-term approach is paying off. But I think what the article may have missed is why Adyen managed to weather the post-pandemic slowdown in digital payments better than its peers.

Payments is Not a Commodity

In North America, competitors were undercutting each other on price. But this approach overlooked an important point: Adyen already had the lowest cost per transaction due to its single stack platform. Adyen refused to engage in the price war, choosing instead to differentiate through value. Over time, the price war proved to be unsustainable.

A clear example is PayPal’s Braintree, which had aggressively pursued market share through low fees. By December 2024, Braintree was already signaling a shift in strategy; Jamie Miller, PayPal’s CFO on the strategy shift from a Payments Dives article:

“For these really large merchants where we have intentionally gone after very, very significant percentages of their revenue processing, we’re going back to them and having just much more strategic and holistic conversations around this value exchange,” including payment orchestration and risk services, said Miller, who took the CFO seat last year.

“[It’s about] having a different kind of relationship with them, and not needing to process all of their revenue, but being willing to pull back and take lower percentages of revenues…in exchange for having a much healthier margin profile on the overall relationship,” she said.

And the result is that volumes began shifting away. By February 2025, Susquehanna analyst James Friedman explained that Braintree’s payment volumes fell significantly. From Investor’s Business Daily:

Repricing initiatives last year at subsidiary Braintree have pressured revenue growth as well as payment volumes but improved transaction margins. Braintree processes transactions for Uber Technologies (UBER), Airbnb (ABNB), DoorDash (DASH), Spotify (SPOT), Paymentus and others.

Meanwhile, Braintree's payment volume and revenue will be lower if some customers migrate business to other payment firms when contracts come up for renewal.

"Braintree again contributed to transaction margin dollar growth," said Susquehanna analyst James Friedman in a report. "Consistent with the plan, Braintree TPV (total payment volume) growth has fallen from 30% in 2023 to just 2% in Q4 2024 and now looks like it's headed negative as clients transition wallet share. Investors are anxious about perceived market share loss and are worried Braintree will not pivot."

Braintree’s TPV growth plummeted to just 2% — a dramatic shift from aggressively capturing market share to losing it. In hindsight, it’s clear that merchants only shifted their volumes for the lower fees — but that low price strategy was never sustainable. Eventually, Braintree had to improve its margin profile, revealing that the price war was a short-term play. Whether Braintree was even profitable on these low-price transactions remains uncertain, as they could have been subsidizing growth at unsustainable margins.

But the fact that Adyen is priced higher and still continues to grow and capture market share means its value-add and product differentiation are undeniable. Adyen’s Chief Financial Officer, Ingo Uytdehaage, reinforced this point in the company’s H2 2024 earnings call:

Yes, it is very important to have differentiation in our products. U.S. debit is an example. The other example, of course, is what we do around Uplift. In the digital pillar, these products are essential to increase our share of wallet, so that's why we're heavily investing in it. I think it's a clear example why payments is not a commodity, why the added value that we bring is appreciated, and why we continue to increase our share of wallet, so -- in the fourth quarter of this year.

Lowering Total Cost of Ownership

Rather than competing on price, Adyen focuses on lowering the Total Cost of Ownership (“TCO”) for merchants. The approach is twofold: quantitative benefits that are directly measurable and qualitative benefits that are less tangible but could be equally impactful.

The quantitative advantages are straightforward — merchants benefit from lower payment processing costs and higher authorization rates. By leveraging their single platform, Adyen optimizes payment processing at multiple levels. Smart routing and Network Token Optimization ensure that transactions are processed through the most cost-effective route, reducing overall processing expenses. At the same time, by leveraging smart routing and data-driven insights, Adyen dynamically reduces failed transactions, leading to higher conversion rates and ultimately more revenue for merchants.

The qualitative benefits are harder to measure but just as crucial. Many businesses using multiple payment providers face operational inefficiencies — manual reconciliation, chargeback disputes, and fragmented reporting systems create unnecessary overhead. Adyen’s unified platform streamlines these processes, automating reconciliation and fraud management, which reduces workload and complexity. Moreover, a higher authorization rate leads to a better customer experience — fewer failed transactions mean more frictionless checkouts, which helps merchants improve conversion rates, customer satisfaction, and long-term loyalty.

The Adyen Flywheel

All these advantages fuel Adyen’s self-reinforcing flywheel that strengthen its competitive edge. Here’s a simple flywheel diagram showing the concept:

As more merchants join the platform and processing volumes grow, Adyen gains deeper data insights. These insights enhance cost efficiency, improve fraud detection, and boost conversion. Additionally, they enable Adyen to develop more advanced products, such as AI Uplift, Intelligent U.S. Debit Routing and Embedded Financial Products. These innovations further reduce TCO for merchants, reinforcing the flywheel.

The Future

You could argue that Adyen is still in its early stages. The company is now aiming to extend beyond its core retail vertical into hospitality and F&B. Meanwhile, in EMEA and North America, Adyen’s entire suite is already in place across all three pillars — Unified Commerce, Digital, and Platforms — while in APAC and LATAM, those capabilities are still being developed. In markets like Japan and India, the real payoff may still be five years away.

Financially, the outlook remains strong. Adyen’s operating leverage, driven by disciplined hiring that trails net revenue growth, should continue to support EBITDA margin expansion, albeit at a more measured pace than in 2023–2024.

And above all, the key lesson here is that payments isn’t a commodity — it’s a strategic enabler. By prioritizing long-term value for merchants, Adyen is strengthening the flywheel, reinforcing the competitive moat that only becomes harder for rivals to breach over time.

Disclaimer: Please note that none of the information provided constitutes financial, investment, or other professional advice. It is only intended for educational purposes. We have a vested interest in Adyen. Holdings are subject to change at any time.