- Adyen gained increased traction within the industry due to its sole business model.
- While competition remains high, Adyen seems an attractive stock to buy now.
- Investors should not ignore the payment processor.
The worldwide card payment industry will likely grow swiftly in the upcoming years. Nilson Report believes global card transaction volume will hit $52.4 trillion come 2026, and each transfer would need a payment processor. Thus, payment processors have an opportunity to thrive with digital transactions scaling up faster.
Adyen (ADYE.Y) is an attractive selection in this sector. Though you might never hear about the company, anyone that bought McDonald’s burger or paid a Spotify subscription using digital payments or a debit card has used Adyen. With its shares nearly 60% beneath the ATHs, should you include this Amsterdam-based payment process in your investment portfolio?
Adyen Distinguishes Itself from the Rest
Adyen’s primary sources of revenue are its settlement and processing fees, which the firm secures when merchants initiate transactions or complete them on its network. Also, the company has digital-card issuing and risk management services to reduce merchant friction.
This all-in-one offering has drawn massive attention. Adyen processed over 516B euros (around $540 billion) in TPV (total payment volume) in 2021. Meanwhile, Adyen encounters massive competition from giants such as Block (SQ) and PayPal (PYPL), plus pure plays such as Stripe.
Nevertheless, Adyen boasts a competitive edge that keeps it at par with some rivals – leading at low costs. Rather than boosting take rate as users propel high volume on the platform, Adyen drops it. That incentivizes users to maintain Adyen as their primary transaction platform. The company’s 2021 take rate stood at a mere 19.4bp, a 14% Y/Y drop amidst increased volume.
Adyen has attracted leading players in the payment processing market. In 2021, its processed volume saw a 70% Y/Y increase, higher than 33% of PayPal. Its revenue hit 1B euros last year, a 48% Y/Y surge.
What Might Go Wrong?
Stiff competition remains the primary risk for Adyen. Nevertheless, the company is rapidly gushing money and expanding, which might see its investing quicker than rivals. In 2021, Adyen saw an impressive 63% EBITDA margin, while free cash flow stood at nearly 567M.
Also, the higher interest rates and inflation in the Eurozone might slow economic growth. Considering Adyen earns via transaction volume, the dented economy might hurt it in the near term.
Editorial credit: Pavel Kapysh / shutterstock.com