📈 Is Adyen an interesting stock?

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Adyen is one of the fastest-growing quality companies in the world.

The stock returned 18.4% per year to shareholders since its IPO in 2018.

Let’s take a closer look at this fast-growing compounder today.

Adyen - General Information

👔 Company name: Adyen
✍️ ISIN: NL0012969182
🔎 Ticker: $ADYEN (US version: $ADYEY)
📚 Type: Fintech Leader
📈 Stock Price: €1,159 ($1230)
💵 Market cap: €36.0 billion ($38.6 billion)
📊 Average daily volume: €106 million ($114 million)

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Onepager

Here’s a onepager with the essentials of Adyen:

(Click on the picture to expand)

15-Step Approach

Is Adyen an interesting buy? Let’s use our 15-step approach to analyze the company.

At the end of this article, we’ll give Adyen a score on each of these 15 metrics.

This results in a Total Quality Score.

1. Do I understand the business model?

Adyen was founded in 2006 to revolutionize the payments industry.

The Dutch company offers a unified platform that simplifies and accelerates global payments for merchants.

Value proposition

Adyen provides a global payment platform integrating gateway, risk management, processing, issuing, acquiring, and settlement.

The Dutch company offers an in-house payment platform that gives its customers an end-to-end solution that manages the flow of payments.

Traditionally, you would need multiple providers:

• One for gateway

• One for risk management

• One for processing and acquiring.

Adyen takes care of everything and simplifies the value chain for its customers.

Value to merchants

Adyen offers value to merchants with simplified operations, cost savings through lower transaction costs, and the potential to use data to unlock better customer journeys to increase conversions.

Adyen enables merchants to accept payments via the following methods:

• Online Payments

• Point of sale (POS)

• Platforms

• Unified Commerce

• Issuing

The Dutch company targets large international merchants with complex payment structures and a high level of transactions.

Over the years, Adyen has amassed an impressive clientele including Microsoft, Uber, and Nike:

Revenue Streams

Revenues are generated via settlement & transaction fees.

These fees are collected from transactions of their customers. This provides them with predictable cash flows.

• Settlement fees (59% of revenue): Fees for settled transactions.

  • Merchants are charged a % of the transaction value

• Processing fees (24.9% of revenue): Fees incur when merchants receive customer payments.

  • The fees change based on the payment method and region

  • Example: There is a $0.12 processing fee and a $0.25 payment fee in North America

• Sales of Goods (4.3% of revenue): Revenue generated from the sale of POS terminals and related accessories

• Other services (11.8% of revenue): Revenue generated from third-party commissions and foreign exchange service fees

Geographic split

Europe is the largest contributor to net revenue (55.4%), followed by North America (27.3%), Asia-Pacific (11%), and Latin America (6.3%).

2. Is management capable?

Pieter van der Does and Arnout Schuijff co-founded Adyen.

Pieter van der Does serves as the CEO, leading the company with a strong long-term vision for innovation and customer-centric solutions.

Directors and executive officers own a significant amount of shares in Adyen, aligning their interests with those of shareholders. In total, insiders own 9.2% of the company.

Pieter van der Does, the co-founder and CEO, owns 3.0% of Adyen.

Pieter is a strong CEO with an adamant long-term vision. He has shown great allocation skills, one example is when he paused hiring during the 2021 boom, when every technology company was over-hiring.

Adyen initiated more hiring in 2023 when other technology companies were forced to let go of many new hires.

This was an intelligent move going against the herd.

Pieter is well-liked with an impressive Glassdoor score of 91%:

Pieter’s track record speaks for itself, compounding revenues and earnings per share by more than 40% since 2015:

Source: Finchat

3. Does the company have a sustainable competitive advantage?

Adyen holds a competitive advantage in the competitive fintech industry.

The company operates in a price-sensitive industry with fierce competition. Yet they have many factors that build a competitive advantage:

Adyen focuses on attracting and retaining top talent

“The board still oversees every hire, regardless of the role. You cannot be hired at Adyen without speaking to one of the six board members. The reason we do it is to put the bar high to ensure that only the best talent join Adyen.”- CEO Pieter van der Does

Culture of Excellence with the Adyen Formula

Customer loyalty

80% of Adyen’s growth comes from its existing customers.

A driver for this is the merchant's ability to easily enter new regions where Adyen makes payment processing easy and reliable.

“Most of our yearly growth (consistently over 80% from each half-year period since our IPO in 2018) comes from the growth of merchants already on our platform when the period began. As such, we measure success by how we grow together with our merchants.” - 2020 Annual Report

Unified platform

Adyen’s multi-channel and cross-border platform offers unmatched scalability and flexibility, making it a preferred choice for large enterprises globally with many transactions. The platform offers more than 250 payment methods and 187 currencies.

Furthermore, Adyen benefits from a strong brand name and the high loyalty of its clients.

Adyen has showcased its ability to take market share in Europe, and in the most recent quarter, it has taken market share in the competitive North American market.

Network effects

The company also enjoys network effects (the strongest moat source).

The more merchants use Adyen, the more valuable the platform becomes.

4. Is the company active in an attractive end market?

Adyen is active in an attractive, yet competitive end market.

The company should be able to benefit from the ongoing shift to digital payments and the growth of e-commerce.

According to Ivey FinTech, the global payment processing market is valued at $1.6 trillion in total addressable market revenue.

The consensus states that Adyen’s end market will grow by 7-13.5% per year over the next few years.

This represents a significant growth potential for Adyen.

Here’s an overview of Adyen’s main competitors:

Source: Join Colossus

5. What are the main risks for the company?

Some of the main risks for Adyen:

• The market is competitive: The large TAM attracts capital in the billions, which might threaten economic profitability over time

• Data and security: Adyen handles sensitive data, and a breach would devastate their trust in the marketplace

• Low switching costs: Customers can leave Adyen at any time without notice

• Regulatory risks: Constantly changing regulations in the markets Adyen operates in

• Dependence on global economic conditions: Lower levels of disposable income will directly affect Adyen’s ability to earn revenue and cash flow

• Rich valuation level: Adyen’s historical valuation is very high

6. Does the company have a healthy balance sheet?

We look at 3 ratios to determine the healthiness of Adyen’s balance sheet:

• Interest Coverage: 142.6x (Interest Coverage > 15x? ✅)

• Net Debt/FCF: Net cash position of € 8.083 billion (Net Debt/FCF < 4x? ✅)

• Goodwill/Assets: 0% (Goodwill/assets not too large? < 20% ✅)

Adyen’s balance sheet looks very healthy, with no goodwill to worry about and a cash position of more than €8 billion.

This means 22% (!) of Adyen’s market cap is cash!

Source: Finchat

7. Does the company need a lot of capital to operate?

The lower the capital intensity, the better.

We prefer to invest in companies with a CAPEX/Sales lower than 5% and CAPEX/Operating Cash Flow lower than 25%.

Adyen:

• CAPEX/Sales: 4.0% (CAPEX/Sales < 5%? ✅)

• CAPEX/Operating Cash Flow: 3.5% (CAPEX/Operating CF? < 25% ✅)

The capital intensity of Adyen is low. This is something we love to see.

8. Is the company a great capital allocator?

Capital allocation is the most important task of management.

Look for companies that put the money of shareholders to work at an attractive rate of return.

Adyen: