By Ben Dummett
Few companies have benefited more from the e-commerce shopping boom sparked by the pandemic than Dutch payments firm Adyen NV.
The best-performing large stock in Europe this year, Adyen is up almost 120%, vaulting its market value to nearly $60 billion, bigger than some of the region's top banks, including Swiss giant UBS Group AG. Adyen's stock performance has even outpaced PayPal Holdings Inc., another beneficiary of the move toward digital payments, which is up about 70%.
Unlike PayPal, which hundreds of millions of consumers world-wide use to send money and make internet purchases, Adyen sits behind the scenes, providing the technology that merchants use to process credit card and other types of digital payments. Analysts say that unlike some rivals that rely on in-store transactions for a big chunk of their business, almost 90% of Adyen's transaction volumes come from online sales. That advantage has attracted investors to Adyen.
Online payments have held up better than in-store digital payments during the pandemic as people avoid crowds. More consumers are shopping online and more merchants are adopting digital-payment technology to service e-commerce as well as in-store purchases.
By the end of this year, the percentage of total transactions globally done with cash is expected to be around 64%, down from 69% in 2019, according to a McKinsey & Co. report in October. That drop "is equivalent to four to five times the annual decrease in cash usage observed over the last few years," the consulting firm said.
Adyen, whose roster of clients includes Uber Technologies Inc., Microsoft Corp. and eBay Inc., reported a 27% increase in net revenue in the first half of 2020.
Its big European rivals have seen less of a windfall. France-based payments company Worldline SA and Italian rival Nexi SpA both saw revenue drop in the first half. Both rely much more on in-person transactions at shops and restaurants. Worldline's online merchant-services revenue is just 30% of the total from that business. Nexi's is around 10%.
Payment stocks, including Adyen's, suffered a short-lived decline last week as part of a broader drop in technology stocks after positive test results from a coronavirus vaccine developed by Pfizer Inc. and partner BioNTech SE gave hope for a return to normalcy.
Adyen and other payments processors stand to lose some business once any vaccine is administered widely, giving people more freedom to venture outside again and use cash for shopping and entertainment.
However, at least part of the digital-payments sector gains achieved this year will stick, particularly as the trend toward cashless payments was in place before the onset of Covid-19, analysts say.
Adyen has grown organically, steering clear of a frenzy of deals in the payments space. Some of the region's biggest payments processors have struck multibillion-dollar tie-ups, betting the increased scale will give them a competitive edge.
Late Sunday, Nexi finalized an agreement to acquire pan-European payments operator Nets Group for about EUR6 billion, equivalent to $7.1 billion, to expand its geographic reach. That came on the heels of Nexi's October deal to acquire fintech rival SIA SpA for about EUR4.6 billion. Worldline closed its EUR7.8 billion tie-up with Ingenico Group SA that same month.
Adyen, however, has sat out this deal-making activity. "It's very much by design," said Hemmo Bosscher, a company spokesman. The go-it-alone strategy is a bet on its in-house built technology.
Adyen says its offering is more effective than those of rivals, which have to manage a patchwork of legacy systems accumulated in part through deals. Adyen's single platform, the company says, helps merchants minimize the number of digital transactions processed that end up failing for reasons such as a customer having insufficient funds, or because the payments are fraudulent.
The technology is "sort of their secret sauce" in part by lowering merchants' overall processing costs, said Sean Horgan, an analyst at Rosenblatt Securities.
Worldline defends its acquisition strategy. The company has used it to "generate massive synergies...accelerate innovation," and expand geographically, a company spokeswoman said. Worldline's stock is up 15% so far this year.
Nexi said its deals for Nets and SIA would boost the combined group's per share earnings by more than 25% starting in 2022, partly from cost savings and revenue gains generated by the elimination of duplicate systems and cross selling products. Its stock has gained 18% in the year to date.
Adyen's lofty valuation, however, is a concern for some investors and analysts. The company trades at about 130 times projected earnings, and the stock is rated a hold based on the average of analyst recommendations, according to FactSet, a data provider.
"I have spent a lot of time looking at Adyen, but so far I have been put off by the valuation," said Marcus Morris-Eyton, a fund manager at Allianz Global Investors. Mr. Morris-Eyton owns shares of Worldline, which trades around 34 times forecast earnings, according to FactSet data.
Write to Ben Dummett at firstname.lastname@example.org
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