Adyen’s valuation drops by 39% in a day

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In 2018, Dutch payments company Adyen experienced a successful initial public offering on the Amsterdam stock exchange, fuelled by Europe’s booming technology sector and its competitive stance against the U.S. giant PayPal. However, Adyen’s journey since then has been marked by turbulence, including the disruption caused by the global pandemic that significantly impacted travel-related business.

Adyen pursued a robust expansion strategy, particularly in North America, where it garnered high-profile merchants. To facilitate its growth, the company hired a substantial number of employees. Nevertheless, as the economic landscape shifted in 2023, Adyen’s growth plan encountered considerable challenges.

On Thursday, Adyen’s stock faced a sharp decline of 39%, wiping out €18 billion ($20 billion) from its market capitalisation. This was in response to the firm’s report of its slowest revenue growth to date. Following the drastic plunge, the stock continued to decrease by 2.9% on Friday.

Adyen operates as a payments services provider, serving clients like Netflix, Meta (formerly Facebook), and Spotify. Beyond payment processing, it offers point-of-sale systems for physical stores and handles online and in-store transactions. The company functions as a payment gateway, facilitating card payments for merchants and earning a percentage from each transaction.

Adyen’s revenue for the first half of the year fell below expectations, reaching €739.1 million with a 21% year-over-year increase. However, this growth rate was notably lower than the company’s historical performance, where it consistently reported 26% revenue growth every half-year since its IPO in 2018. Analysts had anticipated €853.6 million in revenue and a 40% year-on-year growth.

The shift in the macroeconomic environment and rising interest rates has led Adyen to prioritise profitability over growth. The company’s CFO, Ethan Tandowsky, emphasised the focus on functionality despite competition offering cheaper services. Adyen’s expansion efforts, especially in North America, resulted in a decrease in its EBITDA margin from 59% to 43% in the first half of 2023. The firm attributed this to softer growth in North America and increased employment costs due to extensive hiring.

Adyen’s core challenge lies in maintaining customer loyalty within its platform and demonstrating superior value compared to competitors. The company faces pressure from businesses cutting costs amid economic pressures, as well as competition offering cheaper rates. Adyen’s CEO, Pieter van der Does, acknowledged that while the company is not contracting, its growth rate has slowed due to merchant exploration of alternative, local providers to reduce expenses.

The company’s profitability was also affected by the aggressive hiring strategy it adopted, resulting in a 10% decline in EBITDA compared to the first half of 2022. In contrast, some competitors like Stripe reduced their workforce significantly. Despite these challenges, Adyen managed to add 551 employees during the first half of the year, bringing the total full-time employee count to 3,883.

Experts suggest that Adyen might face a natural growth ceiling before needing to adjust its margins to continue expanding. Despite these hurdles, the company’s 21% growth in the face of macroeconomic headwinds is considered notable within the e-commerce landscape.