Star European fintech giant Adyen is in the doldrums this week, with something in the range of €20 billion (£17 billion) wiped from its share price since posting a record interim loss on Thursday.
Though Adyen certainly failed to deliver in the first six months of 2023, few would have expected to see over 40% of its market value go down the drain.
Given the sudden rout, Adyen’s aggressive hiring spree amid an uncertain economic climate has come under the microscope.
In the first six months of 2023, the group grew its headcount by 15% to nearly 4,000 employees, a move yet to be sufficiently vindicated.
Compensation expenses hence rose by 80% to €247 million, encouraged by wage hikes for existing team members.
This contributed to a 17% miss on underlying earnings (EBITDA) and net revenues 5% below expectations.
An engorged workforce does nothing for Adyen’s biggest issue: Declining US growth against increasingly cost-efficient competitors like Stripe and PayPal.
US revenue growth slowed to 23% in the past six months, down from 45% in the second half of 2022 and more than 50% in the first half of 2022.
Furthermore, Adyen’s cornerstone client eBay saw lower-than-usual sales volumes, which fed through to Adyen’s thinner top line.
Aggressive hiring in the firing line
Analysts at Deutsche Bank commented: “In our preview, we warned the market about the risk to Adyen’s growth on the back of pricing dynamics in the US and further headwinds to margins due to aggressive hiring.
“However, the extent of deceleration was surprising with growth slowing to 21% from 30% in the second half of 2022 and margins down 1,520bps to 43%.”
Yet it’s not all doom and gloom for Adyen, according to Deutsche Bank. “We do not expect current market dynamics to get worse from here. In our view, Adyen remains the most scalable and cost-efficient player in the market, and we expect further market share gains as the dust of this pricing war is settling.
“We hence see the near 40% drop in the share price as a good long-term buying opportunity.”
Yet other analysts see this turn of events as a result of Adyen’s inflated valuation.
“Its valuation was frankly way above that of its competitors and that was okay as long as things were going well," Marco Simion, senior fund manager at Swiss asset manager ZEST SA, told Reuters.
He added: "Today's miss has shown cracks in its growth prospects. Was the share price reaction justified? Probably it was, given the high valuation premium relative to its competitors."
Refinitiv data shows that Adyen had a 43-times enterprise value to more earnings ratio based on Thursday’s closing price, compared to 12.7 times for French rival Worldline and 8.8 times for Italian competitor Nexi.
“When something like this happens, where basically the multiple is at question… this usually creates a couple of days of selling,” said Hannes Leitner at Jefferies.
Even if you’re not aware of Adyen, the company is probably aware of you.
Founded in 2006 before going public in 2018 on a €7.1 billion valuation, the Dutch payments company counts Spotify, Uber, eBay and Etsy (NASDAQ:ETSY) as business partners.
Prior to this week’s 40% nosedive, Adyen’s market valuation was ticking along at more than €50 billion (£42.7 billion), making it one of the 10 largest Dutch corporations.
Adyen derives its name from the Sranan, the native tongue of Suriname, meaning to “start again”.
Though a complete reset is hardly necessary, the Dutch giant’s recent earnings miss will undoubtedly cause a strategic rethink among its directors.