Adyen Plays Long Game as H2 2022 Profits Miss Estimates

Adyen is betting on unified commerce and sustainable returns to drive growth in 2023.

In a second half (H2) 2022 earnings call with investors on Wednesday (Feb. 8), the co-founder and CEO of the Amsterdam-based FinTech firm, Pieter van der Does, and newly appointed Co-CEO Ingo Uytdehaage highlighted moves the company had made in the last year to execute its long-term ambitions.

In terms of headline numbers reported, net revenue increased 30% year on year (YOY) to reach €721.7 million (about $774 million) in H2 2022, with Europe, Middle East and Africa (EMEA) markets contributing 55% of the total net revenue, followed by North America (27%), Asia-Pacific (11%), and Latin America (7%).

Volumes processed on Adyen’s single platform also grew 41% YOY to hit €421.7 billion ($452 billion), with more than 80% of volumes coming from customers who were already on the platform at the beginning of the period under review.

Read more: Adyen Share Price Tumbles as Earnings Miss Estimates

However, profits generated as a percentage of revenue — measured through the EBITDA (earnings before interest, taxes, depreciation, and amortization) margin — dropped to 52% from 64% in H2 2021, leading to the company’s share price plunging about 16% shortly after the announcement.

According to Uytdehaage, the H2 margin miss was a result of investments made to recruit 1,200 new staff in 2022, 58% of which were for tech roles, and other investments in data centers, which led to an 8% spike in capital expenditure during the period.

As he explained on the call, “[the lower EBITDA] is the outcome of our willful decision to invest in a business, hire more people, [resume] travel and bring people back [into the office]. We could get back to a higher EBITDA level very quickly, but this is our [current] mode of investment.”

Van der Does further pointed to the fact that volume churn in large merchants remained below 1% in H2 as proof that the “underlying economics are strong” even as they play the long game.

Overall, the co-CEOs expressed confidence in the company’s long-term investment approach, a strategy Uytdehaage referred to as a “necessary” cost they have to pay to take the company to the next-level.

Leveraging Unified Commerce to Drive Growth

When it comes to operations in North America, where the firm launched in 2007 and acquired a U.S. branch license in 2012, Uytdehaage said traction remained significant, with net revenue increasing 45% YOY to hit €190.7 million ($204 million) in H2.

The Dutch payments processor currently counts among its customers major U.S. firms including Microsoft, Subway, Levi’s and grocery delivery firm Instacart, which it onboarded last year.

Beyond the U.S., the payments firm launched its unified commerce solution in Mexico and Japan in October and December of last year, respectively, giving business customers there greater visibility over transactions occurring both in-person and online.

Per van der Does, those moves also align with Adyen’s long-term strategy and are not expected to yield benefits in the short-term. “We know these are powerful products, but we also know the results of that will come a bit later. It’s the fact that we are very long-term [focused],” he noted.

Asked about future opportunities around its unified commerce strategy, Uytdehaage acknowledged that traditional banks dominate the space and retain most of the opportunities available today, which is why winning market share from incumbents in new markets will be a key focus.

“The challenge in the new markets is that you’re not yet an established brand, and banks and merchants already have relationships which cannot be switched overnight,” van der Does explained further, adding that businesses eventually come around, attracted by Adyen’s operational efficiency and ability to help them retain sales over time.

Still looking ahead, the co-CEOs shared plans to develop products that will help the company move beyond payments while ensuring that they are meeting merchants’ evolving demands.

And given Ayden’s strong cash balance, which currently stands at €298.1 million, it seems they are in a comfortable position to achieve this while continuing to expand the business.

“It helps to have a significant cash balance when in discussions with regulators [and] merchants,” Uytdehaage said, adding, “We have an A- rating with S&P, so that also says a lot about our financial stability. And in the end that’s ultimately what we’re selling. We’re selling trust to our customers, and having this financial stability helps a lot.”

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