The shares of Adyen NV (AMS:ADYEN), a Dutch payments processor, experienced a significant 33% decline on Thursday, causing a loss of over 13 billion euros in market value. This downfall was triggered by the company’s first-half earnings falling short of estimates. Adyen faced a slowdown in sales growth and margin impact due to elevated hiring expenses.
Analysts raised concerns about the stretched valuations within the digital payments sector, and this setback added to the prevailing worries about a broader deceleration in what was once considered a high-growth industry.
Adyen, known for its services to major players like Netflix (NASDAQ:NFLX), Meta (NASDAQ:META), Microsoft (NASDAQ:MSFT), and Spotify (NYSE:SPOT), reported a deceleration in revenue growth in North America. The company’s margins were also affected by the costs incurred from increased hiring.
Pieter van der Does, the CEO, acknowledged that Adyen’s U.S. competitors, the company’s second-largest market after Europe, had secured business by reducing prices. However, he expressed that engaging in a price war wouldn’t be a viable strategy for Adyen.
Van der Does stated, “If there is any place that you could say is most prone to price competition it would be the U.S. because you can switch more easily.” He clarified that while Adyen hadn’t lost any of its significant platform clients, the competitive landscape was an “isolated phenomenon” affecting a specific type of customer: merchants processing both online and in-store payments.
Among Adyen’s rivals in the U.S. are Stripe, Braintree, Fiserv (NYSE:FI), and PayPal (NASDAQ:PYPL).
Adyen’s stock experienced a sharp decline after a delayed start on the Euronext exchange due to market volatility. At 1233 GMT, the shares were down by 35% at 951 euros. In the current year, the shares have suffered a decline of more than 20%, relinquishing the gains achieved up until the close of the previous day.
JPMorgan analysts noted, These are disappointing results, especially the sales miss, and the key question will be whether the company can quickly revert to mid-term trend growth.
The company’s EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization) reached 320 million euros ($348 million), marking a 10% decrease from the previous year and falling below analyst predictions of 386 million euros, according to Refinitiv data.
Although revenue showed a 21% rise, reaching 739 million euros, it fell short of Adyen’s mid-term projection of over 25% growth.
In some areas, the business grew at a lower rate than expected, the company admitted.
Hannes Leitner, an analyst from Jefferies, highlighted concerns regarding Adyen, which still maintains higher profitability and valuation compared to its peers, as well as concerns about the sector and the economy as a whole. He noted that the overall economy is slowing down, potentially affecting the pace of online payments growth compared to the pre-COVID era, which in turn has impacted Adyen more than other players.
Adyen’s EBITDA margin dropped from 59% to 43%, primarily due to increased wage costs associated with an expansion of the workforce. The company underwent a 17% increase in staffing, hiring 550 full-time employees as part of an aggressive hiring initiative.
A much the same margin decline in the past led to a decline in Adyen’s shares when the company reported its full-year earnings in February.
Adyen’s CFO, Ethan Tandowsky, assured analysts that the hiring momentum would remain consistent during the latter half of 2023 before eventually slowing down. He reaffirmed the company’s medium-term goals of achieving revenue growth exceeding 25% and an improved EBITDA margin projected to reach 65% in the long run. However, he also noted that it would take time for margins to expand toward that target after the current surge in hiring activity subsided.
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