Adyen: Growth at All Cost?

Adyen: Growth at All Cost?

18 August 2023

Key Indicators

Index / Fund / Rate Start of Year Last week This Week % change YTD
Lunar BCI WW Flexible Fund 141.43 177.47 176.65 24.90%
JSE ALSI 73 049 76 974 73 081 0.04%
NASDAQ Composite 10 467 13 645 13 291 26.98%
S&P 500 3 840 4 464 4 370 13.79%
Prime Lending Rate 10,50% 11.75% 11.75% 11.90%
USD/ZAR 16,98 18.95 19.01 11.96%
EUR/ZAR 18,44 20.74 20.67 12.09%
Brent Crude ($’barrel) 85,95 86.72 84.79 -1.35%

Source: Iress

Weekly Stocktake with Danyaal

Adyen: Growth at All Costs?

Adyen is a Dutch financial technology platform specialising in helping businesses with payment processing, financial management, and business analytics. They have recently undertaken an expansion initiative. In the first half of the year, they hired 551 full-time employees (FTE), bringing their total workforce to 3,883 FTE. The majority of these new hires were in technical roles aimed at enhancing Adyen’s existing platform and supporting new projects. This expansion does not align with the “cost optimization strategies” observed by Adyen’s competitors and among the businesses they service.

Adyen recently unveiled its H1 2023 financial results. In this period, their net revenue reached €739 million, marking a 21% increase compared to the same period last year. However, due to escalated wage and salary expenses associated with their growth strategy, the operating income for Adyen was €279 million for H1 2023, reflecting a 16% decline compared to the previous year. During the week, Adyen’s stock price experienced a substantial drop of 45%. The company ended the week with a Price to Earnings (P/E) ratio of 48.

The market appears to be displaying apprehension regarding Adyen’s current strategy. Adyen has been significantly expanding their workforce, despite a deceleration in their revenue growth. Several factors may be contributing to this trend.

1) Their clientele seems to be prioritizing cost optimisation and profitability over market expansion, impacting Adyen’s revenue growth.

2) The presence of well-established fintech giants like PayPal and Stripe in the US has intensified competition more than initially anticipated.

3) There might be a lagged effect between their recent hiring initiatives and the actual impact on revenue. It’s possible that Adyen will only fully experience the consequences of their expansion program in a few quarters from now.

Adyen management have been consistent that they are building for the future and that any investments that they make in people and their platform will only yield results in a few year’s time. Pursuing expansion in the current economic climate does carry inherent risks. Nonetheless, if Adyen successfully executes their expansion strategy, they have the potential to emerge from the recession in a notably better position compared to their competitors.

Adyen is held by Lunar Capital’s Offshore Portfolio Clients.

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Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.
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