Adyen’s $1.5b Valuation Takes Much on Trust

Adyen, a global e-commerce payment service provider, received $150m investment from General Atlanic at an eye watering valuation of $1.5b. This represents 150x 2014 earnings ($10m) and 8x revenues ($185m).

Adyen provides services for large retailers and other online merchants that need to accept multiple payment types from consumers around the world.

There’s plenty going in Adyen’s favour:

  • The global e-commerce market is growing and won’t slow down anytime soon
  • Payments is getting more complex and large companies normally like to keep things simple by using a one-stop shop
  • Adyen was late into the market and has built (probably) the best technology in the industry. This means its customer service is excellent.
  • It has scarcity value: it’s a rare independent in a rapidly consoidating market

E-commerce margins have been good. WorldPay reports its e-commerce and face to face transactions businesses separately and makes twice as much on the e-commerce ones. It’s unlikely that this differential will persist longterm and e-commerce margins should drift lower because:

  • Large companies will start to unpick the convenient one-stop shops offered by Adyen and its competitors. Once volumes reach a certain point, it’s worth hiring in-house teams and procurement specialists to ensure best value from each element. We are already seeing big retailers appointing payment teams (often hired from the payment indsutry) to do this. Dual and triple sourcing will ensure and unit prices will come under pressure.
  • Foreign exchange margins will only fall. It’s remarkable that global payment companies make so much money on currency conversions – margins of 120bps are not uncommon. This can’t survive in the digital world. Note: Adyen claims to be more transparent that most in this area.
  • Competition will increase. Visa, Mastercard & PayPal all want a slice of this market. Apple too. Technology moves on and Adyen’s leadership could be eroded.
  • Payments will get simpler. The rise of mobile and in-app payments sitting on two standard technolology platforms – iOS and Android – offers an opportunity for the global giants to offer more elegant and lower cost payment options.

Unit margin declines are manageable if the total market size is growing fast. Even so, a valuation of 150x earnings requires 10 years of 30% compound profit growth to get you to a “normal” enterprise multiple of 14. That’s very rare in the business world.

Adyen is a great company; well managed and in a long term growing market but General Atlantic will need a slice of luck to get their money back.


£92m revenue. £53m losses. Farewell Venda.

Venda, one of the UK’s pioneering e-commerce platforms, was bought by Netsuite in July. Customers include Wilkinsons, Laura Ashley and TK Maxx. Founded in 2001, Venda made cumulative pre-tax losses of £53m in its life as an independent company from revenues of £92m yet still managed to pay out a total of £6m in directors emoluments (source: Duedil). Remarkable. venda Netsuite revealed that they paid just $50m for the business. This is way below the valuation of £170m which the press were discussing in 2013, just before Dan Wagner, Venda’s flamboyent founder, pulled its flotation.

The £170m price tag itself was based on a comparsion with Demandware – a competitor SaaS platform – which had successfully floated on a 5x sales valuation in 2012. But Venda was no Demandware and Netsuite’s probably paid only around 1.5x sales. Squeezed between Magento for simple retail e-commerce installations and by Hybris/ATG/Demandware for more complex ones, Venda’s mid-market proposition is less relevant than it once was.

By the time Netsuite bought the business, it had evidently run out of steam. “It’s safe to say Venda was not growing when we acquired them,” said Netsuite’s CEO, possibly because it “had almost non-existent sales teams.” Netsuite made it clear in July that they had bought Venda for its capabilities and people; not for the business.

Fast forward to November 2014 and Netsuite made no mention at all of Venda in their Q3 results.

Since then, things have been quiet other than a snippy comment from client Bonmarche in its annual results. Bonmarche blamed the acquisition for delays in implementing responsive design on its website. The Venda brand may not be important to Netsuite but its roster of high profile retail clients will make trouble if they’re not properly looked after.

Sage Pay revenue up 7% but cross-selling “below expectations.”

Sage reported its annual results today for year to September 2014. Sage doesn’t break out the financial reporting of  its European payments business (Sage Pay) but there were a couple of interesting comments provided.

Revenue was up a respectable 7%. This was sharply lower than the 25% increase seen in 12/13 but that was “primarily due to a price increase.” Sage state that the “payments landscape in the UK is highly competitive and this has impacted the rate of new customer acquisition.”

Sage say that cross-selling payments into the accounting customer base is a priority but has been running “below expectation”. However, it still reported 14% growth to 15.800 in customers taking “integrated payments.” This is defined as those taking a “Sage core accounting system, a Sage payments solution, and the integration of the two is provided or owned by Sage.”

B2B buyers don’t value what B2B marketers are selling

I’ve posted before about the challenges B2B marketers face in presenting their brands as a clear and distinct option for customers. See Shopper-centric end to end merchandise optimisation.

A comprehensive piece of research from McKinsey backs this up. Not only are the brands themselves undifferentiated, but many of the attributes B2B marketers emphasise to gain a competitive edge are of ones that customers don’t actually care about.

Worryingly, of the top five themes that buyers say influence their perception of a supplier’s brand, only one – a high level of specialist expertise – is normally substantiated by the supplier. Buyers want to work with businesses that are leaders in their field, care about their customers and share their values. Instead, B2B marketers are wasting their breath shouting about global reach, corporate social responsibility and their employer’s ability to shape markets.

McKinsey B2B

In the past, B2B businesses could get away with indistinct brands because most of the interface between them and the outside world was policed by sales teams for whom customer empathy comes naturally. But in the new content-driven B2B world, marketers are going to have to spend time understanding what really drives brand equity and use digital techniques to show how much they care about their customers.