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.


3 thoughts on “Adyen’s $1.5b Valuation Takes Much on Trust”

  1. Actually the article argues exactly why Adyen is different compared to the other acquirers:
    Adyen handles transparent pricing and forex, where others do not
    Adyen works very close with the named ‘competitors’ all benefit from the growth, they are not competitors
    Adyen actually makes payments simpler and manages to attract the volume from these large merchants who are looking for the best value across the chain.

    Where the ecom numbers grow over 30% in almost every market, Adyen will probably grow faster (14000% over the last years?

    30% does not seem to be a realistic number, have you made your calculation with a more realistic 100% over the next 4 years, and slowing down a bit from there?

    a bit more research, you can do that

    1. Jean – Thanks for your comment and for the detail around forex commissions. I think my argument is that investing in an e-commerce company is not the same as buying an option on the growth in digital commerce. Success stimulates competition and the past is no guide to future performance. There are manifold risks but tech investors sometimes treat projections as fact and ignore major competitive threats. Best, Geoff

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