Appreciate your write-up and find it hard to argue against - the payments space is highly competitive and as Ms. Ellis highlighted, essentially a race to zero (particularly in the US).
One area I would caution you on is that everyone seems to not understand the nature of Adyen's business, at least when it comes to the cash flow statement. FCF is perpetually overstated because people seem to believe receivables from/payables to merchants are legitimate cash flow, but they're more like very short-term float. Sure, you can rake some interest income off of it, but you can't use that money to invest in the business (at least not if you're an upstanding company).
As such, I get Adyen's 2022 FCF to be closer to EUR 450m, down a bit from 2021. Even if you were to take the sell-side models at face value, I found it interesting that you believe Adyen on a 2.7% FCF yield is a safer bet than PYPL on a 3%+ FCF yield citing a highly competitive industry as if they aren't each facing similar challenges.
I agree PYPL's checkout button is losing share to the likes of Apple (though the new/upcoming ability to pay with your PYPL account within Apple Pay may mitigate this to some extent), but as pointed out by others, Adyen doesn't even have this melting ice cube to subsidize the business.
Life won't get easier for anyone in this space and it could be argued the player with ~$2.5bn in legitimate FCF has a stronger beachhead than the one with <$500m.
"I agree PYPL's checkout button is losing share to the likes of Apple (though the new/upcoming ability to pay with your PYPL account within Apple Pay may mitigate this to some extent), but as pointed out by others, Adyen doesn't even have this melting ice cube to subsidize the business."
as far as i know, there is no intention on apple's end to integrate paypal/venmo into the apple wallet. this, if true, would be very big news for paypal and help stop the bleed on the branded side of things, but as far as i know its not in the works. if you have proof otherwise i'd be interested!
Excellent writeup! Thank you. I don't know much about Adyen until recently, however, there are too many bullish take so you have given a lot of foods for thought.
With a higher interest rate environment, shouldnt you include a higher number on Interest income for the coming years? Which can be significant given their 6B cash (eq.) amount?
Good take. Do you have any view on the Ben Thompson interview on why Adyen isn't willing to match their price in the US market to grab the international market share? It seems like a good move to win in both US and International market since their international capability currently is better than the rest. The backup volume processing seems worrying. It means switching cost will be much lower than expected as well.
That's a good overview but you have Bias towards Adyen and that leaves the whole article unhelpful.
There are competitive pressures indeed, like apple Pay, but the rest is more pulled out of your hat.
When you write "Now obviously part of this is BS, Braintree won’t be able to beat Adyen on uptime, loss rates, or auth rates".
Are you saying that the PayPal's ex Ceo Dan Schulman is lying? That exactly what he affirms. And PayPal is known for having the most advanced fraud detection systems in the industry.
Would love to hear your thoughts on my recent Paypal article. I focus more on the valuation side though. Happy to give you a free trial if you wanna read it: https://valueinvesting.substack.com/p/paypal
Problems for Adyen and Paypal in the competitive payments landscape
Appreciate your write-up and find it hard to argue against - the payments space is highly competitive and as Ms. Ellis highlighted, essentially a race to zero (particularly in the US).
One area I would caution you on is that everyone seems to not understand the nature of Adyen's business, at least when it comes to the cash flow statement. FCF is perpetually overstated because people seem to believe receivables from/payables to merchants are legitimate cash flow, but they're more like very short-term float. Sure, you can rake some interest income off of it, but you can't use that money to invest in the business (at least not if you're an upstanding company).
As such, I get Adyen's 2022 FCF to be closer to EUR 450m, down a bit from 2021. Even if you were to take the sell-side models at face value, I found it interesting that you believe Adyen on a 2.7% FCF yield is a safer bet than PYPL on a 3%+ FCF yield citing a highly competitive industry as if they aren't each facing similar challenges.
I agree PYPL's checkout button is losing share to the likes of Apple (though the new/upcoming ability to pay with your PYPL account within Apple Pay may mitigate this to some extent), but as pointed out by others, Adyen doesn't even have this melting ice cube to subsidize the business.
Life won't get easier for anyone in this space and it could be argued the player with ~$2.5bn in legitimate FCF has a stronger beachhead than the one with <$500m.
with respect to this comment:
"I agree PYPL's checkout button is losing share to the likes of Apple (though the new/upcoming ability to pay with your PYPL account within Apple Pay may mitigate this to some extent), but as pointed out by others, Adyen doesn't even have this melting ice cube to subsidize the business."
as far as i know, there is no intention on apple's end to integrate paypal/venmo into the apple wallet. this, if true, would be very big news for paypal and help stop the bleed on the branded side of things, but as far as i know its not in the works. if you have proof otherwise i'd be interested!
Always tremendous write-up! I was totally thrown off by the presence of Chinese payment players in Australia ...
Excellent writeup! Thank you. I don't know much about Adyen until recently, however, there are too many bullish take so you have given a lot of foods for thought.
Hello. thank you for this great note. one thing i didn't understand is how braintree can help push PayPal button? thank you
With a higher interest rate environment, shouldnt you include a higher number on Interest income for the coming years? Which can be significant given their 6B cash (eq.) amount?
Good take. Do you have any view on the Ben Thompson interview on why Adyen isn't willing to match their price in the US market to grab the international market share? It seems like a good move to win in both US and International market since their international capability currently is better than the rest. The backup volume processing seems worrying. It means switching cost will be much lower than expected as well.
That's a good overview but you have Bias towards Adyen and that leaves the whole article unhelpful.
There are competitive pressures indeed, like apple Pay, but the rest is more pulled out of your hat.
When you write "Now obviously part of this is BS, Braintree won’t be able to beat Adyen on uptime, loss rates, or auth rates".
Are you saying that the PayPal's ex Ceo Dan Schulman is lying? That exactly what he affirms. And PayPal is known for having the most advanced fraud detection systems in the industry.
Nice writeup. What do you do for a living?
Would love to hear your thoughts on my recent Paypal article. I focus more on the valuation side though. Happy to give you a free trial if you wanna read it: https://valueinvesting.substack.com/p/paypal