Spirits were high when Dutch payments firm Adyen floated on the Amsterdam Stock Exchange in 2018.
The company was riding a wave of growth in Europe’s technology sector and snapping up competition from its mega U.S. rival PayPal.
Since then, the company has weathered a turbulent ride, including a global pandemic that knocked volumes from travel clients significantly.
The firm expanded aggressively in North America, where some of its most high-profile merchants are based, and hired hundreds of employees to turbocharge growth.
As the macroeconomic environment shifted in 2023, Adyen’s growth strategy has been challenged in a big way.
Company shares plummeted 39% on Thursday, erasing 18 billion euros ($39 billion) from Adyen’s market capitalization, as investors dumped the stock after the firm reported its slowest revenue growth on record.
The stock closed down a further 2.9% Friday after the precipitous decline of Thursday.
What is Adyen?
Identified as one of the top 200 global fintech companies globally by CNBC and Statista, Adyen is a payments services firm that works with customers including Netflix, Meta and Spotify.
It also sells point-of-sale systems for physical stores and handles payments online and in-store.
More than a processor, Adyen is what is known as a payment gateway — meaning that it uses technology to enable merchants to take card payments and transactions through online stores.
The company takes a small cut off every deal that runs through its platform.
It was co-founded by Pieter van der Does, the firm’s chief executive officer, and Arnout Schuijff, former chief technology officer.
What just happened?
Adyen last week reported results for the first half of the year that came in well below expectations. The company’s revenue of 739.1 million euros ($804.3 million) for the period was up 21% year over year — but showed Adyen’s slowest sales growth on record.
Analyst had expected 853.6 million euros of revenue and 40% of year-on-year growth, according to Eikon Refinitiv forecasts.
Adyen has typically been viewed as a growth stock, after consistently reporting revenue growth of 26% each half-year period since its 2018 stock market debut.
“With higher inflation, leading to higher interest rates, there has been a bit of a shift of focus — less focus on growth, more focus on bottom line,” Adyen Chief Financial Officer Ethan Tandowsky told CNBC’s “Squawk Box Europe” Thursday.
Tandowsky insisted that the company had “limited churn” and that none of its large customers had left the platform.
But concerns that competitors in local markets, particularly in North America, are muscling in with cheaper offerings have heavily weighed on company prospects.
Adyen said in a letter to shareholders this week that its EBITDA (earnings before interest, tax, depreciation and amortization) margin fell to 43% in the first half of 2023 from 59% in the same period a year ago.
The company said this was down to softer growth in North America and to higher employment costs such as wages, as it ramped up hiring during the period.
Tandowsky insisted the company had more of a focus on “functionality” than its peers, even though those peers may offer cheaper services.
“The efficiency of which we can develop new functionality, functionality that out performs our peers will lead us to gaining the market share that we expect.”
Structural challenges
At the heart of Adyen’s woes is a business heavily dependent on customers’ willingness to stick to a single platform for their all their payment needs. The company also needs to convince those users that what it sells is better than what’s on offer from a competitor.
In its half-year 2023 report, Adyen said that many of its North American customers are cutting back on costs to weather economic pressures like rising interest rates and higher inflation.
“Enterprise businesses prioritized cost optimization, while competition for digital volumes in the region provided savings over functionality,” Adyen said in a letter to shareholders.
“These dynamics are not new, and online volumes are easiest to transition back and forth. Amid these developments, we consciously continued to price for the value we bring.”
Adyen also said its profitability had suffered from a push to aggressively ramp up hiring. EBITDA came in at 320 million euros, down 10% from the first half of 2022.
Adyen added 551 employees in the first half of the year, taking its total full-time employee count up to 3,883.
Some of the company’s rivals have cut back on hiring significantly. In November 2022, Stripe laid off 14% of its workforce, or about 1,100 people.
The main challenge Adyen now faces is competition from challengers that are willing to offer lower rates than it provides.
Speaking with the Financial Times on Thursday, Adyen CEO Pieter van der Does said that merchants are “trying to explore local providers” to cut down on costs.
“It’s not that we’re shrinking — we’re just growing at a slower rate,” he added.
Adyen has historically been a lean business, opting to hire fewer people overall than its main competitor Stripe, which has roughly double the staffing.
Simon Taylor, head of strategy at Sardine.ai, said that Adyen might face a “natural ceiling” to what business size it can reach before having to reduce its margins to grow again.
“Ultimately they’re subject to the same macro headwinds everyone in e-commerce is,” Taylor told CNBC. “And they still grew 21%. Incumbents would kill for that.”
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