By Ben Dummett
Few companies have benefited more from the e-commerce shopping
boom sparked by the pandemic than Dutch payments firm Adyen NV.
The best-performing large stock in Europe this year, Adyen is up
almost 120%, vaulting its market value to nearly $60 billion,
bigger than some of the region's top banks, including Swiss giant
UBS Group AG. Adyen's stock performance has even outpaced PayPal
Holdings Inc., another beneficiary of the move toward digital
payments, which is up about 70%.
Unlike PayPal, which hundreds of millions of consumers
world-wide use to send money and make internet purchases, Adyen
sits behind the scenes, providing the technology that merchants use
to process credit card and other types of digital payments.
Analysts say that unlike some rivals that rely on in-store
transactions for a big chunk of their business, almost 90% of
Adyen's transaction volumes come from online sales. That advantage
has attracted investors to Adyen.
Online payments have held up better than in-store digital
payments during the pandemic as people avoid crowds. More consumers
are shopping online and more merchants are adopting digital-payment
technology to service e-commerce as well as in-store purchases.
By the end of this year, the percentage of total transactions
globally done with cash is expected to be around 64%, down from 69%
in 2019, according to a McKinsey & Co. report in October. That
drop "is equivalent to four to five times the annual decrease in
cash usage observed over the last few years," the consulting firm
Adyen, whose roster of clients includes Uber Technologies Inc.,
Microsoft Corp. and eBay Inc., reported a 27% increase in net
revenue in the first half of 2020.
Its big European rivals have seen less of a windfall.
France-based payments company Worldline SA and Italian rival Nexi
SpA both saw revenue drop in the first half. Both rely much more on
in-person transactions at shops and restaurants. Worldline's online
merchant-services revenue is just 30% of the total from that
business. Nexi's is around 10%.
Payment stocks, including Adyen's, suffered a short-lived
decline last week as part of a broader drop in technology stocks
after positive test results from a coronavirus vaccine developed by
Pfizer Inc. and partner BioNTech SE gave hope for a return to
Adyen and other payments processors stand to lose some business
once any vaccine is administered widely, giving people more freedom
to venture outside again and use cash for shopping and
However, at least part of the digital-payments sector gains
achieved this year will stick, particularly as the trend toward
cashless payments was in place before the onset of Covid-19,
Adyen has grown organically, steering clear of a frenzy of deals
in the payments space. Some of the region's biggest payments
processors have struck multibillion-dollar tie-ups, betting the
increased scale will give them a competitive edge.
Late Sunday, Nexi finalized an agreement to acquire pan-European
payments operator Nets Group for about EUR6 billion, equivalent to
$7.1 billion, to expand its geographic reach. That came on the
heels of Nexi's October deal to acquire fintech rival SIA SpA for
about EUR4.6 billion. Worldline closed its EUR7.8 billion tie-up
with Ingenico Group SA that same month.
Adyen, however, has sat out this deal-making activity. "It's
very much by design," said Hemmo Bosscher, a company spokesman. The
go-it-alone strategy is a bet on its in-house built technology.
Adyen says its offering is more effective than those of rivals,
which have to manage a patchwork of legacy systems accumulated in
part through deals. Adyen's single platform, the company says,
helps merchants minimize the number of digital transactions
processed that end up failing for reasons such as a customer having
insufficient funds, or because the payments are fraudulent.
The technology is "sort of their secret sauce" in part by
lowering merchants' overall processing costs, said Sean Horgan, an
analyst at Rosenblatt Securities.
Worldline defends its acquisition strategy. The company has used
it to "generate massive synergies...accelerate innovation," and
expand geographically, a company spokeswoman said. Worldline's
stock is up 15% so far this year.
Nexi said its deals for Nets and SIA would boost the combined
group's per share earnings by more than 25% starting in 2022,
partly from cost savings and revenue gains generated by the
elimination of duplicate systems and cross selling products. Its
stock has gained 18% in the year to date.
Adyen's lofty valuation, however, is a concern for some
investors and analysts. The company trades at about 130 times
projected earnings, and the stock is rated a hold based on the
average of analyst recommendations, according to FactSet, a data
"I have spent a lot of time looking at Adyen, but so far I have
been put off by the valuation," said Marcus Morris-Eyton, a fund
manager at Allianz Global Investors. Mr. Morris-Eyton owns shares
of Worldline, which trades around 34 times forecast earnings,
according to FactSet data.
Write to Ben Dummett at email@example.com
(END) Dow Jones Newswires
November 16, 2020 05:53 ET (10:53 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.