Introduction

I’ve had my eye on Adyen (OTCPK:ADYEY) for a while now, but I never took a deep dive into the company because of its high valuation. However, recent events have caused Adyen’s stock to decrease significantly, making it a compelling investment opportunity.

Now, let’s explore Adyen in detail.

Company Overview

Adyen is a global payment processor that offers a comprehensive platform for merchants to accept various payment methods in e-commerce, mobile, and point-of-sale applications.

Traditionally, merchants had to establish relationships with multiple companies to handle their payment processing needs, creating inefficiencies and challenges. Adyen solves these issues by providing a single, streamlined platform that handles all aspects of payment processing.

Adyen’s Three Commercial Pillars

Adyen’s platform consists of three main pillars:

1. Digital: Adyen enables merchants to accept online payments through various methods, including debit/credit cards, bank transfers, digital wallets, and buy-now-pay-later options. The platform offers transparent pricing with a flat processing fee and percentage or fixed fees based on the payment method used.
2. Unified Commerce: Adyen provides in-person point-of-sale (POS) solutions that integrate seamlessly with its digital platform. This allows merchants to offer omnichannel experiences, such as ordering in-app and collecting in person, self-scan and pay, and buy online return in-store.
3. Platforms: Adyen’s platform allows enterprises to embed financial products into their platforms or marketplaces. This includes payments, accounts, issuing virtual/physical cards, business financing, and real-time payouts.

Competitive Advantage

Adyen possesses several competitive advantages:

• Technology: Adyen’s vertically integrated, in-house built platform is highly regarded and recognized as one of the best in the industry. Its technology stack provides a simple and efficient payment processing experience.
• Network Effects: Adyen benefits from network effects as it partners with large enterprises. The more these enterprises grow, the more Adyen’s business expands.
• Switching Costs: Once merchants fully commit to Adyen’s platform, it becomes challenging for them to switch to an alternative provider due to operational disruptions, learning curves, and feature downgrades.
• Cost Advantages: Adyen’s vertically integrated platform allows it to offer competitive pricing while delivering a premium product. Its high profitability and efficiency set it apart from competitors.

Growth Potential

Adyen has significant growth potential:

• Adyen holds a small market share, but it operates in an industry with trillions of dollars in payment volumes. As global payment volumes increase, Adyen has ample room for expansion.
• The rise of embedded finance presents a tremendous opportunity for Adyen, particularly in providing financial products to small and medium businesses that use platforms and marketplaces.
• Adyen’s high-quality client base, low churn rate, and continuous investment in technology position it well for sustained growth.

Valuation and Investment Thesis

Adyen’s stock price has recently experienced a significant decline, making it undervalued compared to its historical valuations. The stock now trades at a more reasonable price-to-earnings ratio.

Considering its growth potential, profitability, and strong balance sheet, Adyen presents an attractive investment opportunity. A discounted cash flow (DCF) analysis suggests that the stock is undervalued and offers potential upside.

Risks

Investors should be aware of potential risks associated with Adyen:

• Competition from other payment processors like PayPal, Stripe, and legacy players.
• Overhiring, leading to increased costs and potential clashes in company culture.
• Failure to meet long-term financial objectives, which could impact investor confidence.

Conclusion

Adyen is a strong player in the fintech industry, with a proven track record, competitive advantages, and significant growth potential. The recent market decline has created an excellent buying opportunity for investors interested in a high-growth, high-profitability stock.