Escalating Regulation And Competition Will Erode Payment Margins

Key Takeaways

• Rising regulatory burdens, new digital currencies, and real-time payment infrastructures threaten Adyen's margins and transaction-driven revenue growth.
  
• Intensifying competition, customer churn, and slow progress in value-added services undermine sustainable earnings growth and revenue diversification.
  
• Broad-based expansion, technological innovation, and deepening client relationships underpin resilient, long-term growth potential while reducing concentration risk and supporting improved margins.

Catalysts

Operates a payments platform in Europe, the Middle East, Africa, North America, the Asia Pacific, and Latin America.

• As global regulatory scrutiny and fragmentation in payments intensify, Adyen faces escalating compliance costs and operational complexity across multiple jurisdictions, which may restrict future net margin expansion and increase risk to earnings consistency over time.
  
• The accelerating rollout of Central Bank Digital Currencies and real-time national payment rails threatens to bypass private payment networks like Adyen, reducing long-term transaction volume growth and pressuring revenue streams from cross-border commerce.
  
• Heightening competition from well-capitalized global peers, regional payment processors, and expanding Big Tech payment offerings is likely to drive further margin compression and fee erosion, undermining Adyen's net margin and diminishing its ability to sustainably grow net revenue.
  
• The increasing commoditization of core payment processing, combined with the risk of large enterprise customers insourcing or shifting volumes to alternative platforms, exposes Adyen to significant volatility in transaction volumes and revenue concentration risk, impairing earnings quality and predictability.
  
• Slow progress in monetizing value-added services, such as issuing and embedded finance, in the face of rapid innovation cycles elsewhere, may limit Adyen's ability to increase take rates or diversify revenue, leading to stagnating earnings growth and disappointing investors' forward expectations.

Adyen Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Adyen compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Adyen's revenue will grow by 23.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 45.9% today to 43.1% in 3 years time.
• The bearish analysts expect earnings to reach €1.6 billion (and earnings per share of €48.31) by about June 2028, up from €925.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 32.1x on those 2028 earnings, down from 53.9x today. This future PE is greater than the current PE for the NL Diversified Financial industry at 9.0x.
• Analysts expect the number of shares outstanding to grow by 1.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.65%, as per the Simply Wall St company report.

Adyen Future Earnings Per Share Growth

Risks

• Broad-based and accelerating net revenue growth-with Platforms up 63%, Unified Commerce up 31%, and Digital up 13% year-on-year-demonstrates long-term structural demand across multiple verticals and geographies, suggesting resilience and expansion in both revenue and earnings.
  
• Increasing wallet share from existing large enterprise customers and continuous strong pipeline of new customer wins, alongside a proven land-and-expand growth model, point to robust and predictable top-line growth and rising revenues in future years.
  
• Rapid expansion and diversification within the Platforms segment-including a jump from 19 to 30 platform customers processing over €1 billion annually-demonstrates untapped growth potential and reduces overreliance on any single client, mitigating revenue volatility risks.
  
• Ongoing investment in technological differentiation (such as Adyen Uplift, AI-powered decisioning, and a unified global commerce offering) enhances competitive positioning, can drive efficiency, and supports margin stability, ultimately providing a path to improved operating leverage and stronger net margins over time.
  
• Sustained hiring, geographic expansion (especially in the U.S. and new verticals), and the build-out of new value-added services such as embedded finance and issuing signal prolonged growth opportunity, supporting scalable revenue growth and the potential for long-term earnings accretion as these investments mature.

Valuation

• The assumed bearish price target for Adyen is €1400.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Adyen's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €2500.0, and the most bearish reporting a price target of just €1400.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 32.1x, assuming you use a discount rate of 5.6%.
• Given the current share price of €1582.8, the bearish analyst price target of €1400.0 is 13.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.