Product Innovation And Unified Commerce Expansion To Unlock New Revenue Streams And Market Growth

Key Takeaways

• Adyen's innovation and expanded Unified Commerce offerings position it for revenue growth and market expansion across retail and hospitality.
  
• The focus on platforms and regulatory strategy positions Adyen for long-term growth in embedded finance, exploiting new market opportunities.
  
• Reliance on expanding existing customer relationships poses a growth challenge amid risks of revenue fluctuation due to large merchant volume shifts and hiring delays.

Catalysts

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

• Adyen's ongoing product innovation and ability to gain wallet share with existing customers, diversify its merchant mix, and win new business suggest potential for sustained revenue growth and market expansion.
  
• The company's strategy to expand its Unified Commerce offerings with the launch of new terminals and grow in high-potential verticals like large-format retail and hospitality indicates significant potential for improved net margins and earnings.
  
• Adyen's focus on platforms as a fast-growing pillar, with an increase in the number of platforms processing significant volumes, demonstrates potential for substantial revenue growth as it capitalizes on the shift towards embedded payments.
  
• Increasing sales staff and focusing on enhancing wallet share with existing customers are strategic moves aimed at accelerating revenue growth in 2025, potentially positively impacting both net revenue and margins.
  
• Adyen's regulatory strategy of obtaining full licenses in multiple regions positions the company for long-term growth in embedded finance, which could boost revenues as the company capitalizes on new market opportunities.

Adyen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Adyen's revenue will grow by 23.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.6% today to 46.4% in 3 years time.
• Analysts expect earnings to reach €1.6 billion (and earnings per share of €51.3) by about November 2027, up from €825.8 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.2x on those 2027 earnings, down from 48.5x today. This future PE is greater than the current PE for the NL Diversified Financial industry at 17.7x.
• Analysts expect the number of shares outstanding to decline by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.21%, as per the Simply Wall St company report.

Adyen Future Earnings Per Share Growth

Risks

• The decline in volume from a significant customer in the digital pillar and the risk of other large customers shifting volumes due to performance or cost considerations could impact Adyen's revenue and net margins.
  
• The potential volatility in volumes from large merchants highlights a risk of revenue fluctuation, as these merchants may shift volumes to competitors in search of cost advantages or performance improvements.
  
• The platform's rapid volume growth could see fluctuations due to its relatively small size and concentration, affecting revenue consistency and growth predictions, leading to potential unpredictability in earnings.
  
• While Adyen has a strong positioning, the reliance on expanding their wallet share with existing customers underscores the challenge of maintaining growth momentum; underperformance in this area could affect net revenue growth targets.
  
• The speed and effectiveness of hires made to expand the sales force might not yield expected results in the short term due to lengthy onboarding and ramp-up times, potentially affecting Adyen's ability to drive new revenue and impacting overall earnings trajectory.

Valuation

• The analysts have a consensus price target of €1635.76 for Adyen based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €1950.0, and the most bearish reporting a price target of just €1065.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €3.4 billion, earnings will come to €1.6 billion, and it would be trading on a PE ratio of 36.2x, assuming you use a discount rate of 5.2%.
  
• Given the current share price of €1272.6, the analyst's price target of €1635.76 is 22.2% higher.
  
• 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.