Products Like Uplift And Intelligent Payment Routing Will Drive Future Customer Engagement

Key Takeaways

• Innovative investment in products and global platform expansion is set to boost revenue growth and net margins through cost optimization and enhanced decision-making.
  
• Strategic growth in EMEA and North America, alongside hiring in new markets, will drive market share gains and bolster long-term earnings.
  
• Reliance on a few large clients and market challenges in cost, currency, and new regions may constrain Adyen's revenue and margin growth.

Catalysts

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

• Adyen's investment in innovative products like Uplift and Intelligent Payment Routing, which optimize cost, conversion, and fraud management, is expected to increase their share of wallet with existing customers, driving future revenue growth.
  
• The expansion in their global single platform creates a compounding network effect, which increases data points and enhances decision-making capabilities, likely boosting net margins through reduced costs and higher conversion rates.
  
• Adyen's regional growth strategy, particularly in EMEA and North America, continues to drive market share gains. This strategic focus on core markets is anticipated to accelerate revenue growth as these opportunities are far from being fully realized.
  
• Future hiring and team investment, especially in North America and new markets like Japan and India, are positioned to support long-term revenue growth, even as Adyen maintains EBITDA margin expansion.
  
• Growth in Adyen’s Platforms pillar, particularly through embedded financial services and issuance to SaaS platforms, showcases a fast-growing revenue stream, with capital products and issuing contributing to long-term earnings enhancement.

Adyen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Adyen's revenue will grow by 24.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.9% today to 47.8% in 3 years time.
• Analysts expect earnings to reach €1.8 billion (and earnings per share of €58.17) by about April 2028, up from €925.2 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as €1.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 40.9x on those 2028 earnings, down from 48.4x today. This future PE is greater than the current PE for the NL Diversified Financial industry at 8.7x.
• 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 5.49%, as per the Simply Wall St company report.

Adyen Future Earnings Per Share Growth

Risks

• The company is heavily reliant on a select few large customers, particularly in the Digital space, which could pose a risk if these customers reduce their volume, impacting net revenue growth.
  
• Adyen's entry into markets like Japan and India is a long-term strategy that may not yield significant volumes in the short term, which could affect overall revenue growth projections.
  
• Competition on cost versus value in markets like North America remains a challenge. Competitors focusing on cost could pressurize Adyen's pricing strategies, potentially impacting net margins.
  
• Challenges in foreign exchange rates have been noted, especially in regions like Latin America, where constant currency growth is not adequately reflected in reported revenues, potentially affecting net revenue figures.
  
• The need for continuous investment in team expansion and R&D to maintain the innovation subscription could cap margin expansion, particularly if the growth in net revenue does not keep pace with the growth in operational expenses.

Valuation

• The analysts have a consensus price target of €1994.893 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 €2800.0, and the most bearish reporting a price target of just €1400.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €3.8 billion, earnings will come to €1.8 billion, and it would be trading on a PE ratio of 40.9x, assuming you use a discount rate of 5.5%.
• Given the current share price of €1420.8, the analyst price target of €1994.89 is 28.8% 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.