Unified Commerce Expansion And TCO Solutions Will Unlock New Markets

Key Takeaways

• Adyen’s expansion in Unified Commerce and Platforms is driving strong revenue growth and diversification across new verticals.
  
• Focus on cost-efficient TCO solutions and geographic expansion is enhancing market share, potentially improving revenue and margins.
  
• Adyen's heavy reliance on existing customer growth and wallet share faces risks from macroeconomic uncertainties and declining partnerships, potentially hindering revenue and diversification.

Catalysts

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

• Adyen is seeing strong wallet share gains with existing customers, which is expected to drive net revenue growth. This indicates a focus on expanding business with current clients, likely improving revenue growth and stability over time.
  
• The Unified Commerce pillar shows a 31% year-over-year increase in net revenue, driven by expansion into new verticals such as food and beverage and hospitality. This diversification is expected to contribute to sustained revenue growth.
  
• The Platforms pillar is experiencing rapid growth, with net revenue up 63% year-over-year as more platforms embed payment services. This expansion is expected to bolster Adyen’s revenue and possible improvements in net margins.
  
• The company’s ongoing focus on Total Cost of Ownership (TCO) solutions, such as Adyen Uplift, positions it well to capture more market share by providing cost-efficient and performance-balanced services, potentially enhancing net margins.
  
• Continued investment in geographic expansion, particularly in North America, is expected to further increase Adyen’s revenue and earnings by capturing more market opportunities.

Adyen Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Adyen's revenue will grow by 23.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 45.9% today to 48.5% in 3 years time.
• Analysts expect earnings to reach €1.8 billion (and earnings per share of €58.28) by about May 2028, up from €925.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €2.1 billion in earnings, and the most bearish expecting €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 38.8x on those 2028 earnings, down from 48.3x today. This future PE is greater than the current PE for the NL Diversified Financial industry at 8.6x.
• 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 5.41%, as per the Simply Wall St company report.

Adyen Future Earnings Per Share Growth

Risks

• Adyen's growth is significantly dependent on increasing wallet share with existing customers and stable growth within their customer base; any slowdown in customer growth due to macroeconomic uncertainty could challenge net revenue acceleration.
  
• Adyen has faced a significant ramp-down in share of wallet with key partners, such as eBay, which could impact revenue growth unless offset by gains in other areas.
  
• The macroeconomic environment remains uncertain, and any slowdown in market volumes or shifts in consumer or merchant behavior could impact revenue growth targets.
  
• Although Adyen's Platform segment is growing, the take rate is lower than other pillars, potentially affecting overall margin performance if the expected ramp-up in SMB onboarding or complexity management does not materialize.
  
• Adyen's issuing volume growth has been relatively slow and continues to be a small contributor relative to its acquiring business, which could limit potential revenue diversification and growth drivers.

Valuation

• The analysts have a consensus price target of €1912.32 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 €1320.6.
  
• 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 38.8x, assuming you use a discount rate of 5.4%.
  
• Given the current share price of €1417.8, the analyst price target of €1912.32 is 25.9% 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.