ADYEN
Adyen, Surinamese for ‘Start over again’, is a platform to simplify
© Adyen
CM13249 LTGG stock slides_ZOOM_Adyen 0420
What it does
and accelerate global payments. It is focused on building a
modern infrastructure directly connected to card networks and
local payment methods across the world, allowing for unified
commerce and providing shopper data insights to merchants.
Why we own It
— Adyen helps merchants manage complexity in payments as
they transact across more than one country or channel. The
company is fulfilling a badly unmet global need and has a
huge opportunity.
— A centralised model means that the more demanding
individual customer requirements, the better the product
becomes for all customers.
— The majority of its staff are engineers who are continually
focussed on building new features. This is different to
Adyen’s competitors and it allows them to improve the
offering at speed.
— Run by two founders who are long-term and thoughtfully
creating a culture to motivate their staff.
How it could be worth many times more
— Strong barriers to entry against new players; sticky
customers and economies of scale.
— The replacement of cash continues and merchants will
need solutions.
— If Adyen achieves its long-term goal of compounding net
revenues at 30%, holding operating margins steady at 50%
and reinvesting everything, the company will process over
€900bn in payment volumes in 5 years (for €2bn in revenue).
— Global Payment Volumes are over €20trn, therefore great
scope for further upside.
Where we might be wrong
— Stripe catches up and encroaches on Adyen’s territory.
— Gaining access to the company proves difficult.
— The business becomes too profitable and doesn’t
reinvest enough.
Short 10 Questions
CAN SALES DOUBLE IN THE NEXT FIVE YEARS?
Yes, revenues are growing at >40% p.a. Driven by increased
volume from existing and new customers.
TEN YEARS AND BEYOND?
More than 40% of global payment volumes are still in cash
today – the more this becomes digital, the more demand there
is for Adyen.
COMPETITIVE ADVANTAGE?
Single software stack makes Adyen more resilient, efficient and
easier to roll out internationally.
IS THE BUSINESS CULTURE DIFFERENT?
Yes. A strong reputation, founder alignment, long-term horizon
and thoughtful culture.
CUSTOMERS LIKE YOU? CONTRIBUTE TO SOCIETY?
Customers like Adyen because it removes the cumbersome,
expensive and time-consuming obstacles to running and growing
a business.
ARE RETURNS WORTHWHILE?
Returns are fantastic. ROE is above 35%. 50% operating
margins possible.
WILL THEY RISE OR FALL?
The upside will be managing to sustain its impressive returns
for a very long time.
HOW IS CAPITAL ALLOCATED?
Hiring new staff, opening offices around the world and increasing
marketing spend.
COULD IT BE WORTH 5X AS MUCH?
Easily. Cash will continue to be replaced, globalisation of commerce
continues and merchants need solutions to manage complexity.
WHAT DOESN’T THE MARKET UNDERSTAND?
An upside more extreme than most would likely entertain.