Why did Adyen lose 40% share price on the day of their Q2 earnings call?

Why did Adyen lose 40% of their share price on 17 August?

Adyen announced its H1 earnings on 17 August, but it missed, and its stock price ended at a level it was three years previously.

So what made investors sell company shares based on H1 earnings:

  • Management confirmed that it’s not interested in acquiring companies and instead invests in internal talent or hiring software engineers.

“I think that if you look at the model that Adyen runs, it’s a model where – because we have a single platform, which is available worldwide, we can run it very efficiently because that one FTE engineer, what that person does is available worldwide.” Pieter van der Does, Adyen Co-CEO, 2023 H1 Earnings.

  • The company hired 550 people as part of its investment stage. The company’s headcount grew 8% over the past six months and 32% over the past year. Most of the hires were outside its European markets, which led to higher costs. Remember that the tech sector has been doing layoffs for the past 12 months, yet Adyen added 32% additional headcount this year.

To further our trajectory, H1 was also a period of continued investment in building our global team to accelerate growth across key initiatives and regions. The talent market provided a tailwind that helped us remain on track in adding 551 joiners this cycle. Sanne Minnema, Investor Relations 2023 H1 Earnings

  • Management provided results in a matter of fact manner and provided context which did not inspire confidence.

So of course, we’ve been growing in our relationship with eBay over past years. We’ve been very explicit about that. We have ramped up the biggest part of their volumes, and they are in the optimization phase of certain payment methods. I think what’s important for us and how we look at it is that – over the years, our concentration with key customers has declined.

So in general, we see that our concentration is decreasing with our customers. So as the years go on, as the periods go on, we see that we have a wider base of customers. We’re growing with a wider set of those customers as well. So over time, we’ve seen that concentration decreased.

This period is no different. In terms of take rate, it’s indeed stable. It’s indeed related to merchant mix. And in some periods, it comes down to growth with certain customer groups and other periods with other customer groups. One of the big reasons that take rate was declining in the past was that the average transaction value is going up and the full stack percentage was going down.

So of course, we’ve been growing in our relationship with eBay over past years. We’ve been very explicit about that. We have ramped up the biggest part of their volumes, and they are in the optimization phase of certain payment methods. I think what’s important for us and how we look at it is that – over the years, our concentration with key customers has declined. Ethan Tandowsky, CFO, 2023 H1 Earnings

  • Management mentioned multiple times on the earning call that it focused on the medium to long term. Adyen was founded in 2006, but in the current economic climate, with partners being more focused on the immediate/short-term future, should the focus not be on the US market in the next 6 months?

They’ll pay off in the medium to long term in the business we’re in, enterprise payments business, it takes time for things to grow and to mature and also to bring on people who can make the impact that we need them to make. So we’re always very focused on that medium to long-term opportunity. Ethan Tandowsky, CFO, 2023 H1 Earnings

  • What do merchants want from Adyen and what does Adyen believe merchants want? Payments is a sector that requires volumes and low costs for merchants to be profitable per transaction.

The – what’s important for Adyen is to have a merchant base which fits us and our merchant base, the merchant base, which looks for functionality. And if you say, how do you know so sure that all volume will come back from those merchants. I look at it differently, I’d say, what’s the addressable market? And do we have a compelling offering. And I say, yes, I think we’ll grow in this market. So that’s how we look at that. Pieter van der Does, Adyen Co-CEO, 2023 H1 Earnings.

So of course, on the first side, it’s a bit of both, both on the merchants shifting priorities, moving much more of their focus from top line growth to bottom line growth. Of course, if that is the priority, that also creates an opportunity for others. And there’s always been a discussion around, yes, do we provide the best functionality? Or do we go the route of providing the commoditized payments get to the lowest cost, that hasn’t really changed that much.

Of course, the aggressiveness of the approach can change in a moment where customers are shifting priorities is a logical moment to do it. But in the end, I think it starts with the shifting priorities of customers and also what gives us the confidence that we can grow with them and that we can provide them the best solution.

So I think the thought of is it worth paying a premium for payments, that’s not new, right? We’ve always been selling a functionality play on the payment side. If you say payments is strategic, which we’ve seen in more and more verticals over the years that they prioritize payments within their business, then you prioritize functionality. But there’s always been low-cost providers on the payment side, especially in large domestic markets where the market size by itself is big, like in the U.S., there’s always been pricing pressures there. Ethan Tandowsky, CFO, 2023 H1 Earnings

  • Adyen did not understand that the US is a large market it is very competitive, and businesses do not want to only use one payments platform. It boils down to costs and enabling customers the easiest opportunity to transact.

It’s the part of the business that’s easiest to switch, U.S. online. We are still growing, right? So it’s not that we’re shrinking there, but it’s growing at a lower pace than anticipated. Still, we feel that we should also, in that part of our business, keep investing because total cost of ownership is what we believe what defines the choice of payment partner. Pieter van der Does, Adyen Co-CEO, 2023 H1 Earnings.

Of course, in a macro environment like this, where there is more of a focus, especially with these digital players in the U.S. on the bottom line that increases the focus on a lower cost provider and maybe they’re more willing to take a chance than in other periods. But that discussion between commoditized payments and true functionality, differentiated functionality, that’s not new, only the intensity has changed. And yes, that’s changed throughout the first half. Ethan Tandowsky, CFO, 2023 H1 Earnings

It is really important to understand that Adyen is a payments business founded in Europe that now has targeted the US as a growth market. Do partners really value payment functionality versus getting the best pricing for using payment software?

It will be very interesting to see where Adyen is in a year’s time as it is unlikely that pressure on US merchants will disappear anytime soon. Does Adyen understand internally what they need to be for US partners to use their service versus Stripe, PayPal, and others?

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Wow @HendrikLaubscher - I love this breakdown so much :heart:

Functionality vs Price in an Enterprise player is a big huge question mark for this business in North America.

The payments market, like the logistics market, is often a price not a functionality discussion.

I do agree that it may not be their goal to be the lowest cost provider, but then it necessarily means you will not be the leading provider. You’ll be more of a niche player.

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Can you unpack this statement, I don’t understand the rationale (at least for the majority). Yes multiple payment platforms has historically been a necessity for mature omnichannel businesses due to a lack of complete coverage of channels and payment methods within one PSP, but multiple PSP adds complexity (and retailer headcount) for fairly limited value in my opinion. The only significant justification/benefit for additional PSP would be resilience (having an alternative in case the primary is inoperable), and that would be a function of retailer risk appetite.

Price is a absolutely a selection criteria (and I have recently been on a sidelines of a PSP selection process which included Adyen, with a goal of reducing multiple PSP and helping improve omnichannel experience for customer returns in particular)

I mention this in context of the existence of PSP abstraction layers like Primer, but that abstraction capability seems to be necessary, in part, to address the complexity of adding alternative payment methods and optimising the customer journey for those methods using configuration, not code