Great work thanks! Some stuff that came to mind while reading:
- Braintree is raising it's price, the market for large merchant might become less competitive
- I think the zero for number 10 passing savings might be a 2: Tobias Lutke/SHOP CEO in an all-in podcast, and other sources, explain how they shift from saving money (lower prices) to creating revenues with the higher authorization rate in their client negociation. If you create revenues.. you pass savings allowing a higher total fee IMHO. I also think they did not flex their pricing, so did not demonstrate a moat on how much they could charge.. yet.
- Owning bank charters allows Adyen to give the money faster to its client, enabling more savings and cashflow.
- Large multi-national market is not the same as smaller merchants market. I think we mix both market in our analysis, mixing two moat measure.
I used ChatGPT to summarize morningstar article on Adyen's moat:
• Adyen’s full-stack platform directly connects merchants to issuers, reducing intermediaries and enabling higher authorization rates.
• Its growing transaction volume continuously improves fraud detection and acceptance optimization, strengthening its intangible asset advantage.
• A single, global platform covering multiple payment methods and channels gives merchants a seamless solution with one contract.
• Local acquiring licenses and a European banking license make Adyen independent of legacy banking infrastructure.
• Authorization rate improvements shift the focus from cost savings to revenue growth, supporting premium pricing.
• Knowledge gained from each merchant transaction benefits all merchants on the platform, creating a network effect.
• Adyen repeatedly gains wallet share from existing large, global merchants as they observe higher success rates.
• Consolidation of fraud tools and best practices for multiple countries and payment methods protects merchants more effectively.
Great feedback… if you compare costco who is passing all savings to customer being a 3 or 2 wide … if i include Total cost of ownership might lead to a narrow moat… but still not every aspect must be scored as wide to find a wide moat co… on the network effect I agree that they probably have the best fraud view etc … but compare with eBay in early 2000s which was a 3… the network effect is not so wide as there are other cos with similar scale like stripe fiserv chase WORLDpay so a narrow moat would be fairer what do you think?
Adyen customer are merchants so merchants will always have a broad set of payment schèmes including eventually stablecoin especially for transborder payment imo. Stablecoin will definitely be a disruptor when i get to master card down the list in my A to Z. WISE and stablecoin which is on my watchlist - still not decided on this one - due to moat determination - I am deep in crypto - been involve in dfi and ether since the early days so stablecoin is always on my mind… but there are issues like régulations … money laundering preventuon
Works for me! It kind of depends on how much of a kludge of integration is fiserv worldpay and all.. but apparently they cannot make mcdonald do more money, like stripe and adyen and braintree can (oligopoly on that feature?)
This is a very detailed and informative analysis, thank you for taking the time and I can't wait for the other ones to drop.
I notice you don't discuss stock valuations in your review - is the stock cheap or expensive at current level based on things like P/E, cash flow/shr, comparables, etc... Any reasons why that is ? Not a criticism, just curious.
Glad you enjoyed going through this detailed analysis. Yes you are correct the this series of article do not discuss the valuation. This is a one angle view of the company.. the moat view and competitive analysis. Moat is a critical aspect... for me as an investor. If moat is degrading etc.. of not strong, this is only a short term position and it is likely on the way out of my holding. If I found a strong moat co in a industry I like... adn understand - I just have to be patient and buy it when the market gives me the opportunity. For valuation of non cyclical high moat co I typically use EV/EBIT and check how it trades versus historical over last 5 years. The market typically assigns correctly a good company over 5 years horizon. I would say that Adyen is trading at a fair value to historical EV/EBIT ratio.
Great work thanks! Some stuff that came to mind while reading:
- Braintree is raising it's price, the market for large merchant might become less competitive
- I think the zero for number 10 passing savings might be a 2: Tobias Lutke/SHOP CEO in an all-in podcast, and other sources, explain how they shift from saving money (lower prices) to creating revenues with the higher authorization rate in their client negociation. If you create revenues.. you pass savings allowing a higher total fee IMHO. I also think they did not flex their pricing, so did not demonstrate a moat on how much they could charge.. yet.
- Owning bank charters allows Adyen to give the money faster to its client, enabling more savings and cashflow.
- Large multi-national market is not the same as smaller merchants market. I think we mix both market in our analysis, mixing two moat measure.
I used ChatGPT to summarize morningstar article on Adyen's moat:
• Adyen’s full-stack platform directly connects merchants to issuers, reducing intermediaries and enabling higher authorization rates.
• Its growing transaction volume continuously improves fraud detection and acceptance optimization, strengthening its intangible asset advantage.
• A single, global platform covering multiple payment methods and channels gives merchants a seamless solution with one contract.
• Local acquiring licenses and a European banking license make Adyen independent of legacy banking infrastructure.
• Authorization rate improvements shift the focus from cost savings to revenue growth, supporting premium pricing.
• Knowledge gained from each merchant transaction benefits all merchants on the platform, creating a network effect.
• Adyen repeatedly gains wallet share from existing large, global merchants as they observe higher success rates.
• Consolidation of fraud tools and best practices for multiple countries and payment methods protects merchants more effectively.
Great feedback… if you compare costco who is passing all savings to customer being a 3 or 2 wide … if i include Total cost of ownership might lead to a narrow moat… but still not every aspect must be scored as wide to find a wide moat co… on the network effect I agree that they probably have the best fraud view etc … but compare with eBay in early 2000s which was a 3… the network effect is not so wide as there are other cos with similar scale like stripe fiserv chase WORLDpay so a narrow moat would be fairer what do you think?
Great article!
I also think Adyen is a great opportunity.
But I think you're missing a major risk in the disruption category = stablecoin payments.
It's coming faster than we expect.
Paypal has launched their pyUSD, Stripe just made a >1bn acquisition very recently.
As this guy puts it:
"Traditional payments: 6 intermediaries, 2% fees, 6-day delays
Stablecoin payments: 2 steps, 0.2% fees, instant settlement"
https://x.com/eco/status/1870847013723505151
This is apple to orange (not the same convenience and features) and also does not include all fees. One comparison with crossborders transactions highlight all the steps that are often not included in these comparisons: https://jpkoning.blogspot.com/2023/05/comparative-remittances-wise-vs-usdc.html
Adyen customer are merchants so merchants will always have a broad set of payment schèmes including eventually stablecoin especially for transborder payment imo. Stablecoin will definitely be a disruptor when i get to master card down the list in my A to Z. WISE and stablecoin which is on my watchlist - still not decided on this one - due to moat determination - I am deep in crypto - been involve in dfi and ether since the early days so stablecoin is always on my mind… but there are issues like régulations … money laundering preventuon
Yes, agreed, but this impending reality and its likely impact on fees / margins shouldn't be dismissed too quickly
Works for me! It kind of depends on how much of a kludge of integration is fiserv worldpay and all.. but apparently they cannot make mcdonald do more money, like stripe and adyen and braintree can (oligopoly on that feature?)
This is a very detailed and informative analysis, thank you for taking the time and I can't wait for the other ones to drop.
I notice you don't discuss stock valuations in your review - is the stock cheap or expensive at current level based on things like P/E, cash flow/shr, comparables, etc... Any reasons why that is ? Not a criticism, just curious.
Thank you
Glad you enjoyed going through this detailed analysis. Yes you are correct the this series of article do not discuss the valuation. This is a one angle view of the company.. the moat view and competitive analysis. Moat is a critical aspect... for me as an investor. If moat is degrading etc.. of not strong, this is only a short term position and it is likely on the way out of my holding. If I found a strong moat co in a industry I like... adn understand - I just have to be patient and buy it when the market gives me the opportunity. For valuation of non cyclical high moat co I typically use EV/EBIT and check how it trades versus historical over last 5 years. The market typically assigns correctly a good company over 5 years horizon. I would say that Adyen is trading at a fair value to historical EV/EBIT ratio.