Adyen’s $20 Billion Wipeout Caught Almost Everyone Off Guard

Almost no-one saw Adyen NV’s €18 billion ($20 billion) share plunge coming.

(Bloomberg) — Almost no-one saw Adyen NV’s €18 billion ($20 billion) share plunge coming.

Prior to Thursday’s 39% drop, the majority of analysts had a buy or equivalent rating on the Dutch payments processing company. And of the few that had a sell, even Citigroup Inc.’s Street-low target of €1,050 was made to look optimistic. Adyen shares closed at €898.4 in Amsterdam, and extended their losses on Friday.

For many short sellers, meanwhile, the stock’s dive represented a missed opportunity. As of Wednesday, shares out on loan — an indication of short interest — represented about 3% of the company’s free float, according to data from S&P Global Market Intelligence. That’s down from this year’s high of 5.4% reached in April.

“Short sellers seem to have overlooked a prime opportunity,” said Ivan Cosovic, founder of data tracking firm Breakout Point.

Adyen’s first-half results missed analyst estimates at pretty much every level. Aggressive competition in North America contributed to the slowest revenue growth since the company listed in 2018, something that very few had bargained for.

“The numbers that they published were even worse than we expected,” said Citi’s Pavan Daswani, one of four out of 35 analysts tracked by Bloomberg that had a sell rating on Adyen prior to the earnings. “We were already below consensus, but they came out even worse,” he said in a telephone interview on Friday.

For Daswani, investors had priced Adyen for perfection. Now, with cracks appearing, doubts have quickly set in.

“We think it’s about the broader issue of competition, where three, four years ago, Adyen was thought to be the leader in the enterprise customer segment,” he said. “It’s starting to look like they’re one of the leaders, rather than the leader.”

Here are more analyst comments on Adyen’s earnings and stock plunge:

Evercore ISI (David Togut)

  • While it had been generally understood by investors that this year would be challenging from a cost perspective, “less appreciated was the potential for a net revenue slowdown, particularly as the global economy has remained resilient,” Togut wrote in a note
  • “The results are the first signs of weakness and suggests that competition in the space may be heating up,” he said
  • Togut cut his earnings estimates for 2023 and 2024, while lowering price target to €1,109 from €1,260

Equita SIM (Gianmarco Bonacina)

  • “The big disappointment was mainly due to the revenue miss, rather than the margin,” Bonacina said by email Thursday
  • He upgraded the stock to hold from reduce on Friday, saying that he no longer sees fundamental downside to the share’s fair value

Berenberg (Tammy Qiu)

  • The results showed Adyen’s growth has slowed and will probably do so further from here before its investments bear fruit
  • Although Adyen’s sales growth is still faster than the e-commerce sector average, merchant penetration and market-share gains seem to be slowing, while competition is now more intense
  • Downgrades stock to hold from buy, cuts PT to €1,095 from €1,950

JPMorgan (Sandeep Deshpande)

  • Adyen needs to recognize that the free pass on spending does not apply when growth is below mid-term guidance
  • Facing competition in the US, the company ignores market focus on bottom-line and keeps its plan to spend more, a move that continues to pressure margins
  • The weak result wasn’t the reason the stock plunged on Thursday, “it was this approach they laid out that led to the huge share price decline”
  • Rating overweight, lowers PT to €1,500 from €1,850

Bryan Garnier (Paul Charpentier)

  • Root of stock’s “bloodbath” was the deceleration in net revenue growth, disappointing profitability, and limited visibility on the timing of a potential recovery
  • Increasingly concerned about the firm’s ability to reach long-term Ebitda target of 65% given acute competition in payments and mounting pressures from peers, notably in the US
  • “We don’t see an inflection point materializing soon”
  • Downgrades to sell from neutral, cuts PT to €880 from €1,400

Susquehanna (James Friedman)

  • Adyen’s wallet share may be maturing in its installed base, and it doesn’t yet have enough incremental volume from new accounts or services to return to its guided growth in the near term
  • Much of the sharp growth deceleration may be explained by its landmark contract win to process payments for eBay, which now seems to be fully ramped and is creating a tough comparison basis
  • Rating neutral, lowers PT to €776 from €1,500

Barclays (James Goodman)

  • Adyen’s sales growth may remain below its medium-term target for FY24 and FY25; the guidance now “looks out of reach” amid a growth slowdown and pricing pressure in North America
  • “With growth likely to slow further in 2H, we do not feel the need to rush into shares”
  • Rating equal-weight, cuts PT to €1,150 from €1,600

–With assistance from Henry Ren, James Cone, Michael Msika, Sarah Jacob and Paul Jarvis.

(Updates with more analyst comments.)

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