Adyen: 2020 Full Year Earnings – 17 Key Points!
- Rupam Deb
- Mar 1, 2021
- 5 min read
Adyen – 2020 Earnings Results
On 10 February 2021, Adyen released its full year financials ending 31 December 2020. Overall, Adyen’s business has remained resilient in 2020 despite the prolonged impact of COVID-19 on the world economy. It continued to experience substantial growth, helping its merchants to move their volumes online swiftly when stores closed. There is no major surprise to us on the financial side. However, there are certain key developments in its products and solutions that we are pleased with, which we will discuss in the later part of this update.
Here are our 17 key takeaways from the earnings results and earnings call, including an update on the valuation we previously did in 2020!
First, before we start, it’s important to note that Adyen has just adjusted its financial figures during the period 2018 to 2020 H1, to correct for an error on double booking of costs for refused or cancelled transactions in those periods. The details are per below, but the short story is that past net revenue and book equity value had been understated. After correcting this, net revenue in 2019 increases by EUR 38 million (or 7.6%), from EUR 497 million to EUR 534 million. EBITDA in 2019 increases by EUR 38 million (or 13.5%), from EUR 279 million to EUR 317 million. On the details if you are keen, during 2020 H2, Adyen determined that since 2018, fees charged to Adyen for refused or cancelled transactions had been erroneously recognized twice in the accounting books. These relate to certain costs charged by card schemes for transactions which are not fully completed (i.e. either refused, or initially authorized and then cancelled or expired). This fee is passed on by Adyen to the merchant, which, in the normal course of business, would translate into the recognition of a cost and revenue amount for Adyen. Since 2018, the fees for refused or cancelled transactions were erroneously double booked as costs. As this type of fee is not related to settlement, there was no cash component of the transaction and, as such, payouts to merchants were not affected. As a result, the line items “costs incurred from financial institutions” and “payables to merchants and financial institutions” have been overstated, and “current income tax expense” and “current income tax payables” have been understated, which overall led to understatement of net revenue and equity. These errors have been corrected in the 2020 H2 financial statements.
In 2020, Adyen experienced substantial growth as online retail and digital goods volumes surged although the decrease in travel volumes persisted. Amid the constantly shifting environment of the pandemic, Adyen was able to help move volumes online swiftly when stores closed and facilitated safe operations in reopening scenarios, as all its point-of-sale (POS) devices enable contactless payments. This led to a higher total processed volume of EUR 304 billion in 2020, up 27% from the EUR 240 billion in 2019. Volumes from POS, a focus area for Adyen in the long term, was EUR 32 billion in 2020, constituting a low 11% of total volume, and down from the EUR 29 billion in 2019 due to impact from lockdown restrictions.
Along with payments volume, net revenue increased to EUR 684 million in 2020 from EUR 534 million in 2019, i.e. an increase of EUR 150 million or 28%. On net revenue growth, North America grew by 70%, greatly outpacing APAC’s 30%, Europe’s 22%, and LATAM’s 6%. The difference in growth rate in each region is mainly driven by the impact of COVID-19 in those regions. One point worth noting is the high 70% growth in North America. Historically, Adyen has mainly helped North American merchants process payments outside of their home markets, mainly due to the North American payments market’s relatively static nature. In recent years, it saw complexity increase, especially in the domain of unified commerce. This allowed it to onboard domestic volumes that previously might have been out of reach. An illustrative example is how it partnered with DICK’S Sporting Goods to process their in-store, in-app, and online volumes. These are volumes that would not have been a logical fit in prior years, but it is now seeing that shift. Thus, this is good news overall for Adyen as the market becomes easier for it to penetrate.
To support this growth and future expansion, Adyen hired aggressively in the year, increasing its employee count by 565 people (or 48%), from 1,182 in 2019 to 1,747 this year. Most of the increase was in the Amsterdam office with 350 new employees, followed by 52 in San Francisco. As we shared in our detailed analysis of Adyen in our Multibagger Research Program, the company has been adopting a long term view in building itself, which is consistent with our long term investing horizon at MoneyWiseSmart. In anticipation of further growth, it opened an office in the Middle East in Dubai and expanded its acquiring footprint to include Puerto Rico. However, it is always conscious of not over-expanding in a manner that affects its culture, as the Adyen Way culture is very important for the company’s success in the long term. Even with strong new hire activities in 2020 coupled with the challenges of remote working in this COVID-19 environment, the senior management continued to dedicate significant time to the hiring process and virtually met every new hire before joining the team.
On the expansion of acquiring footprint in Puerto Rico, we think that this is another example of Adyen really focusing on what’s best for its customers, as if the customers do well, Adyen would automatically do well too since they mainly charge a variable rate on their customers’ transaction volume. In 2020, Adyen rolled out its full unified commerce offering for H&M in Puerto Rico, along with Europe, the U.S. and Canada. Adyen’s founder Pieter and CEO has previously said that in deciding which geographical markets to expand to, they just listen to their customers, to see which markets are most demanded by their customers so that they can try to support the customers as best. This utmost focus on customers is what has helped Adyen to succeed and grow well so far. This point is also illustrated in Ingo’s response to a question on the company’s short term prospects. He replied that “most of our focus is on building relationships with merchants long-term. So we don’t focus too much on the short-term… So we want to make sure that we understand what the needs are of our merchants, make sure that we’re ready for it… And the rest will follow. So our focus is on the long-term, not on the short-term.”
The development with H&M also illustrates the land-and-expand approach with existing merchants that Adyen has employed since its foundation, which has served it well. In 2018, Adyen first started a global partnership with H&M across key markets in Europe and North America, focusing on online volumes. Today, it has expanded to partnership on full unified commerce offerings across the locations mentioned earlier, leading to much higher revenue from the same customer acquired a few years ago. This is why 80% of Adyen’s volume growth in 2020 came from existing merchants, and that 80% has remained the same since at least 2017, along with its low customer volume churn of below 1%. This is an amazing feat if you think about it again – 80% of the year’s growth came from existing customers. This means that Adyen doesn’t really need to spend much money to grow its revenues. Starting to see how powerful this business is? We have already covered these points before in our Multibagger Research Series, if you have been reading closely…
For the remaining points, check out our Multibagger Research Series at https://moneywisesmart.com/MultibaggerResearch/.
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