- Trading at c.18% below ATH despite top-tier earnings growth and 1.1x PEG vs 1.8-1.9x for Visa/Mastercard.
- Product innovation continued to cut costs and boost conversion rates.
- Strong volume growth positions Adyen to potentially triple market share by 2035.
In tandem with the broader tech sector sell-off, Adyen is currently trading at a c.18% discount to its ATH highs attained in mid February, despite boasting one of the highest earnings growth profiles vs. its global fintech peers. The market is forecasting a c.25% FY24/FY27 earnings CAGR, implying a PEG of c.1.2x, signficiantly lower than the c.1.8-1.9x PEG for Visa and Mastercard. The stock also faced some weakness after its 1Q25 results, slightly missing consensus estimates, despite delivering revenue growth of 22% YoY with the miss mainly driven by a previously flagged loss related to a large digital customer. Excluding the drag from this loss, underlying group Total Processed Volume (TPV) growth was 25% YoY broadly in line with its 4Q24 results.
Adyen's strong competitive position in 1Q25 was reinforced by its single-integrated tech stack and advanced offerings, driving down the total cost of ownership through product innovations (Intelligent Payment Routing, AI-powered fraud detection, and optimised authorisation rate) delivering cost savings of 26% and a c.0.22% authorisation uplift. The launch of the SFO1 terminal also boosted Unified Commerce with 368K new transacting terminals, while its AI-driven payment optimisation suite uplift achieved a 6% increase in payment conversions, enhancing wallet share gains in both the Digital and Unified Commerce segments.
The latest product improvements have helped the company tap into an even larger serviceable addressable market, estimated at c.EUR30trn in 2024, and expected to grow at a >5% CAGR reaching EUR50trn+ by 2035. Adyen is estimated to only currently have 2-3% of market share and is expected to grow significantly given the strong underlying performance and more than fivefold growth in total processed volumes over the last five years.With the ongoing volume growth in Unified Commerce (+37% YoY), Platforms (+63% YoY) and Digital (Underlying +20% YoY) Adyen is positioned to potentially capture a market share of up to c.10% by 2035, implying a 15%+ CAGR in TPV.
We anticipate that the stock will likely also benefit from a potential resolution of the tarrif war, and given the markets underpositioning in cyclicals, undermanding valuation and strong earnings growth we propose playing the upside via Long Sep25 1720 Calls at a cost of 5.3% of underlying (Spot ref: 1581, Fut. ref: 1598).