Adyen (NASDAQ: ADYEY) (AMS: ADYEN) stock is up 35% in the US listing as the company reduces its ambitions for growth. Yes, this does make sense. For two reasons - one is that the growth some might strive for might not be there and so it becomes an isometric effort, lots of activity with no movement. The second is that it costs money to pursue growth - therefore, not pursuing it reduces pressures on the cost base.
There is also that little issue of the business model: “ Adyen N.V. operates a payments platform in Europe, the Middle East, Africa, North America, the Asia Pacific, Latin America. The company’s platform integrates payments stack that include gateway, risk management, processing, issuing, acquiring, and settlement services. It offers a back-end infrastructure for authorizing. It serves digital, mobility, platforms and marketplace, retail, food and beverages” and so on. We can think of it as a European rival to Paypal if we like.
The business model matters here as the macroeconomy is moving into uncharted waters. Interest rates are higher than they’ve been in two decades, we might well be heading into a real recession here. A business cycle one, not a financially induced one like 2008. How banking and payments system are going to react is unknown.
Adyen ADS stock price from Google Finance
We’ve spoken before of Adyen: “Given this everyone’s ever so slightly worried about electronic payments processors. This makes share prices fragile but doesn’t mean that others are doing the same thing. But the fragility does mean that these results have a large effect on the share price of Adyen: “Shares in Dutch payments processor Adyen NV (ADYEN.AS) fell by more than 20% on Thursday after first-half earnings missed analysts' estimates and the company's own targets.”
That’s not the problem this time around. Instead the rally is led by this: “The group's third quarter net revenue rose 22% year-on-year to 413.6 million euros ($442.92 million). Adyen's American Depository Receipts rose about 30% at 1803 GMT on the New York stock exchange, with Jefferies flagging the results as "more encouraging".” Better results produce a better stock price, that’s hardly startling.
But also this: “Adyen NV provided a more moderate set of growth targets for the next three years as the Dutch payments processor seeks to manage investor expectations after a recent sales slowdown triggered a selloff. The company now targets growth in the low- to high-20 percent range,” Instead of chasing growth that might not be there - and carrying the costs of chasing growth that might not arrive - they’re going to be more moderate in their growth targets. This then has an effect upon margins: “Adyen’s updated objectives include annual net revenue growth in percentages between the low 20s and high 20s through 2026, an EBITDA margin improved to levels above 50% and a sustainable capital expenditure level of up to 5% of its net revenue,” The full release is here
No more mad dash for growth - so the stock price rises.