Stripe seems almost ubiquitous in the U.S. as an online facilitator of digital payments, but it’s not publicly traded so not available for purchase by most ordinary investors. Its arch-rival, Adyen (OTCPK:ADYYF), on the other hand is and, by some accounts is a better investment option anyway.
Adyen has gone on a serious run over the past month, up 69.3%, versus the S&P 500, which has climbed higher by 10.7%. For the year-to-date, the picture looks a little different with Adyen down 16.1% year-to-date versus the S&P 500 up 19.2%.
With the stock still underperforming the general market, is Adyen still attractive in spite of the recent run-up in share price?
Adyen Is No Ordinary Payments Firm
In the payments industry, it’s rare to offer a unified platform across online, mobile, and in-store channels but Adyen has managed to do just that, and it has translated to a competitive advantage and stunning revenue growth with international success.
For example, Adyen now supports over 250 payment methods and 150 currencies, a breadth so wide it is a key differentiator that appeals to merchants aiming to build a global presence while serving local customers.
Where Adyen has separated itself from rivals is largely in its focus on mobile payment experiences that have contributed to its dominance in mobile commerce. Making those transactions seamless has been crucial to supporting consumers migration from laptop or desktop shopping to checking out via smaller screeners.
Further, it has developed point-of-sale solutions that connect to online payment systems, an innovation that easily permits customers to see customer transactions across numerous channels. Indeed, a key selling point for retailers is the omni-channel capability.
Is Adyen Stock Undervalued?
According to analysts, Adyen stock is undervalued by 40.3% with upside to fair value of $1,628 per share.
A 5-year discounted cash flow forecast analysis is more pessimistic and puts fair value at $1,238 per share, though it’s worth highlighting that a 10-year discounted cash flow places the intrinsic value per share at $1,396.
Clearly the stock appears undervalued and the share price has been on a run recently. Indeed, it’s it’s little surprise why when you look at the top line growth.
For almost five years, quarterly growth has been rising by over 60% in many quarters and usually by at least 30%. When you see such phenomenal growth you can be quite confident the company has established a refined product-market fit and an economic moat all at once.
Nowhere is that more evident than in the firm’s return on invested capital that stands at an astonishing 19.0%. For comparison, the sector average is just 3.7% and the peer average is 5.8%.
Speaking of competitors, in the battle between Adyen vs Stripe, which comes out on top?
How Does Adyen Compare To Stripe?
Although Adyen and Stripe appear to be arch-rivals, they have very different target markets. Stripe has made a name for itself as a provider to e-commerce businesses, startups, and developers while its Dutch rival primarily serves large enterprises with global payment needs.
Their solutions differ too. While Stripe has an array of tools for e-commerce including online payment processing, subscription billing, and marketplace payments, Adyen features point-of-sale (POS) integrations, mobile and online payments. The goal of the latter is to facilitate a seamless payment experience across all channels.
Similar to its more comprehensive product suite, the Netherlands firm has a broader global reach with a vast number of currencies and payment methods whereas Stripe is more US-centric.
When it comes to onboarding clients, Stripe is famously developer-friendly with APIs and documentation that are a cinch for businesses to integrate and customize. By contrast, Adyen’s APIs are catered more to larger businesses and hence more robust. Though it may not be as easy to get started, it offers an all-in-one payment solution that can handle both online and offline transactions, which is particularly suitable for large retailers.
In terms of monetization, Stripe keeps it simple with a fixed fees per transaction that small businesses understand easily whereas Adyen has a pricing structure that varies based on transaction volume and types of payment methods among other factors.
Where things could get interesting in the future is Stripe’s recent expansion into other financial services and focus on tools for larger businesses could cause it to step on its rivals toes, leading to a more competitive future.
Although Adyen and Stripe are in the payment processing industry, the former primarily serves large businesses while the latter has built an empire addressing the needs of small-to-medium sized businesses (SMBs).
The strategy has clearly paid off for Adyen, which has enjoyed stunning revenue growth and profitability. Yet in spite of its run-up over the past month, it is still believed to be undervalued and remains in the red for the year.
Analysts and a DCF analysis tend to align with the valuation argument that implies significant upside is still on the cards. Perhaps given the recent run-up a pullback would be beneficial to mitigate risk somewhat for prospective buyers.
Long-term, though, the Dutch company with its global presence and ever-expanding reach is well worth keeping on the radar. The dip this year was clearly an opportunity but what’s foggy now is whether another one will present in the near future. It appears now that it’s full steam ahead for the European firm.
Maybe the only red flag on the horizon is the threat of Stripe encroaching on its landscape now to serve larger enterprises. Up to now that hasn’t been an issue and realistically it’s unlikely to be anytime soon.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.