Shares of payment-processor Adyen NV faced a significant selloff on Friday due to ongoing worries about competitive dynamics in the U.S. In the first half of the year, Adyen fell short of volume and revenue expectations, which raised concerns about heightened competition. As customers increasingly prioritize their own bottom lines, Adyen’s management highlighted the growing competitive pressure, particularly in North America.
According to Chief Executive Pieter van der Does, this intensified competition in the region can be attributed to a higher interest-rate environment. As more companies focus on their financial performance, they seek cheaper alternatives, putting pressure on Adyen. The company’s U.S. shares experienced a 39% decline during Thursday’s trading session and were down an additional 3% on Friday afternoon.
Adyen’s shares have now recorded their longest losing streak since September 1, 2022, falling by more than 45% over six consecutive sessions. This decline marks the worst six-day stretch for the company on record. Prior to the recent report, Adyen held the fifth spot in the Netherlands based on market capitalization but has now dropped to the eighth position.
Mizuho analyst Dan Dolev interpreted van der Does’ comments regarding competition as a euphemism for pricing pressure. Dolev suggests that PayPal Holdings Inc.’s Braintree business is causing difficulties for Adyen. He believes that Braintree’s aggressive strategy to acquire market share played a role in Adyen’s deceleration of North America revenue growth.
Dolev emphasizes that PayPal’s consistent growth and share gains at Braintree deserve recognition for their impact on the market.
Braintree’s Impact on PayPal Investors
Braintree’s performance has been a cause of concern for both Adyen and PayPal investors. While PayPal is seeing some progress with Braintree, the rapid growth of Braintree in comparison to PayPal’s branded checkout business has put pressure on margins.
Uncertain Outlook for Braintree’s Strategy
With PayPal recently appointing a new CEO, the future outlook for the Braintree strategy remains uncertain. SVB MoffettNathanson analyst Lisa Ellis mentioned that there is a likelihood of competitive pressure from PayPal’s Braintree business starting to ease by 2024. PayPal is under significant pressure to enhance the gross profits of this business segment.
Structural Challenges in the US E-commerce Market
Bernstein’s Harshita Rawat believes that the pressure in the US e-commerce market is largely structural. This market is highly competitive and has limited requirement for sophistication. The presence of a dominant player like Chase, which benefits from attractive costs due to its issuing side, and potential new aggressive price competitors such as Braintree contribute to these challenges. Despite this, PayPal aims to achieve total payment volume growth and also enjoys cost benefits through its button feature.
Adyen’s Trade-Off Between Volumes and Pricing
Adyen’s latest earnings report indicated a trade-off between volumes and pricing in North America. The company chose not to aggressively compete on pricing, resulting in lower volumes. However, this decision helped Adyen surpass expectations with its take rate, reflecting the amount of money it retains from payment processing.
In summary, Braintree’s impact on PayPal investors is a subject of concern due to its faster growth compared to PayPal’s branded checkout business. The future outlook for Braintree remains uncertain, but analysts anticipate a moderation in competitive pressure by 2024. The US e-commerce market poses structural challenges, including the presence of dominant players and potential price competitors. Adyen has also made strategic decisions, balancing volumes and pricing to optimize its take rate.