Adyen N.V. (ADYEN.AS) Earnings Call Transcript & Summary

Great. Good afternoon, everyone. My name is Mohammed Moawalla, I cover the European software IT services and payments space. On stage with me is my colleague, [ Deepshikha Agarwal ] who also helps us with the coverage. We're delighted to have management of Adyen with us today. Representing the company is Ethan Tandowsky, Chief Financial Officer. Ethan, it's a pleasure to have you back at the conference again.

Yes. Thanks for having me.

Great. So to kick off, perhaps Ethan, we had your results around about a month ago. You reported amidst the challenging macro backdrop, still pretty decent growth. Could we briefly touch on the kind of key highlights from your perspective on those results?

Yes, sure. So in general when we look at our growth, our growth is driven off a few components. It's driven off of the growth of our own customer base, how much they grow in any given period. It's grown off of how much share of wallet we gain with our customers. That's ultimately the proportion of payments volume that we do with them compared to the period before and it's grown off of how much new business we add to the platform. That new business piece is very small in the year that we add them to the platform. We have a land and expand strategy. So that's really the growth of future years that's driven off of it and the current year growth mostly comes from share of wallet expansion and the growth of our own customer base. The things which we find most relevant to our long-term growth path is how much share of wallet we're able to get with our customer base and how we're able to add new customers because that tells us our capability to grow over the years ahead. And those things developed very largely in line with our expectations, which also gives us confidence in the growth going forward. The thing that grew less well than we were expecting coming into the year was what we call market volume growth, so the growth of our own customer base. And there, we saw that mostly constrained to a handful of customers for online retailers headquartered in APAC that had less growth than we were expecting. Still, we saw 21% growth on a constant currency basis. And I think the resilience in the width of the number of customers, the number of verticals, the number of markets we're in were what led to that outcome.

Okay. So how should we think about the cadence of growth in the second half of this year, FY '25 and then FY '26. So we talked about this dynamic in APAC -- like related to APAC headquartered companies. So over and above that, what are the various moving parts that we should be mindful of when we're thinking about that like phasing and quantum of growth in like the second half FY '26?

Yes. So we shared in August our view of the second half, which is that we expect similar growth levels in the second half compared to the first half on a constant currency net revenue basis. That factors in that the impact that we saw in -- especially the second quarter related to that subset of customers will continue through the course of this year. Of course, we need to see how that plays out, but that's ultimately what led to that outlook. There's nothing specifically that I guided to between quarters, but that's our current expectation of growth for the second half. And I think if you look longer term, right, which is where we, as a management team, spend a lot of time. We spend a lot of time also focused on what does the new cohort look like? How is pipeline developing? How is our ability to expand wallet share look. And there, we feel like we're really well positioned to continue to drive the type of growth that we've been seeing over a longer period of time.

Great. So yes, so now I know you run the business very much in a long-term view. So as we think about that sort of medium-term view, you've kind of articulated kind of 3 primary levers of your growth. It's the growth of your customers and the end market, your wallet share expansion within that and then the addition of new customers. Can you kind of help us understand how those will kind of contribute as you think about the growth trajectory over the medium to long term?

Yes. So we've laid out our growth into -- indeed, into these building blocks. For me, it's a helpful way of understanding basically how our growth algorithm is built up. The biggest part, again, in any given year is how do we expand share of wallet with our existing customers. I gave an example last month, but if you look at, for instance, luxury retailers, that's one of our first verticals we went after and what we call Unified Commerce, so when there's an in-person component to payments. It's an industry that is under pressure now. It's had less strong growth than in previous years. At the same time, what we see on our platform is actually it's growing faster than the overall platform. So the revenue growth is actually higher than the 21% we saw in the first half within that vertical and that's because of this share of wallet expansion. When we look across our customer base, we still see that the majority of payments are with others. So that's still for us to win even with our -- within our existing base. That will continue to be an important part of our growth in the coming years and something we focus on a lot. The second biggest part of our growth is what we call market volume growth. So how fast our own customers expand. Because as they expand, also the volumes they do with us also expand. We've quantified that as high single digits to low single digits part of our growth. So not only are we in an expanding pie.

Low double digit. High single digits, you said low single digits.

High single digits to low double digits. Yes, thanks. Not only are we in an expanding market which is represented by that market volume growth, but we're also getting a bigger part of that pie through the share of wallet gains. And the last piece of our growth is new wins. We basically talk about that in 2 ways. So in the year that they go -- those customers go live with us. So think of the 2025 customers that go live and then the revenues they bring in 2025 that's a low single digits number in our growth. So it has very little impact. But if you look at it already in the second year, it's mid-single digits. And of course, if we're layering on more and more customers, those are our basis for that share of wallet expansion over a longer period of time. There, what we see so far is that the 2025 cohort is stronger than in past years. Again, I keep referencing this 21% growth we did platform-wide. If we look at the 2025 cohort so far in the first half and compare that to the first half of 2024 cohort, that number has grown by more than that 21%. So we see the cohort -- also the new cohort also faster developing than the rest of the platform.

So just following up on that. You mentioned the 2025 cohort and how it was also highlighted during the first half results is how it is growing -- it's outpacing the cohorts that we have seen in the past year. So what was the driver of that? And how should we think about like the pipeline of new cohorts? Like how -- what kind of visibility you have? And how do you see it building?

Yes. So when I talk about that new cohort, I talk about it in the sense of the revenues that it's brought to the platform. Whenever you talk about new business, revenues that are actually visible, that are actually here today, that is a bit of a lagging indicator because you can look earlier in the pipeline, right? So we track pipeline further up funnel than revenues they bring to the platform today. We look at things like what's the pipeline that we've created. Our sales cycle is about a year. So if you start with what's created, you're much further -- your line of sight is much further out. And if you look at what revenues are there today. We also look at our forecast for customers that go live, what do we expect revenues to look like in 12 months? So for us, that's our way of moving our line of sight further out. What's ultimately driven the fact that our cohort has grown in this way is a couple of things. One, we made pretty big investments in the commercial teams, especially in 2022 and 2023, and we're still growing the teams, but that was the bigger investment years. The efficiency of our team members increases in the early years of time with Adyen. So in their first year, they're at least efficient, then second year than third year and then fourth year, it pretty much stabilizes. So we see around fourth year is a steady state kind of level. And so many of those investments are starting to pay off also in what we see from a pipeline perspective. The other thing that we track closely is what's happening with win rates, what's happening with pricing. And there, we see win rates and pricing are both at very steady levels to what we've seen in past years, which means we've been able to scale up these teams, we've been able to do it efficiently, and we're not getting into parts of the market, which are less of a fit for us, it's also equally fit for our offering for our value proposition. And I think that gives us a lot of confidence that we can continue to expand our market share in this market.

Got it. So one question we got a lot from investors after the results was there was a kind of a deceleration in your EMEA business. Now to put it into context, this is from a business that's been growing at 20% online accelerated to 13% now and still into 20s. Can you just briefly touch upon what are the kind of factors that drove that? And more broadly, how we should think about the growth evolution in EMEA?

Yes. Sure. Happy to. I think in general, our business -- it's an enterprise-focused business. And yes, EMEA is our biggest region, but growth will not be linear in any of these individual segments. For me, what's really interesting is EMEA is the region we've been in the longest. So it's biggest. You could argue it's most mature. I think the fact that it's still growing at or above the overall platform growth is, for me, a very relevant sign in that we're not getting anywhere close to a market limitation even in that most developed market. I think what you see in Europe is just that there continues to be a huge level of fragmentation even if -- many of them -- the countries are in the same EU market, the actual consumer behavior, so the payments -- the payment methods, which are applied, the regulation that exists market-by-market is still quite different and fragmented. And for us, that's a market that's still very interesting. It's also a market which has all 3 of our pillars. So it's digital, it's Unified Commerce and its platforms. And what you see is that platforms especially started in North America, that's where it really grabbed a hold and platforms for us means when customers embed payments into their offering. So think about a restaurant or a hair salon. These were typically businesses we didn't go after directly, but now we go after them through platforms who are selling into that customer base. Those are -- that's a segment of customers that's rapidly been expanding to Europe. And I think that will continue to play out over the coming years. So in general, I'm excited about the potential for us to keep growing in Europe.

Got it. Now moving on to the pillars, Digital, which is like the largest one in the mix when it comes to volumes. It was the one which was impacted because of the slowdown in the -- related to the APAC headquarter customers. And at the same time, you've talked about like how this is -- you invested in 2020 to '23, and they are ramping up. So in all of that context, how should we think about underlying growth in this pillar going forward?

It's around 60% of our revenues in the last couple of years. So it's the biggest pillar that we have. It's where we started. So it's the longest standing pillar -- we work with a lot of very global large digital players who have very complex needs across many, many markets. We've been gaining share. We continue to gain share. Our expectation is that, that will continue to be the case that not only will it be fast-growing because digital players are fast-growing themselves, but also because we can gain a bigger part of our share of wallet. We talked a lot about our uplift product suite. I think what's really interesting about what we're bringing now to the market in the digital space is a balance between not just optimizing for 1 component of the payment funnel, but it's end to end. So for example, authorization rates is a really important topic to digital customers. That means what percentage of transactions are approved versus one of our competitors. It's really important, but it shouldn't be looked at in isolation because if you do that while increasing fraud rates, it can be even more expensive or problematic for our customers. So our uplift suite really balances authorization, it balances fraud, it balances payments costs, a really important component of which were just a fraction of the total payments cost. It balances authentication. When do you do a face ID to validate a transaction. And we can do that because we've built everything ourselves on 1 single global platform. We own the process end to end down to our own licenses, our own banking licenses in Europe, U.K. and U.S. That means we see the full funnel of the transaction and of the data flow, and that allows us to optimize better than our competitors can do. And that continues to be a really important area we are investing in to drive digital growth over the coming years.

So maybe moving on to one of the other pillars. You touched on platforms earlier. This is the kind of fastest-growing pillar within the group. But it seems like we're still kind of fairly nascent in terms of realizing the opportunity. So perhaps walk us through how you think about their opportunity even across your kind of levers of new customers land and expand, expanding wallet share? And perhaps touch upon any of the partnerships you have, we know you're working with Shopify, Toast, they're multiple players in there. how do you -- where do you see the kind of biggest areas of growth by vertical as well?

Yes. Sure. So Platforms is our newest of the 3 pillars. What started us in platforms was marketplaces. So think of an eBay or GoFundMe, there's both a buyer of the goods, but there's also a seller. And that meant that we needed to do things like onboard millions of sellers. We needed to be able to split funds between what was owed to the marketplace and what was owed to the end seller. We needed to be able to pay out across the world into different markets when the payments and the payouts were in different places. All of that was complexity that we could help manage. With that product, we actually saw that there was a major trend in the market, which was that software players, especially vertical software players. So again, think about food and beverage or beauty and wellness down to amusement parks, trampoline parks. Every vertical has their own software provider is what we see. And they all look at payments as a way to further increase the stickiness of their offering, but also they monetize it. Again, I mentioned, but that trend really started in the U.S. There are some players who have gone from software to real true fintechs. And that has come also to Europe. So those are the 2 markets that we've been mostly prioritizing in the Platform space. Where we see the biggest traction today is still those marketplaces, those customers, we've built up their strong customer base, but the bigger opportunity we see is in these vertical software -- these vertical SaaS businesses. The opportunities significant by itself. We think around 2/3 of SMBs will end up getting payments through one of these players, not through a direct payments partner. But we also don't have exposure to that SMB market, right? Our strategy has been very enterprise-direct-focused. The SMB segment, we've largely not gone after, but the platforms opportunity opens that up for us because now we can work with these large enterprise scale platforms and they can give us that distribution. Because it's so new for us, we're still in what we think is the low wallet of the 3 pillars. So it's not only the opportunity to gain share of wallet with them, but also as our customers sell into more of their customer base themselves. So if let's say, they have 100 customers and 10 of them are using payments today. These are not indicative of any real numbers, but if -- they can get that to 40 or 50 or 80, that's, of course, growth that we will also see as well. And so that opportunity is really meaningful for us in the payment space and why we see our revenue is growing above 50% within the Platforms pillar. The other piece with platforms, which is different than the direct enterprise view is there's the need for a wider set of financial products. So think about bank accounts or issuing a debit or credit card, think about a short-term loan. These are problems that are not solved well for the SMB segment. And if we can provide the infrastructure, the technology and the licenses, to allow our customers to offer these services. It will increase the revenue monetization of their own business, but it will also increase the stickiness. And this is something that we're also heavily investing into. And while it's not visible in our numbers yet, we're excited about the potential down the road of this offering, too.

Got it. So now touching upon the third pillar, which is Unified Commerce. It has continued to grow in the mix. How should we think -- like -- and it has -- like it has grown into a diversified range of verticals. So how should we be thinking about like growth in terms of how it is progressing? And how do you see this particular pillar like being competitively positioned in the overall payment space?

Yes. So Unified Commerce for us is the pillar where in-person payments is relevant. By the way, in platforms. It's also very relevant that you have an in-person offering, think about food and beverage, you're often in a restaurant. So it's very relevant there, but Unified Commerce is where we go direct to enterprise, whether it's an in-person component. If you think about payments historically, in-person payments was always thought to be -- there wasn't a lot of value to add in in-person payments because first, fraud was not the same problem that it was in e-commerce. You always have a person in front of you, a physical card. So you didn't see a lot of the same kind of challenges that you saw on the e-commerce side. And what we've seen now with Unified Commerce is that because customers are looking at converging their online and their in-store kind of experiences that they've looked to improve their underlying tech stack, including payments. And for us, this started, especially with luxury retailers that I mentioned before, years ago. It broadly went into retail, so not just the high-end experiences, but any customer experience like buying online and returning in-store needed to be optimized in this way. What we've seen over the last couple of years is that this has all come to other verticals. So hospitality. It's come to entertainment, it's come to food and beverage as well. And this is a trend that I think we'll see come to more and more verticals who will look at the need to optimize for their customer experience and who will look at payments as a way to solve for that. It's what's ultimately led to our growth being above 30% in the first half is not only the strong growth within our existing base, but I think that a real sign of the diversification of how that pillar has been built up over time. It's important to remember here that about 80%, 85% of transactions still today happen in person, even if a lot of the innovation and discussion is around e-commerce, most of the volume to win is on the in-person side. And that's, of course, why we have also a big focus on it and why we think it's an important area for us to continue to differentiate and create better customer experiences for our base.

Got it. So I guess moving on to the point of sort of innovation. Adyen's sort of innovation is kind of at the core of your kind of value proposition and you've been kind of at the forefront of new innovations and payments. Maybe can we talk about some of your other initiatives like intelligent payment routing and uplift? And how that has driven value kind of for merchants? And how does that translate into perhaps more stickiness for your business?

Yes. So whenever we're talking to a customer, we're trying to understand their priorities and build out solutions that helping them with their priorities. In the digital space, especially, there's been a big focus again on auth rates. And for a long time, by far, the biggest focus was how do you get auth rates higher. There was a huge focus on growth. And if you could tick up revenues by even 0.5%, that would be a huge outcome from a payments perspective. What you've seen over the last years has been a bit more focused on profitable growth on kind of sustainable growth and then balancing authorization rates with payments costs with fraud. This all became more impactful. And that's where uplift has come into play is that it's really well connects decision-making across each of these dimensions so that the decision isn't made in isolation at the expense of something else. That's a lot of value for our customers. And I think something that's been really well received by them and allows us to continue to be in a differentiated position against our competition. You mentioned intelligent payment routing that is a part of the uplift suite. So for instance, in the U.S., here, you have what's called U.S. debit routing, which is basically a regulatory requirement that any debit transaction in the U.S. must be able to be routed between multiple networks. So think of Visa, MasterCard, those are the biggest, but there's also STAR, Accel, NYCE, PULSE. These are all local debit networks that you can route transactions down. They have different cost structures. They have different performance. So if you can make real-time decisioning based on what we're seeing for that specific transaction, throughout each of those transactions to the right network. You can save costs, you can increase performance in terms of authorization rates. And you can do that not at the expense of one another, but in Tandem, and that is really differentiated. That is really something that delivers outcomes that customers are willing to pay for. And U.S. is one of the examples where we see that has strong traction. Australia is a place where you see this in the market. In France, you have this in the market. So in different parts of the world, you have this type of need and anything we can do to optimize that flow in real time makes a big difference for our customers.

Got it. And then moving on to sort of other future areas. I mean, agent e-commerce is increasingly coming up in the conversation? And how is Adyen kind of positioned around that? And then also, keen to get your views on stablecoins and what feedback you're getting from customers with the adoption of that as well?

Yes. Let's start with Agentic Commerce. So Agentic Commerce is absolutely on the minds of our customers. They're trying to not only figure out what payments look like in that world, but what does it mean for their business? Is it a distribution channel? Is it a risk to their own business of disintermediating their position, so customers are absolutely interested. And I think Agentic Commerce is not -- it's not a hype cycle. It's something that will play a role in commerce going forward. It has a lot of -- it has lot of similar challenges that e-commerce transactions had in the first place, right? How do you authenticate somebody? How do you make sure somebody is who they say they are? Who do you -- how do you make sure that you can reduce fraud levels? How do you make sure that multiple payment methods are available in different situations. For customers, how do they deal with upsell and cross-sell at the moment of transaction. These are a lot of the same fundamental challenges that we've seen in e-commerce in general and which we've built our system for. At the same time, where Agentic Commerce today is it's not yet clearly defined how it will play out. So we're in discussion not only with our customers but also with other players in the industry and to try to determine how best this will look going forward. What's the right setup for merchants and consumers to drive the most optimal outcomes. But if I would summarize, I feel like we're in a really strong position because so many of the fundamental challenges, which will come from Agentic Commerce are things that are infrastructure and strengths play well to.

I was going to ask your single data platform. You've been pioneered at from the beginning, but I'm sure this kind of plays an integral role, right, in how you kind of drive that?

Yes. Yes, absolutely. Also because behavior will look different across different parts of the world. And that's something we're quite used to, given the fact we built everything on 1 global infrastructure, if you do a transaction in person in Malaysia or online in Brazil, it's all across the same back end. It's all across the same tech stack. And I think that's going to give us a lot of strength in being able to adapt and move quickly as this develops. Certainly, it's technology that will develop rapidly. I feel we're very well positioned to play a key role there.

And Stablecoins?

Stablecoins. So maybe before we take the stablecoins discussion directly, let me just explain a bit our strategy. Our strategy has been go as deep as possible into the payment stack as you can, which ultimately led to us getting even banking licenses, right? So we're directly connected to the clearing systems in U.S., U.K. and Europe. That means that money movement between those markets is quick and affordable. So that problem in those markets, we feel it's pretty well-solved today. There are situations in more developing markets where currencies are more volatile or where inflation is higher, where the infrastructure is less built out, and therefore, it takes longer or it's more expensive to move money between those markets. I could see a use for a solution like stablecoins, but at the current moment, it's not at the top of our customers' priority list, and therefore, we haven't prioritized it ourselves. We'll continue to look at what the best use cases it's solving for. And if those things are things that our merchants will benefit from, we can move quickly to adapt to build out infrastructure to solve for that. But to date, it hasn't been at the top of the list.

Now going to margins, basically, there has been -- that you have a medium-term target of EBITDA margins being greater than 50%. So how -- like can you just talk about the building blocks of the same -- Like are there any additional investments on the cards that you have and like on that topic, how should we think about like the normalized growth levels when it comes to like for headcount because it has been higher and then now it has sort of come down. So how to think about that in the medium term.

Yes, Sure. So if you take a step back, our business is -- payments is tied to volume growth. And as you get more payments volumes, you typically give lower pricing to your customers. And that model works well because there's little incremental cost to every new payments transaction with an individual customer. So what we've seen over the years is that actually because of that single tech stack, that single offering, we're able to scale the business faster than we need to grow the team. Now there's been years where we've made stronger investments and where that hasn't been visible like 2022 and 2023, but if you take it over a longer-term time horizon, in general, there is quite a bit of operating leverage in our model given that single solution and the scalability of additional payments volumes. While that exists, it's key that we keep investing in the team because most of the growth for us, in our view, is ahead of us, right? It's not where we are today, but there's such a larger opportunity where probably mid-single digits market share today. There's such a major opportunity in payments. And if we brought in out some more products as well, that opportunity even grows further, we need to continue to invest in the team. So this year, we think we probably grow the team like 450, it's probably around 10% headcount we will add this year. It's not a perfect science. So I don't know exactly the level we'll do each year, but that type of hiring level feels right for both being able to show the operating leverage inherent in the model and still investing in the areas that we think there's a real big opportunity and that we should continue to invest in. And so our expectation is that EBITDA margins continue to further expand, but it's not our first focus. Our first focus is investing for revenue growth over the years ahead.

All right. Maybe just to sort of close out, you've scheduled an Investor Day for November 11 in Amsterdam. Can you give us a sense of what we should expect?

Yes, sure. So we've typically had these type of Investor Days every couple of years with our investor base. We use it primarily as a way to talk about the longer-term kind of growth prospects of our business. And of course, as we're reporting on a quarterly or half yearly basis, you can focus a lot on what's happening now. We want to be sure that we don't lose sight of the long-term opportunity because that's also the opportunity we're investing against. There's still so much again of the growth ahead of us. So we want to, again, tell how we look at the longer-term opportunity, where we strategically are investing now, what we hear back from our customers what we've built out to date, but also what we plan to build out. These are all things that we plan to share as we've shared in past events. It's also something that we've been -- we've had planned for some time. So it's just making sure that we get a regular cadence to be able to engage with our current shareholder base or our prospective shareholders to share our perspective on what the long-term opportunity looks like. And where our growth can come from over time.

So maybe just finally, as we think of that growth trajectory, there's obviously macro, which is kind of out of your control. There's obviously innovation and execution, which is in your's, how do you think of those factors as you look ahead, both near term but medium term, is there anything that sort of keeps you up at night, but how confident do you feel around that?

Yes, yes. Certainly, if you would ask me like what's the biggest risk? I think it's execution risk. And I would have said that or any of the management team would have said that over the years. There's such a major market opportunity for us. Regulation will change. It's a very competitive market. All of that will exist. If we can execute, given the foundational elements, that single tech stack, again, the global licensing framework, the team that we've built out across 30-plus markets, if we can use that to continue to differentiate our offering we're going to be in a really strong position to grow. And so our big focus is on how do we make sure that we continue to simplify our organization, how do we make sure we get the right people in, how do we make sure that we train the right people. Those are the things that we spend the most amount of time on as a management team. And also, if you would ask, any of us would say, like, that's the biggest headache or that's -- not a headache, that's the biggest -- that's the thing that takes up the biggest part of our mind space. We have the hand of cards to be really, really successful from here. It's about how well we execute against that, making sure that we're focused, making sure that we listen to our customers, making sure that we don't stretch ourselves too thin across too many topics. Those are the things that we spend a lot of time on. And if I sit in the seat and look at where the growth prospects come from, if I look at what's happening in the pipeline, if I look at our ability to win share of all with our existing base, if I look at our NPS scores being at all-time high levels for us. I feel we're really well positioned to be able to drive this growth. And now it's up to us to continue to drive that execution and make sure that we realize the ambition we have and the opportunity we have.

Got it. That's great. Thank you for the great insights, Ethan. Really appreciate it. Thanks for coming. Thank you for joining.

Thanks, everyone.