Paysafe has finally just gone public with a new Board of Directors, much less debt, lots more cash, new M&A plans and a new ticker: PSFE During yesterday's ticker change, there were several reports of people having no access to their accounts and/or suddenly being faced with an abrupt change in margin requirements from 25% to 100%. This may have created a good buying opportunity. For those interested, here's some comprehensive DD.
Paysafe is a unique combination of fintech, crypto, iGaming, sports betting and banking all rolled into one stock. Whether you like him or not, this is essentially why NBC’s Jim Cramer recently said, “There is something about Paysafe that may be the ultimate stock for this moment.” (video link below) Market analyst Steve Grasso says, “It’s the most excited I’ve been about a stock in a long time.” Grasso, by the way, has repeated called for it to triple ($45-50). So why is that?
Paysafe offers a scalable electronic payment platform used by Draftkings, Roblox, Spotify, eToro, Fortnight, Coinbase, Amazon, Twitch, EA, 888, ApplePay, Youtube, Visa, Microsoft, Xbox, Amelco, William Hill, Ceasar's, Betfair, Pokerstars, PayLease, ESL Gaming, Luckbox, bet365, Lotto among many others.
Paysafe is ranked No. 2 globally in the digital wallet space with presence in 120 countries and No. 4 globally in integrated merchant processing.
Importantly, Paysafe is the No. 1 global leader in iGaming eCash network (currently 36% of revenue) with 10-15X growth projected. US iGaming continues to be legalized state by state, growing revenue by 234% in just the last year. “At Paysafe, the iGaming market volume was estimated to be $3.4 billion in 2019, and is now projected to reach $47 billion in 2025.”
Paysafe is enabled for crypto-to-crypto trading (Bitcoin and 26 other crypto-currencies) without having to go through fiat. It recently partnered with Coinbase to expand crypto options in US and it just launched PaysafeCash in US. (Now in 40 currencies and 30 global markets enabling easier cross border payments.)
Perhaps most central to this recent merger is Bill Foley, Fidelity’s Chairman of the Board and now the Chairman of Paysafe, who has a proven track record for generating exponential synergistic inorganic growth. For example, in just the last five years, he grew Ceridian 3.3X ($4.2B to $14B), Dun & Bradstreet 5.6X ($2B to $11.3B), and Black Knight 8.7X ($1.6B to $14B). He also grew FIS from $2.5 billion to over $91 billion (36.4X) and he says, “Those characteristics of FIS are right in line with what we plan on doing with Paysafe.”
Of their expansion plans Foley says, “We’ve got a wide landscape we can attack. It’s pretty exciting.” “It’s going to be a land grab. We want to be out there about 10 miles ahead of everybody else.” “I have a vision that we should be THE digital wallet and have tie-ins with every major casino company that’s headquartered or located in Las Vegas. There will be money to be made for everybody. That’s why I got so excited about Paysafe Group Holdings Limited as its position in iGaming is really second to none.” “Whether it’s a lottery or slot machines or sportsbetting opening in a state, it’s our job to be there first and to make sure we dominate. We’re focusing on gaming, particularly sportsbetting, in the United States as it becomes legal and we’ve got a wide landscape we can attack. It’s pretty exciting.”
Along with Bill Foley, Paysafe's newly announced Board of Directors includes a former Morgan Stanley CEO, a former Chairman of the American Gaming Association and CEO of MGM Resorts International, a legal and regulatory expert in the multi-jurisdictional online and retail gambling industries, the CEO of Dun & Bradstreet and CEO of Black Knight, two senior Managing Directors from Blackstone and two senior Managing Directors from CVC,
Between the new Board of Directors, Bill Foley’s proven expertise in rapid M&A growth and Paysafe’s massive market share and diverse assets, including the world’s second largest digital wallet, $362 million in free cash flow, 30-35% margins (21% CAGR), a projected $100-110 billion in transactional volume and $1.5 billion revenue, it is inevitable that institutional investors will, by necessity, include PSFE in their portfolios.
Paysafe’s industry leading risk management and international regulatory expertise gives them an edge in spaces where competitors have hesitated like iGaming, sportsbetting, crypto trading as well as offering essential banking and ecommerce services to the "unbanked" (1.7 billion globally). Paysafe has a global platform with integrated cloud technology (Snowflake) allowing for easier migration of eCash, integration of payment methods and expansion into global banking as a service. Paysafe is so diversified that they've identified a $58 trillion TAM.
Further, major investment funds know that fintechs are the future. Fund manager Cathie Wood says, “Fintechs are going to, we believe, gut banks.” Similarly, Jackie Reses, board member of the SF Federal Reserve and fmr Head of Square Capital, calls for fintech “taking over and revolutionizing banking” representing “a wholesale transition” of a $16 trillion market cap.
Analyst Michael Del Grosso recently initiated coverage saying, "We believe PSFE represents a relatively scarce asset within the payments industry given its unique business strategy, geographical footprint, and focus on the iGaming industry. Our forecasts imply revenue growth at the high-end of management's guidance and we believe there is upside to our forecasts in the event of state-level legalization of iGaming. PSFE operates in high-growth verticals, has a unique advantage in its consumer and merchant facing solutions, and offers exposure to a secular growth opportunity in the potential legalization of iGaming in the United States."
Investors should be aware that there is are post-merger lockup periods before insiders can sell their shares: PIPE: = 176 days. Private Equity = 86 days (roughly 6 and 3 months respectively accounting for trading days and weekends). Something to be aware of but there are several signals that these parties aren't in any rush to sell. Eli Nagler, a Senior Managing Director at Blackstone, recently said: “Today is a significant milestone for Paysafe and a testament to the excellent work of their world-class management team over several years. We believe Paysafe has a long runway for further growth and look forward to remaining part of the team and seeing their continued success as a public company.” Regarding Blackstone and CVC, who now have four senior managing directors on Paysafe’s Board, Foley said, “They rolled a significant amount of their investment which is a confidence builder. They didn’t take all their money off the table… All of these things put together really created the confidence among the investor base to invest in the PIPE and then support the stock.” Also, the PIPE investors are primarily insurance companies known for long term hold strategies and they are closely associated with Bill Foley. As Foley recently said, “Having a large PIPE basically validates the transaction.… The companies that I’m affiliated with actually invested roughly a billion dollars in the PIPE and forward purchase agreements so Paysafe was always a really protected asset, besides the fact that it’s a great asset.”
Bill Foley says Paysafe may be his “best investment ever.” He says, “It’s a fortress. It’s got a moat.” “We have a proven strategy of winning as new global markets open. And most importantly, we have unrivaled regulatory risk and technical expertise.”
As an aside, even though, “Roughly 75% of online gambling operators use Paysafe for processing payments” many in the US haven’t yet heard of it yet. Partially because much of its presence is in back-end processing. Through its several new partnerships (Coinbase, Microsoft Rentmoola), Paysafe is just now rolling out its offerings in the U.S. In Europe, where it is more commonly used, Trustpilot rates Paysafe as “Excellent” (4.7/5 stars) with over 20,000 reviews, and Skrill (owned by Paysafe) 4/5 stars “great” with over 16,000 reviews, while competitor PayPal is rated "poor" only 1/5 stars with over 16,000 reviews. Further, Paysafe was winner of the American Gambling Awards’ “Payment Processor of the Year,” and owns Openbucks, Neteller and Skrill, 2019 winner “Best Digital Wallet” for best consumer take up and most innovative technology with “greatest potential to disrupt current ecosystems.” Also, Paysafe won “Best Omni-Channel Payment Solution” 2021 MPE Award and the gaming industry SAGSE award for “Best Payment Method.”
To give a sense of their pace and progress, these are some of Paysafe’s recent announcements that were made before going public and have not been factored into the current valuation:
Dec. 15 — Paysafe launches Paysafecash in the US
Dec. 21 — Paysafe partners with Amelco to plug US sports books into unified payments platform
Dec. 23 — Paysafe enables online cash payments for Microsoft
Jan 11 — Paysafe partners with Colorado’s BetWildwood
Feb 1 — Paysafe expands Virginia Lottery partnership
Feb 17 — Paysafe partners with Luckbox to roll out Skrill and Neteller payment services
Feb 18 — Paysafe expands partnership with ESL Gaming, the world’s largest esports company
Feb 23 — Paysafe’s Skrill launches new fiat-to-crypto
Feb 25 — Paysafe partners with Austria’s A1 esports League
Mar 1 — Paysafe partners with RentMoola to enable US renters to pay rent with Paysafecash eCash
Mar 12 — Leeds United announces partnership with Skrill
Mar 15 — Paysafe expands U.S. partnership with PointsBet
Mar 16 — Paysafe partners with Provema to enable online cash payments
Mar 25 -- Paysafe’s Skrill expands crypto offering to US with Coinbase
Fortunately for shareholders, even before Foley’s value creation play book is put into action, Paysafe is currently undervalued compared to sector peers.
Since market analyst Steve Grasso continues to his repeat his calls for a triple ($45-50), I've looked more closely at EV / EBITDA, EV / Revenue and EV / Free cash flow multiples of sector peers, including PayPal, Nuvei, Repay, Shift 4, Adyen, Square, Affirm, Stripe, Chime and a few others, using cross-referenced data from Nasdaq, WSJ, Morningstar, Macrotrends, Yahoo Finance. The conservative average of those three multiples puts Paysafe’s post-merger pro forma share value at around $46.52:
Paysafe’s share price using the average multiples from the full list of sector peers:
EV/EBITDA ratio : $122.09
EV/Rev ratio : $83.91
EV/FCF ratio : $87.86
Average: $97.95
More realistic share prices, after eliminating all outliers with very high multiples:
EV/EBITDA ratio :$50.75
EV/Rev ratio : $44.64
EV/FCF ratio : $44.18
Average :$46.52
Note: Unlike Paysafe, nearly half of these publicly traded fintechs still do not report positive cash flow. Also, these multiples reflect a collective 27% pull back from recent highs so interest rate risks have been somewhat factored in.
Also, Paysafe's CFO noted that their conservative 11% growth projection is tied to the general fintech market at large. They have deliberately excluded both M&A plans that are apparently already underway and US iGaming growth that may potentially grow 10x or more over the next 5 years. Further, the above comps include fintechs with slower or similar growth while still commanding much higher multiples. For example, Shift4 reported only 4% y-o-y growth and GPN's growth projection is on par with Paysafe's.
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