Paysafe is one hell of a company. They are a fin-tech like PayPal and Squares, thus should be given a higher multiple for valuation. They got a lot of exciting and growth customers like Barstool (PENN), YouTube (Google), Twitch (AMZN), FanDuel (PDYPY), Roblox (RBLX), CoinBase (COIN), Visa (V), ApplePay (APPL), BetMGM (MGM), Spotify (SPOT), Microsoft/Xbox etc., and on top of that they got a huge digital wallet (#2 in market share) where you can trade/buy the fast-growing cryptocurrencies like Bitcoins. I truly believed this Paysafe is undervalued compared to its peers. You can read a very good Paysafe DD below on reddit and it gives a lot of insight of Paysafe valuation and bear cases:
https://www.reddit.com/r/stocks/comments/mysz54/reviewing_the_bear_case_on_paysafe_psfe/
(the link above is a really really good read with lots of info about Paysafe, so I’m not going to repeat most of the good points the author mentioned in that sub.)
Most of the time analysis use assumptions to make predictions on future growth. As an example, EV-related stocks (PLUG, BLNK, QS, LAZR, NKLA, BLDP, etc) get higher or ridiculous valuation based on assumption that gasoline cars will eventually be phased out. As you can see most if not all of these companies are unprofitable and some don’t even have revenue, yet worth billions. While this assumption may be accurate, it is extremely hard to know when will growth begin to accelerate. Because of this predictive nature, it’s really hard to know how long you will have to hold onto the stocks before they pop. When or if it will pop is anyone's guess. So while holding onto these stocks will likely result in wild price swings thus high risk / high rewards.
But what if you have the data before you showing the financial growth of your customers or partners? If your customers/partners' revenue grows, it’s more likely than not they are using more of your products or services. Paysafe is one such company where you can actually look at their customers/partners' financial reports to predict where the company will go in the future and when growth will start. For this reason, Paysafe is more of a lower risk but still has high reward potential.
Paysafe will be reporting earning for the very first time as a public company again on May 11. The good news is we already have their customers results in and here are some breakdown of their 1st QTR results showing huge growth:
- PENN (Reported May 7, 2021) - “Penn National’s income from operations rose to $216.5 million in the first quarter against ($560.6) million in the prior-year quarter. Adjusted EBITDAR jumped 77.2% from the year-ago quarter to $447 million. Moreover, adjusted EBITDAR margin expanded to 35.1% from 22.6% a year ago.” ( source: https://www.zacks.com/stock/news/1515673/penn-national-penn-q1-earnings-revenues-beat-estimates )
- DraftKing ( Reported May 7, 2021) - “DraftKings is raising its fiscal year 2021 revenue guidance from a range of $900 million to $1 billion to a range of $1.05 billion to $1.15 billion, which equates to year-over-year growth of 63% to 79% and a 16% increase compared to the midpoint of our previous guidance”
-
Spotify (April 28th, 2021)- “Revenue increased 16% to €2.15 billion ($2.6 billion) from €1.85 billion ($2.22 billion) in the same period last year….” (source: https://www.billboard.com/articles/business/streaming/9564180/spotify-q1-2021-earnings-report/)
-
Youtube/Google ( April 27th, 2021 ) - “ In its first-quarter earnings report Tuesday, Google parent company Alphabet said YouTube brought in revenue of $6.01 billion in advertising revenue during the quarter — up from $4 billion from a year ago, for a growth rate of 49%. That’s an acceleration over its 46% growth in Q4. It’s also nearly twice the growth rate of Netflix, which reported 24% revenue growth in Q1, and expects growth to slow to 19% next quarter.” (source: https://www.cnbc.com/2021/04/27/youtube-could-soon-equal-netflix-in-revenue.html )
-
Skillz ( May 4, 2021 ) - “Revenue grew to $83.7 million during the first quarter of 2021, up 92% over the prior year. Gross profit grew to $79.4 million during the first quarter of 2021, up 95% over the prior year.” (source: https://www.businesswire.com/news/home/20210504006307/en/CORRECTING-and-REPLACING-Skillz-Reports-Record-Q1-Revenue-and-Raises-2021-Guidance )
As you can see these Paysafe’s customers/partners are reporting explosive growth. While some of these companies may report an earning loss it may be due to higher expenses such as customers acquisition cost (i.e. Draftking). However, here we are more focused on their revenue as the more transactions they do the more likely all or part of that transaction is done by Paysafe. These companies reported earnings before Paysafe, so it can be highly expected Paysafe will report a very good earning and future growth projection tomorrow ( May 11).
Several things to note about Paysafe besides their customer’s earning growth. These factors will also influence Paysafe’s future growth:
- They are a monopoly when it comes to iGaming/Sport Betting as you can see the explosive growth by DKNG, MGM, PENN, SKLZ, etc.
- Paysafe took a hit during the pandemic because they also do offline transaction processing, but now things are opening up we can expect going forward these offline transactions will grow again. Also, when re-opening occur, more sport events will occur thus more betting means more transactions for Paysafe.
- They are #2 in digital wallets and you can buy digital currency with the wallet. These currency has been generating huge revenue for PayPal and SQ (more on this below)
Finally, both PayPal and SQ reported earning before Paysafe and their results beat estimation:
Paypal earning ( May 5, 2021) “ Revenue: $6.03 billion vs. $5.90 billion expected by Refinitiv” (source: https://www.cnbc.com/2021/05/05/paypal-pypl-earnings-q1-2021.html )
Square earning ( May 6, 2021 ) “Square reported a profit of 41 cents per share vs. 16 cents per share expected in a Refinitiv survey of analysts. It also brought in $5.06 billion of revenue vs. $3.36 billion expected by Refinitiv.” ( source: https://www.cnbc.com/2021/05/06/square-sq-earnings-q1-2021.html)
So I can say with confidence Paysafe will likely beat their own guidance for Q1 on May 11th. For those of you who don’t know Paysafe, they are not a small player. Their transaction volume is about that of SQ ~$100 Billion. If Paysafe is able to show growth on par with PayPal and SQ they should be trading at a much higher multiple. See the reddit link above for DD on valuation.
In summary, I think Paysafe is a low risk / high reward stock compare to other fintech. Their growth is easier to predict as we can rely on their publicly traded customers data which is showing high growth going forward. They got the 2nd largest digital wallet. They are involved in the highly popular and fast growth digital currency market. I believe as a monopoly in iGaming/Sport Betting their growth will be massive when the 4 largest states: CA, TX, NY, FL begin to allow online sport betting. This is something about Paysafe that I like so much because no other fintech has this space. This is a massive high growth area and they own the space. For these reason, I am extremely bullish and I like Paysafe for both short and longer term play.
Disclaimer: I own Paysafe commons, warrants, and option calls. I am not a financial adviser. No part of what I wrote above shall be constructed as financial or investment advice. Speak with a professional before making important decisions about your money, your professional life, or your personal life.
No comments:
Post a Comment