Summary
Paysafe offers investors a great risk/reward opportunity at current levels.
The company’s Q3 results sent shares tumbling. Since then, the company’s stock price has been disappointing.
Paysafe is making effective changes that are helping to expand out to new businesses and improve existing ones.
There are low risks to the recovery thesis due to compressed valuation.
At the current valuation, the company’s stock is undervalued and has significant upside going into 2022.
metamorworks/iStock via Getty Images Background and Previous Post
Paysafe (NYSE: PSFE ) is a very interesting case of a great company bad stock. The company’s operations are made up of the eCash, digital wallet, and integrated processing business units. This is an interesting mix of operations as they fall within everything from iGaming to fintech services. While these units combined could combine to create an unstoppable fintech Swiss army knife, the company’s results since Q3 have been anything but that. Profitability remains a major concern and large top-line misses don’t scream growth to investors. Q3 Decline and Stock Nosedive
Overall the disastrous Q3 has been dragging down the stock for some time. Released on November 10th, the report dragged down Paysafe shares by almost 40% in one day. The company was sitting around $8 and fell to just below $5 in one day. This price decline has kept downward pressure on the stock for the past month. I believe the recovery can happen, albeit slowly. Source: ( Paysafe Q3 21 Earnings Presentation )
Digital wallet performance was much weaker than expected. Digital wallet performance was down as more established players such as Coinbase ( COIN ) and Gemini. The digital wallet space heated up in 2021 and Paysafe showed declining revenue and earnings. For most early stage company this is almost certain death because if they are unable to penetrate their growing market, then the future likely won’t treat them well. As analysts’ expectations come to reality, I believe Paysafe can have a solid 2022 as they see the benefit of its suite of fintech solutions. Source: (Paysafe Q3 21 Earnings Presentation)
The revenue growth and volume decline are the most alarming statistics to me. Overall crypto has grown exponentially this year and Paysafe managed to have declining revenue and volume. For a young payment processing company, volume is everything. With declining volume, the value of their products inherently decreases. I believe this jolted investor confidence and the stock became a social piranha within investing circles. However, the company is taking the right steps to fix their digital wallet strategy. Source: (Paysafe Q3 21 Earnings Presentation)
Overhauling the digital wallet unit will be key to future success. Paysafe is focusing on fixing their otherwise mediocre UI and rightsizing the organization to increase overall profitability. I believe these measures can fix the fundamental problems within the business unit. Moving into future quarters, I will be keenly focused on their digital wallet segment and if these moves actually made a meaningful impact on the unit’s bottom line. Effective Changes are Giving Paysafe Growth Momentum
If Paysafe is able to make these changes, momentum will be in their favor moving forward. Strong financial growth from all the business segments will be needed to compete with larger fintech giants like Square ( SQ ) and PayPal ( PYPL ). Paysafe has the potential to exponentially grow their market share as they have the technology and a diversified product line. The issue moving forward will be seeing if they can execute quarterly targets for each of their business units. Source: (Paysafe Q3 21 Earnings Presentation)
Overall the Q3 financial results were not very good. Integrated processing and eCash carried the third quarter in top and bottom line increases. Digital wallets contributed to the earnings and revenue loss YoY. Looking at future results I will want to look specifically at individual segments to see how they performed. Source: (Paysafe Q3 21 Earnings Presentation)
Looking back at went wrong is key for any enterprise that encounters financial difficulty. Paysafe owns up to their loss and is actively providing a picture to investors for what they intend the future to look like. The company plans on completely revamping Skrill’s digital wallet capabilities. Paysafe points out that Skrill has higher than normal deposits and conversion rates. I see this as a massive positive because the company is owning up to the disastrous Q3 and is actively looking for solutions. Low Risks Due to Valuation Compression
Valuation was severely compressed during the fall from intraday fall from $8 a share to […]
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