Adyen Case Study: Doubling Down on a Stock Collapse

Winning over the long-term requires commitment and courage. As a public company, the market can be brutal in testing that commitment.

To that end, Adyen’s recent H1 2023 earnings report caught my attention. Rarely do you see a large-cap company's valuation cut in half. On August 16, 2023, Adyen’s market cap was $47b; days later it was $23b.

The market is not kind to tech companies when revenue growth declines. Adyen’s revenue growth fell to 23% y/y from 30% y/y in six months, and payments volume fell more to 23% y/y from 41% y/y. In one fell swoop, investors made Adyen a fallen angel from its prior digital darling status.

We won’t break down Adyen’s fundamentals here. Check out this terrific analysis from Stratechery: Adyen earnings & An Interview about Payments with Lisa Ellis from MoffettNathanson. The words “disastrous” and “collapse” show up in several other articles.

The market’s immediate reaction is not the only perspective that matters for a long-term focused organization. Adyen's leadership knows this and re-emphasizes its long-term narrative in its shareholder letter. (LINK)

Doubling Down on Strategic Priorities

In the face of obvious adversity, Adyen focuses most of its letter describing its unwavering long-term focus. Two themes jump out:

1 - Customer Value: The largest section focuses on investment in product and platform through the lens of customer use cases and named customers. By contrast, many companies talk about investment in terms of market opportunity, not customer value, because they think that’s what investors want to hear.

2 - Profitability vs. Building Capacity, Team, & Culture: Adyen is reducing its high EBITDA margins to invest in front of what it anticipates will be larger customer demand in 2024. It pulled ahead capex investment (7.5% of revenue in H1 vs. 5% target for the year) and expanded its team by over 15% in six months. Many companies don’t have the courage to reduce margins and invest in down cycles for fear of investor backlash. The ones that do, don’t give more context other than they are investing for the long-term. Adyen believes it’s important to say more for the broader set of stakeholders: describing how it’s adapting its core principles (“The Adyen Formula”), bringing employees together in its 27 offices, and applying those principles to the recruiting process.

This is a company determined not just to invest in its market (something most growth companies do), but also build a long-term oriented culture and customer-focused organization.

Stating its Case through its Shareholder Letter

Adyen’s leadership knew the market reaction would be severe as it prepared for earnings. Yet, Adyen does not apologize for lower growth or rationalize missing analyst expectations. In fact, Adyen uses the opportunity to reiterate it's long-term narrative and business case.

That said, Adyen is not blind and acknowledges reality. Adyen lays out the factors impacting growth in a clinical tone up-front on the first page. As an investor, you may not like the impact, but Adyen is telling you the reasoning straight-up and not hiding behind cheerleading or wishful thinking. The shareholder letter is a wonderful format for saying what you mean in broad daylight.

Also, Adyen uses the letter format to re-assert its long-term priorities in a well-organized fashion. As described above, the focus is on creating durable customer value, not optimizing for short-term growth or profitability. Here’s a few quotes that speak to this focus:

While we see the changing industry tides reflected in this period's results, we remain focused on building Adyen for the long term.

Primarily driven by our investments in the team, EBITDA margin was 43% in H1. We could have actively optimized this metric, but prefer building the team that can realize the long-term potential of our single platform.

The time that we can say “we did it” is still far out. We know that growth will not always be linear, and while we saw net revenue growth decelerate in H1, we did not see any substantial developments that structurally change our medium to long-term opportunity.

With an evergrowing opportunity ahead, we are making the necessary investments to capitalize on it and reiterate our financial objectives.

These statements are evergreen and lasting in a shareholder letter. They would get lost in an audio call. Adyen wants to be on record for its unwavering commitment in a tough climate, despite a looming 50% share price decrease. Chutzpah in the face of adversity.

Long-Term Inspiration

It does not feel awesome to be an Adyen shareholder or employee with equity compensation right now. But rest assured, the leadership team has its owners’ best interests in mind for the years ahead.

That’s the leadership you want. At LinkedIn, I too was on the front lines of a $50b market cap valuation getting cut in half in one day. It was shocking, jarring, and created immense doubt for our team.

A few days later at our all-hands, CEO Jeff Weiner responded in the context of our long-term journey.

We are the same company we were the day before our earnings announcement. I'm the same CEO I was the day before our earnings announcement. You're the same team you were the day before our earnings announcement. And most importantly, we have the same mission, vision, and sense of purpose in terms of our ability to create economic opportunity. None of that has changed. It hasn't changed one iota.

Since that day, LinkedIn has approximately 3x'd its revenue, and increased profitability and mission impact even more. Those words remain tattooed on the brain of any LinkedIn’er present in February 2016, a constant reminder to stay the course and focus on the long-term.

Adyen has shown the courage and commitment to take a similar course in its shareholder letter.

About Long-Term Value Advisors (LTV)

LTV is an investor relations (IR) public company advisory firm and thought leadership platform focused on helping outstanding organizations navigate the public markets and build investor relationships to serve their long-term goals.

Check out our Strategic IR Playbook (article | open-source playbook doc), follow our “Shareholder Letters” LinkedIn newsletter, and reach out at contact@long-termvalue.com and our website.