Growing Into the Multiple
Adyen's first-ever public report (H1 2018, covered here) left one obvious question unanswered: was 67.3% net-revenue growth and a 144x annualized P/E a company executing at a pace that could actually be sustained, or a six-month sugar high six weeks after an IPO pop? The FY2018 annual report - the first full year Adyen has ever had to report, audited, with real footnotes - is the first place that question gets a real answer, because it's the first time a second half of the year exists to compare against the first.
There's a methodology wrinkle worth stating up front: Adyen's annual report gives full-year 2018 and full-year 2017 figures, but never breaks out H2 on its own. Every "H2 2018" and "H2 2017" number in this post is therefore derived by subtracting the H1 figures already published in the H1 2018 post from the FY totals below - Adyen's own comparative-column disclosure, just split in half. Where that arithmetic is used, it's flagged explicitly.
What that arithmetic shows: EBITDA» margin, which was 44.9% in H1 2018, jumped to roughly 58% in H2 2018 - comfortably past the "above 55% in the long-term" target management set at listing, years ahead of when a reader might have expected to see it hit. Headcount kept growing at almost exactly the same pace in both halves (roughly 100 net additions each half), while net revenue kept compounding on top of a base that didn't need proportionally more people to serve it - the operating-leverage story the H1 report could only gesture at now has a second data point proving it wasn't a fluke.
And yet the stock ended 2018 almost exactly where it started the second half: €471.75 on June 29, €475.05 on December 31 - a round trip through a peak of €703 in September and a trough of €457 in November, net change of essentially zero. A share price that's flat while earnings, EBITDA, and net revenue all grew 80-90%+ year-on-year means one thing mechanically: the multiple the market was willing to pay compressed hard. That compression - not a falling stock, not a rising one - is this report's real story, and it's covered in full in Target Valuation Range below.
The Prescription
The FY2018 report names a third strategic pillar that wasn't spelled out at the IPO: mid-market, alongside the existing enterprise and unified-commerce pushes. That's the right next investment, and not just because it's a large addressable market - it directly defuses a concentration point this report's own footnotes disclose (see Beyond the Usual): two individual customers each account for more than 10% of Adyen's total revenue, and the top 10 combined for 47% of it. Every mid-market merchant added is a merchant whose processed volume doesn't depend on renewing one whale's contract - diversification that happens to also be a growth strategy, which is the best kind.
What it should stop doing: running its non-Dutch offices as bare-bones cost centers while almost the entire group's disclosed pre-tax profit sits in the Amsterdam parent entity - the country-by-country breakdown and the US deferred-tax-asset friction it creates are both laid out in Beyond the Usual below. A structure this concentrated in one jurisdiction is exactly the kind of thing a tax authority looks twice at. Fixing the transfer-pricing profile before a foreign tax authority forces the issue is cheaper than fixing it after.
Key Financial Metrics
FY2018 vs. FY2017 - consolidated, audited annual financial statements
FX: EUR 1 = USD 1.1440 (December 31, 2018 close).
| Metric | FY2018 (EUR) | FY2018 (USD) | FY2017 (EUR) | YoY |
|---|---|---|---|---|
| Processed volume | €159.0Bn | ~$181.9Bn | €108.4Bn | ✅ +46.7% |
| Revenue (gross, before financial-institution costs) | €1,652.9M | ~$1,891.0M | €1,012.4M | ✅ +63.2% |
| Net Revenue | €348.9M | ~$399.2M | €218.3M | ✅ +59.8% |
| EBITDA | €181.9M | ~$208.1M | €99.4M | ✅ +83.0% |
| Operating Income (EBIT equivalent - income before interest and tax) | €173.2M | ~$198.2M | €93.5M | ✅ +85.3% |
| Net Income | €131.1M | ~$150.0M | €71.3M | ✅ +83.9% |
| Free Cash Flow (FCF)» (EBITDA - Capex) | €168.1M | ~$192.3M | €88.4M | ✅ +90.2% |
| Total Cash and cash equivalents | €1,231.9M | ~$1,409.3M | €862.9M | ✅ +42.8% |
| Balance sheet metric | 31 Dec 2018 (EUR) | 31 Dec 2018 (USD) | 31 Dec 2017 (EUR) | Change |
|---|---|---|---|---|
| Total Assets | €1,860.4M | ~$2,128.3M | €1,137.2M | ✅ +63.6% |
| Total Equity | €582.4M | ~$666.3M | €389.8M | ✅ +49.4% |
| Total Liabilities | €1,278.0M | ~$1,462.0M | €747.4M | ⚠️ +71.0% |
| Payable to merchants and financial institutions | €1,186.9M | ~$1,357.8M | €717.3M | ➖ +65.5% |
The headline that matters most: net revenue (+59.8%) again grew faster than processed volume (+46.7%) for the full year - the take rate» flywheel from H1 held for the whole year, not just the IPO-adjacent half. But the number that actually moves the thesis forward is EBITDA margin, which management itself only guides to "above 55% in the long-term": full-year margin came in at 52.1% (up from 45.5% in 2017), and splitting the year in half shows why - H1 2018 margin was 44.9%, but H2 2018 margin (derived: H2 EBITDA of €111.6M ÷ H2 net revenue of €192.5M) was already at roughly 58.0%, ahead of the long-term target with two full years still left in "long-term." Free cash flow conversion (FCF ÷ EBITDA) improved alongside it, from 88.9% in 2017 to 92.4% in 2018 - almost all of Adyen's operating profit is actually turning into cash, not sitting in receivables or capex.
Margin guided as a long-term target got hit in the second half of the very first year that guidance was public - the clearest evidence yet that this quarter's growth isn't being bought with disproportionate spend.
Key Operational Metrics
- Take rate: ~0.219% of processed volume for FY2018, up from ~0.201% in FY2017. Split by half: H1 2018 ran ~0.224% (per the H1 post), H2 2018 (derived) ran a touch lower at ~0.216% - still up meaningfully from H2 2017's derived ~0.210%, but a reminder that take rate doesn't climb in a straight line every half.
- Unified commerce / POS (point-of-sale) processed volume: €16.6 billion for FY2018 (10% of total processed volume), up from €8.4 billion (8%) in 2017. H1 2018 alone was €6.6 billion, so H2 2018 (derived) added €10.0 billion - the in-store channel kept accelerating into the second half, not just riding the H1 launch of the Terminal API.
- Full-stack acquiring: now 70% of total processed volume, after Adyen added acquiring licenses in Singapore, Australia, and Canada during 2018 - full-stack (gateway plus acquiring on Adyen's own license) is the highest-margin, highest-authorization-rate way Adyen can process a transaction.
- Volume churn: disclosed for the first time as "<1%, stable from 2017" - this fills a gap the H1 report couldn't (churn wasn't disclosed at the half-year mark), and it's a genuinely reassuring number: merchants are not leaving the platform at any meaningful rate even as the merchant base scales.
- FTE» headcount: 873 at year-end 2018, up from 668 at year-end 2017 (+30.7%); 768 at the June 30, 2018 half-year mark (per the H1 post). Net additions were almost identical in both halves - roughly 100 in H1, roughly 105 in H2 - while net revenue nearly doubled quarter-to-quarter into H2. That headcount didn't need to accelerate to match revenue growth is the operational mechanism behind the EBITDA margin jump above.
- Revenue by type (gross basis, newly disclosed in this annual filing - the H1 interim statement didn't break this out at all): Settlement fees €1,444.1M (+65.5%), Processing fees €132.8M (+42.1%), Sales of goods €10.7M (+1.9%), Other services €65.3M (+81.0%). Settlement fees (the percentage-of-volume fee tied to actual transaction processing) remain the overwhelming majority of revenue and grew fastest among the larger categories.
- Not available this quarter: an authorization-rate figure, an active/transacting merchant count, and a net-revenue (as opposed to gross-revenue) breakdown by fee type - none of these appear in the filed annual statements or the shareholder highlights.
Beyond the Usual
Two customers, more than a tenth of revenue each - but not on the metric management actually watches
For the year ended December 31, 2018, Adyen disclosed that its top 10 merchants represented 47% of total revenue (2017: 53%) and 31% of Net Revenue (2017: 33%) - concentration falling on both bases as the merchant base scales. More striking: Adyen had two individual customers that each accounted for more than 10% of total revenue for the year. That sounds like a real concentration risk until the same footnote adds the qualifier that matters - both of those customers had net revenue of less than 10% of total net revenue individually. The gap exists because gross revenue includes interchange and scheme fees that Adyen passes straight through to merchants' issuing banks and the card networks; a merchant processing enormous volume inflates Adyen's gross revenue number without inflating what Adyen actually keeps by nearly as much. It's a clean illustration of exactly why Adyen tells its own investors to watch net revenue, not gross - and, read the other way, of how a customer-concentration number can look alarming on the wrong metric.
Nearly the entire group's disclosed profit sits in one entity - and the US tax footnote shows the strain
Adyen's mandatory country-by-country table shows the Netherlands entity (Adyen N.V. and Adyen International B.V.) booking €166.5 million of pre-tax income against a consolidated group pre-tax income of €164.7 million - every other country's operation, summed together, is close to a wash. The 114-employee United States office, in a market where Adyen's own net revenue grew 112.7% this year, shows only €4.5 million of pre-tax income. The income tax footnote shows the resulting friction directly: Adyen has an unrecognized deferred tax asset of approximately €39 million in the United States, because management "currently assessed and assumes that it should not recognize the deferred tax asset under IFRS since it is not probable that the deferred tax asset will be realized for this tax benefit, based on existing tax agreements with the United States tax authority." Management's own accounting judgment, not an analyst's speculation, is the source of that doubt about how much taxable profit the US operation will book going forward.
This is a legal, common multinational structure - not an accusation of anything improper - but it's exactly the kind of concentration Adyen's own risk factors flag under "Tax": worldwide tax provisions require "estimation and significant judgment," and determinations are "always subject to audit and review by applicable domestic and foreign tax authorities." A structure this lopsided is worth watching precisely because the company's own footnotes are already showing where it creates friction.
Lease commitments nearly tripled in twelve months, and the incoming accounting standard's impact estimate grew with them
Total future lease commitments grew from €26.6 million (Dec 2017) to €72.7 million (Dec 2018) - more than 2.7x in a single year, after the corporate headquarters lease extension already flagged in the H1 report pushed the June 2018 figure to €52.1 million, and further leasing added another €20.6 million in H2 alone. The "more than 5 years" bucket, which quadrupled between Dec 2017 and June 2018, kept climbing to €26.5 million by year-end. None of this is a balance-sheet liability yet under the accounting rules in force for 2018 - but Adyen's own estimate of the incoming IFRS 16 impact grew alongside the commitments themselves: at the half-year mark it estimated a roughly €51 million right-of-use asset and liability from adopting the new leases standard on January 1, 2019; by year-end that estimate had grown to €67 million. Adyen also now discloses the mechanical effect on its favorite metric: EBITDA is expected to increase by approximately €10.7 million in 2019 purely from IFRS 16 reclassifying lease payments out of operating expenses - worth remembering before comparing 2019's EBITDA margin directly against 2018's without adjusting for the standard change.
A near-tripling of disclosed lease commitments in one year, still sitting entirely off the 2018 balance sheet, is worth tracking into the 2019 numbers once IFRS 16 forces it on - both to see the real liability and to make sure the reported EBITDA improvement next year isn't mistaken for operating performance rather than an accounting reclassification.
The Dutch innovation-box tax regime - a legislated reduced-rate scheme for profit attributable to R&D activity - cut €10.3 million off Adyen's tax bill in 2018 (2017: €5.1 million), bringing the effective tax rate to 20.4% against a 25% Dutch statutory rate. It's a real, disclosed, and entirely legitimate tax benefit tied to Adyen's own platform development spend - not aggressive planning, just a growing number worth knowing exists as the innovation-box benefit scales with R&D activity.
Adyen identified related-party transactions for the first time in 2018 (2017: none) - all relating to option exercises by Stichting Administratiekantoor Adyen, employees, and Supervisory Board members. Nothing beyond routine equity-compensation mechanics, but it's a change worth noting given the H1 report's related-party footnote was entirely clean.
The remuneration report discloses an internal CEO-to-average-employee pay ratio of 7:1 (other Managing Directors: 6:1) - a modest multiple by newly-listed tech-company standards, and one Adyen states plainly rather than leaving a reader to reconstruct it from the compensation tables.
Checked and found nothing further notable this quarter: Adyen again discloses no contingent liabilities in respect of legal claims, and the merchant-contract derivative liability first disclosed in the H1 report (see that post's Beyond the Usual) moved only modestly in H2 - from €22.2 million to €23.8 million, on a further €1.6 million fair-value loss - a much smaller swing than the €14.9 million H1 loss on the same instrument.
Stock Price: A Round Trip to Nowhere
Adyen's shares closed H1 2018 at €471.75 (June 29) and closed 2018 at €475.05 (December 31) - a net six-month change of +0.7%. Between those two dates, the stock rallied to €703 by the end of September (+49.0% from the June close), then fell to €457 by the end of November (-35.0% from the September peak) before recovering slightly into year-end. None of these figures reflect Adyen's later 2:1 stock split (August 2021); consistent with the H1 post's confirmed methodology, this data source's historical prices are not retroactively split-adjusted, so €475.05 is the actual nominal December 31, 2018 close, not a modern split-adjusted figure.
A round trip of this size - roughly halfway to a double, then giving most of it back - with the year-end price sitting almost exactly where H1 left off, is precisely why this quarter's real valuation story is about the multiple, not the price. See Target Valuation Range below.
Target Valuation Range
~106.8x P/E, ~24.1x P/B. Bottom line: the multiple got cut nearly in half without the stock actually falling - the business grew into a valuation that used to require a leap of faith. That's a healthier way for a rich multiple to compress than a falling share price, but it also means the "priced for perfection" caution from the H1 report hasn't gone away - it's just being tested by real numbers instead of six weeks of momentum.
| Market cap → enterprise value | FY2018 (period-end) |
|---|---|
| Share price (period-end) | €474 (per H1 close +0.7%, see Stock Price above) |
| Shares outstanding | 29,553,891 |
| Market capitalization | ~€14.0 billion (~$16.1 billion) |
| Less: cash and equivalents | €1,231.9 million |
| Interest-bearing debt | none |
| Enterprise value | ~€12.8 billion (~$14.7 billion) |
| Peer-multiple sanity check | H1 2018 | FY2018 | Change |
|---|---|---|---|
| EPS (basic) | €1.64 (€3.28 annualized) | €4.45 | ✅ up |
| P/E (basic) | ~144x | ~106.8x | ✅ down |
| P/E (diluted) | ~149x | ~110.7x | ✅ down |
| Book value per share | €16.37 | €19.70 | ✅ up |
| P/B | ~29x | ~24.1x | ✅ down |
| EV/Revenue | ~41.5x | ~36.7x | ✅ down |
| EV/EBITDA | ~92x | ~70.4x | ✅ down |
This is the first post where the P/E is a genuine TTM (full-year) number rather than the H1 report's rough half-year annualization. Every multiple compressed by roughly a quarter to a half between the two reports - and the share price barely moved (+0.7% from the H1 close to the FY close). That combination only has one explanation: the denominator did the work. Net income, EBITDA, and net revenue all grew far faster over the back half of the year than the share price did, so the same euro of market value now buys meaningfully more earnings and EBITDA than it did in June.
No peer-multiple comparison against another company is included here for the same reason as the H1 report - no other global enterprise payments processor is currently covered on this site with a verified downloaded filing to compare against. A full multi-year DCF also isn't built: FY2018 is Adyen's first complete year of public financial history, and one year of actual data (even split into two halves) is still a thin base for a multi-year growth/margin/discount-rate model.
What the market is pricing in now (reverse-DCF logic, directional only): the H1 report's version of this question asked whether Adyen could hit "mid-twenties to low-thirties" net revenue CAGR and expand margin toward 55%+ for years. Six months later, the margin half of that bet has effectively already landed (H2 2018 margin of ~58%, ahead of the long-term target). That changes what today's ~107x P/E is actually betting on: less "can margin get there at all," more "can net revenue growth (currently +59.8%, well above the guided range) decelerate gradually into that mid-20s-to-low-30s corridor without falling through it" - a lower bar to clear than the one implied by the H1 report's multiple, which is consistent with the multiple itself having come down.
- Bear case: net revenue growth decelerates faster than gradually - enterprise-merchant wins get harder to find, unified commerce and mid-market take longer than expected to scale - and the multiple keeps compressing even if the business is executing fine, simply because the growth rate it's being paid for slows.
- Base case: net revenue growth glides down from the high-50s% toward the guided mid-20s-to-low-30s% range over the next several years, EBITDA margin holds around or modestly above the 55%+ target it's already brushing, and the multiple continues a gradual, orderly compression as the business matures into a more normal growth-software valuation.
- Bull case: mid-market and unified commerce open a large enough addressable market that net revenue growth stays well above the guided range for longer than the market currently prices in, while margin keeps expanding past 58% - in which case today's ~107x P/E turns out to have been cheap in hindsight, the same way the H1 report's 144x looks less extreme with a full year of numbers behind it.
Adyen's 2018 Annual Report (audited consolidated and company financial statements for the year ended December 31, 2018), released March 27, 2019. H2 2018 and H2 2017 figures throughout this post are derived by subtracting the H1 2018/H1 2017 figures published in Adyen's H1 2018 interim financial statements (see the H1 2018 post) from this annual report's full-year totals - a disclosed derivation, not a company-reported standalone figure.