Published on June 25, 2021
The stock that we have picked for this month is Paysafe, a new age company with a promising presence in the digital payment space.
Paysafe Limited, a specialized payment platform, made its market debut through a reverse merger with Foley Trasimene Acquisition Corp. II this March 2021. Due to its diversified nature, the company’s valuation was $9 billion at the time of the merger. Paysafe has strong presence in the domestic gaming market as well as brick & mortar businesses.
Most SPAC deals in 2020 garnered significant investor interest, but PSFE couldn’t keep up with the expectations. Its shares have plunged more than 12.4% since its IPO and over 36% from its pre-merger highs. Negative macro factors, and a wide sell-off in the SPACs in March amid fears of a stock market took a toll on Paysafe. Other fintech players such as Affirm and PayPal have met with similar fate in the recent past.
eCash segment and iGaming are its growth engines
In the fiscal first quarter, Paysafe’s revenue climbed by only 5% while the net loss stood close to $50 million. A 63% rise in revenues in its eCash segment, offset revenue decline from the digital wallet and integrated processing segments. The company’s payment volume rose 8%, in the same range as the management’s target.
The company is really ‘banking’ on its e-cash segment. Paysafecard enables customers without any bank account to make cash payment for their online purchases by using a 16-digit code. The digital payment provider has its eyes on capitalizing on inclusive banking.
Earlier this month, the company also formed an expanded partnership with IntelliPay which will now add Paysafecash online cash solution as an alternative payment method to its platform. This will promote financial inclusion by offering unbanked consumers the opportunity to pay for bills online.
Investors are not totally surprised with the net losses, as Paysafe is making big investing in its high growth areas such as online gaming. The company’s North American iGaming segment saw a 66% year-over-year growth in revenue.
The financials of the last few quarters reveal that the company has also been proactively trying to lower its debt burden. PSFE’s free cash flow climbed 28.6% year-over-year to $108.50 million.
The main challenge for Paysafe’s is its digital payment processing segment which is pressurising the rest of the business. That division reported a 13% sales decline last quarter and a 30% decline in adjusted profits.
Digitisation of payments will pave the way for future growth
Digital payments are becoming the most accepted norm as the world is going cashless. In fact, the COVID-19 pandemic has accelerated the adoption of digital payments at an increased pace. The company recorded a transaction volume of $92 billion in 2020, from businesses and consumers in 40 currencies across the globe. Paysafe’s digital solutions are customized for mobile use and offer real-time analytics.
Paysafe offers a two-sided network that enables merchants to accept online & in-store payments. It also offers consumers a digital wallet & eCash solution, that boosts conversion to digital users
Most of the major economies are on the verge of launching their own digital currencies and are gradually shifting from cash as a mode of transaction. Moreover, I strongly feel that China’s digital Yuan launch has also paved the way for further growth of PSFE as an e-commerce payment platform.
PaySafe stands at an attractive valuation
The quarterly results clearly show that Paysafe is capitalising on strong growth in the eCash and iGaming segments. The share price of Paysafe has seen a sharp plunge, however, we can view this in a different light. Investors who are willing to take calculated risks can pick up shares at a discounted price now, because the stock is likely to gain value over the long-term.
However, I also want to highlight a few caveats here. Though there are high chances of the company being highly successful in the long run. it is a growing business and we cannot rule out the volatility quotient of the stock. Thus, investors who wish to tread more cautiously may wait until PaySafe’s financials are relatively stable.
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