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The highest valued companies

As we wrap up Q2 earnings season, we thought we'd take a step back and look at which public companies have the highest valuation multiples in the sector.

The core trends are clear:

1. Growth, not profits, is the primary value lever.
2. But if you can profitably grow, that's a super premium.
3. Industry drivers matter. Those operating in traditional remittances are mostly at the lower end (a slow growth sector), digital payments is in the middle and ecommerce payment providers are largely near the top.
4. Recency of public debut plays a role. Half of the top eight listed on the public markets in the past year, often using each other as comps.

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dLocal's first public quarter

Emerging markets-focused B2B ecommerce platform dLocal released its first public earnings quarter this past week with what CEO Seba Kanovich described as its “best quarter ever”.

Company Performance
The company, which connects global merchants to emerging market customers across Latin America, Africa and Asia, saw 319% year-on-year growth in total payments volume, passing $1bn for the first time to reach $1.5bn. This follows an already strong Q1 2021, where the company saw 139% growth in TPV. 

Revenues also saw 186% growth to $59m, while adjusted EBITDA margin reached 44%, up slightly on Q2 2020’s 40%. 

Much of this growth came from existing customers, with dLocal seeing its net revenue retention rate (NRR), which is calculated from the dollar revenues earned from existing merchants, growing by 196% compared to Q2 2020. This passes the already strong NRR of Q1 21, 186%, and FY 20, 159%. However, the company also onboarded more than 10 new clients in the quarter, who were responsible for $19m of revenue.

Meanwhile, dLocal has also widened its market, adding four countries in H1 21, including Vietnam, Malaysia and Guatemala in Q2, meaning the countries served now top 30. 

The big questions
Key to dLocal’s opportunity is that it is driving revenue for many digital companies riding the ecommerce wave, which has been particularly strong in emerging markets. It now has the obvious challenge that having grown under the radar for a number of years, its excellent numbers are now front and center and very public (no pun intended). In return though, the company can look to gain profile to grow its customer base.

Two thirds of the company's business is payouts, one third pay-ins. As the company expands to more geographic markets, what competition will it encounter outside of its strong-hold of Latin America? What pricing will it offer to retain its customers?

dLocal's take rate for this past quarter is an amazing 406bp. This industry-high take rate is like waiving a giant flag at the competition. dLocal's take rates have been volatile (from 593bp in Q2 2020 but closer to today's rates back in 2019). The open question is: what is the steady-state take rate dLocal can stabilise growth at before take rates then steadily decline, as customers grow and move onto low-priced tiers? Adyen (see section below) operates in mainly developed markets and squeezes out a take rate at 21bp. Payoneer, with plenty of emerging markets exposure, is at 82bp.  

As long as dLocal can drive meaningful marginal revenue for its customers (lower fraud, higher acceptance rates), it will have an edge against the competition and encounter less price sensitivity from its customers. The company remains bullish over the 12-18 months and investors currently agree – the stock is up c.40% since it released its Q2 earnings.  

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Adyen's growth run continues

dLocal has often said it wants to be like Adyen. The good news is that fellow payment processor Adyen published H1 2021 results that showed a continued strong run buoyed by pandemic-accelerated digitisation. 

The company saw processed volume increase 67% year-on-year to €216bn, while net revenue increased by 46% year-on-year to reach €445m. This is different from revenue as reported by dLocal, as it also accounts for the costs incurred from both financial institutions and goods sold. 

Over 80% of the revenue growth experienced by Adyen was from existing merchants, with the company seeing churn of below 1%. However, it has also onboarded a number of high-profile new customers, including Airbnb and LVMH.

Looking regionally, North America was the biggest driver of growth, seeing an 80% year-on-year climb. It now accounts for 22% of Adyen’s net revenue. The Netherlands-headquartered company has also increased its licensing footprint as part of its efforts to grow globally, gaining a branch license in the US and acquiring capabilities in both the UAE and Japan. 

Adyen attributes much of its success to the growing digitisation of commerce and the continued shift away from cash, although this does not mean entirely to ecommerce. The company reported strong growth in both its online and bricks-and-mortar businesses, with point-of-sale processed volume doubling to reach €22.8bn – 11% of the company’s overall processed volume. Travel, meanwhile, remains impacted by the pandemic, although the company did report a return to pre-pandemic levels towards the end of the quarter due to the start of reopening in North America and Europe.

Despite growing revenue and volume, Adyen’s take rate has been steadily dropping, and is now 20.6bp, compared to 23.6bp in H1 2020. The company (as with dLocal) describes this as a “natural consequence” of its business model, which focuses on generating incremental net revenue and onboarding volume at scale. 

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Paysafe stays on track

Payments platform Paysafe also announced its results recently, reporting a 13% increase in revenue to $384m and a 41% increase in total payment volume. Adjusted EBITDA, meanwhile, increased by 8% to $118.8m.

This quarter saw Paysafe achieve profitability, with net income of $6.5m, compared to a net loss of $15.9m in Q2 2020. However, the overall first half of 2021 still saw a loss of $54m. This profitability was helped by a number of transformation initiatives, including $17m of cost savings in H1, with a further $13m targeted by the end of 2021.

Growth this quarter was in particular driven by momentum in the company’s North American iGaming division, which saw 48% revenue growth, as well as its digital commerce verticals, including digital goods, cryptocurrency and financial services. Paysafe also expanded its cryptocurrency capabilities this quarter with the addition of 22 digital curries to its Skrill digital wallet. This helped the company see 16% growth in its digital wallet segment, which was also helped by favourable foreign currency movement.

Paysafe has also announced the acquisition of two Latin American open banking solutions, PagoEfectivo and SafetyPay, both of which are set to help its continued expansion. 

Paysafe is on track to achieve its 2021 target of $1.5-1.6bn revenue – a 9-10% increase on FY 2020 – with an EBITDA margin of around 32%. It also expects gross profit of between $930-970m for FY 2021.

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