Paysafe is a growing Fintech W

Paysafe Ltd. (PSFE, Financial) delivers digital commerce solutions to online businesses, SMEs and consumers through the Paysafe Network worldwide.

The company operates in two core segments: US Acquiring and Digital Commerce. Services include PCI-compliant payment receipt and transaction processing solutions for merchants and integrated service providers. This includes specific processes such as merchant acquisition, transaction processing, online solutions, fraud and risk management tools, data and analytics, and point-of-sale systems.

Paysafe also offers digital wallet solutions under the Skrill and NETELLER brands and a pay-to-bank solution under the Rapid Transfer brand. It also offers e-cash solutions, such as Paysafecash, an e-cash solution that allows users to shop online and then pay offline.

Simply put, the company provides the tools that power online gaming and e-commerce without having to worry about producing a final product. Paysafe can be the provider behind the scenes for verticals such as iGaming, travel, digital goods (video game currency), fintech services and traditional integrated payments. The company’s revenue is diversified globally with 48% of sales from North America, 40% from Europe and 12% from other countries.

The company was formed by the well-known businessman and investor Bill Foley. Companies associated with Foley include names as diverse as Fidelity National Financial Inc. (FNF, Financial), Ceridian HCM Holding Inc. (CDAY, Financial), Foley Wines and Vegas Golden Knights.

The company currently has a market cap of $1.1 billion, but since it has a high debt load of $2.6 billion, the enterprise value is much higher.

Economic review

The company reported results for the second quarter on 10 August. Turnover increased by 3% (without currency), with particular strength in the American purchasing segment (14% growth). Digital Commerce revenue fell 4% due to improved gaming regulation in Europe and the Russia-Ukraine conflict.

Adjusted Ebitda fell 9% to $103 million, primarily due to an unfavorable business mix where lower-margin services grew faster than higher-margin services.

The company has also grown through acquisitions, which created a very high debt load. Total debt at the end of the quarter was $2.6 billion and cash and equivalents were $244 million. The company’s leverage ratio based on subsequent Ebitda is high at 5.7.

Valuation

Paysafe will show large net losses in 2022 due to a large non-cash write-off of goodwill linked to a fall in the share price. The analysts’ profit per share estimate for 2023 is close to breakeven, as interest expenses eat up a large part of operating income.

The company’s enterprise value/turnover ratio is approx. 2.5, which is slightly below the industry average. The enterprise value/Ebitda ratio is 10, which is also below the industry average.

Guru acts

Gurus who have recently bought Paysafe include

Jim Simmons (Trades, Portfolio)’ Renaissance Technologies and

Mario Gabelli (Trades, Portfolio), while those who have reduced their positions or sold out of the stock include

Louis Moore Bacon (Trades, portfolio) and

Paul Tudor Jones (Trades, portfolio).

Conclusion

Paysafe has a large addressable market that may exceed $7 trillion globally and is growing at double-digit rates. There are specific industry opportunities in interactive gaming, travel, entertainment, streaming, retail, hospitality and digital assets. The company’s multifaceted plans for growth include new product innovation, creating a strong sales culture, reducing friction and improving the customer experience, international expansion into new markets and targeting adjacent high-growth markets.

The company’s high debt load is a concern for equity investors, but over time its free cash flow profile should improve significantly and allow it to pay down its debt in a meaningful way. As Paysafe slows its acquisition activity and focuses on debt payments, equity investors could be well rewarded in the coming years.