Paysafe Ltd. (PSFE, Financial) provides digital commerce solutions to online businesses, small and medium-sized business merchants and consumers through its Paysafe Network worldwide.
The company operates in two core segments: U.S. Acquiring and Digital Commerce. Services include PCI-compliant payment acceptance and transaction processing solutions for merchants and integrated service providers. This includes specific processes such as merchant acquiring, 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-by-bank solution under the Rapid Transfer brand. It also provides e-cash solutions, such as Paysafecash, a bill payment e-cash solution that allows users to shop online and then pay offline.
Simply put, the company provides the tools that drive online gaming and e-commerce without having to worry about producing a final product. Paysafe can be the behind the scenes provider for such verticals 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 well-known businessman and investor Bill Foley. Companies associated with Foley include such diverse names as Fidelity National Financial Inc. (FNF, Financial), Ceridian HCM Holding Inc. (CDAY, Financial), Foley Wines and the Vegas Golden Knights.
The company currently has a market capitalization of $1.1 billion, but since it carries a high debt load of $2.6 billion, its enterprise value is much higher.
Financial review
The company reported second-quarter results on Aug. 10. Revenue increased 3% (ex-currency), with particular strength in the U.S. Acquiring segment (14% growth). Digital Commerce revenue declined 4% due to enhanced gaming regulation in Europe and the Russia-Ukraine conflict.
Adjusted Ebitda declined 9% to $103 million, largely due to an unfavorable business mix in which 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 quarter-end stood at $2.6 billion and cash and equivalents was $244 million. The company's leverage ratio based on trailing 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 related to declines in the stock price. Analysts' earnings per share estimates for 2023 are close to breakeven as interest expenses eat up a large portion of operating income.
The company’s enterprise value/sales ratio is about 2.5, which is slightly below industry averages. The enterprise value/Ebitda ratio is 10, which is also below industry averages.
Guru trades
Gurus who have purchased Paysafe recently include Jim Simons (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 could exceed $7 trillion globally and is growing at double-digit rates. Specific industry opportunities exist 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 in new markets and targeting high-growth adjacent 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 meaningfully pay down debt. As Paysafe slows down its acquisition activity and focuses on debt payments, equity investors may be well rewarded in the coming years.
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