Can Europe’s Latest Tech Darling Keep It Up?
(Bloomberg Businessweek) -- Pieter van der Does doesn’t resemble the stereotype of a Silicon Valley executive who favors massive parties and private jets. He spent decades cycling around Amsterdam on the bike he got in high school. R&R generally means hiking with his family, not jetting off to St. Tropez or Ibiza. On his way to pitching potential investors on the initial public offering of his company, Adyen NV, last year, the chief executive officer crammed his 6-foot frame into a coach seat for six hours, mortifying his banker. Company policy, he says.
Quiet, frugal, steady—this is the image Adyen brought to investors, one that’s helped almost double the obscure Dutch company’s market value, to $21.8 billion, since its June IPO, suddenly ranking it among Europe’s hottest digital companies. If you’ve ridden in an Uber, subscribed to Netflix, or paid for Spotify Premium, there’s a good chance Adyen ran your card. The one past indulgence the CEO cops to is mountain climbing, and he carries the lessons with him. “There are specific reasons why you prepared to climb in a certain way,” Van der Does says. “It’s about not falling for the trap, that often climbers do, where you see a shortcut.”
What separates the company from the likes of PayPal, Stripe, and Alipay in the $2 trillion digital payments business is that it’s a one-stop shop. While other companies handle just a link or two in the convoluted chain moving money from customers to merchants, Adyen handles the entire process, from checkout to fraud detection to dealing with Visa and Bank of America to making sure sellers get paid. This lets the company process additional transactions from existing customers at almost no extra cost, says Jan Hammer, a partner at Index Ventures, an Adyen investor.
Since the summer, when investors looking for safe bets briefly pushed the payment company’s market value above $25 billion, making it comparable to that of Spotify Technology SA, analysts have taken pains to go on record that Adyen’s pace seems difficult to maintain. While the company’s first-half profits rose 75 percent last year, to €48.2 million (about $54 million), “sustainability of the growth is my biggest question,” says Christopher Brendler, an analyst at Buckingham Research Group. And the market’s exuberance has left Adyen little room to underperform. “Even our optimistic forecasts are largely priced in,” wrote Richard-Maxime Beaudoux, an analyst at investment bank Bryan, Garnier & Co., who advises selling the stock. Translation: When you’re trading at 140 times forecast earnings, there’s nowhere to go but down.
At its founding in 2006, Adyen saw the mobile web coming. A decade earlier, Van der Does, then an executive trainee at Dutch textbook publisher Reed Elsevier, joined BiBit, an early web payments company, as chief commercial officer. BiBit was sold to Royal Bank of Scotland for an undisclosed sum in 2004. Soon after, Van der Does and other company veterans say, they began to grow frustrated by the separation RBS enforced between engineers and salespeople. Van der Does and BiBit co-founder Arnout Schuijff came up with the idea for a mobile BiBit during their Sunday jogs. The two made for an odd-looking pair: Van der Does, tall and almost gaunt with a close-shaved head, jogging beside the much shorter, pudgier Schuijff, who became Adyen’s co-founder and chief technology officer.
While rivals competed mostly on price, Schuijff and Van der Does bet that merchants would pay for faster, more reliable transactions. Adyen concluded it needed control over the whole chain. Old-line processors usually record each step in a transaction as a separate event, logged in a massive database and processed in big batches as infrequently as once a day. Instead, Adyen records full transactions instantly in a standard double-entry bookkeeping system customers can track in real time.
From the start, Van der Does targeted Silicon Valley, but U.S. companies started to learn Adyen’s name only after 2010, when Groupon acquired a lookalike German startup called MyCityDeal, an Adyen client. Van der Does persuaded Groupon to use his systems worldwide at a moment when the deals site’s revenue was rising at an annual rate approaching 1,000 percent. From there, Adyen started to pick up a who’s who of Valley clients, as well as airlines, big retailers, and the rest. In 2012, the year Van der Does first signed Uber, Adyen processed a grand total of $10 billion in payments; five years later, the number was $122 billion.
The CEO credits his steady march to eight operating principles known within the company as the Adyen Formula. Among other things, Van der Does promises to develop whatever features a customer needs, on the condition that Adyen rolls them out to every customer. The system’s simplicity has been a strong selling point, says Brendan Miller, a payments expert at researcher Forrester. Especially notable, he says, is that unlike rivals, Adyen handles online, mobile, and in-store payments in one product.
Adyen also tends to win big customers by helping them set up in tough markets such as Brazil or Australia, then gaining the companies’ other business. “Land and expand,” Van der Does calls it. A few months before his flight to meet IPO investors, the company pulled off its biggest coup, displacing PayPal Holdings Inc. as the main processor for EBay Inc. and its $95 billion in annual transactions. The win raised Adyen’s profile ahead of its IPO, especially because EBay had been a PayPal client for 15 years and owned PayPal for most of them. “They’re authentic, direct, and honest about what their platform does,” says Alyssa Cutright, EBay’s vice president for global payments. “That’s really refreshing.”
On the surface, little seems to have changed at Adyen even now that Van der Does and Schuijff are paper billionaires. “I have no ambitions to buy a big yacht,” Schuijff says. Van der Does still cycles around Amsterdam, though he did recently upgrade his high school bike. Adyen didn’t hold a bell-ringing ceremony at the Dutch Stock Exchange, he says, because “we celebrate customer wins.” The stock price isn’t displayed anywhere in the office, and Schuijff says no one talks about it.
That decision might be pragmatic, not just modest. Adyen’s Feb. 27 earnings report will mark a big test, as investors hunt for signs of weakness. Although Van der Does prides himself on his meticulous planning, the company has taken a few serious risks to get this far. Some analysts are skeptical that last year’s EBay deal amounted to more than hype, because Adyen paid EBay about $70 million in cash for the privilege, plus more than $83 million in stock warrants—enough to give the auction site a 5 percent stake if it exercises them. “From a purely financial standpoint, the deal is far more beneficial to EBay,” wrote Beaudoux, the analyst at Bryan, Garnier & Co.
Analysts are full of ideas about other lines of business Adyen could pursue, including drawing consultant-style conclusions from its vast stores of data or using its Dutch banking license to cut out card companies entirely. Marcus Hughes, director for strategic business development at invoicing and payments company Bottomline Technologies Inc., says Adyen ought to broaden its model to mitigate the risk that Google, Apple, and Amazon start processing their own payments. Yet while Stripe, Square, and PayPal subsidiary IZettle increasingly cater to startups, Van der Does has maintained his focus on big clients. Doing otherwise, he says, “requires things other than what we are specifically good at.”
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