The European IPO is getting hot again.

On Wednesday, Adyen (ADYEN), a payment processing

enterprise, rocketed by 90% in its first trading day. Adyen is famous in the stock market, not
just because of the prominent group of investors who are backing it, but also because of its deal
with eBay (NASDAQ:EBAY) to replace Paypal (PYPL) to become eBay’s primary payment
provider. Although Adyen has a quite promising future, it is too hot for retail investors to touch
at the moment.

Adyen, a 12-year-old Dutch company, carries its mission to redefining payments for merchants,
removing friction between merchants and shoppers and simplifying global payment
management across different sales channels and different countries for merchants. It has a
single platform which covers the whole payment value chain and directly connect merchants to
Visa (NYSE:V) and Mastercard (NYSE: MA). In the traditional electronic payment value chain,
there are a lot of parties involved such as merchant, shoppers, gateways acquirers, issuers, card
networks, terminal software providers and risk management providers.

Source: Typical payment value chain - Adyen’s prospectus

When Adyen comes in, it eliminates the need to work with gateways, risk management
providers, acquirers and processors. It connect directly between merchants to the networks
and to shoppers.

Source: Adyen value chain – Adyen’s prospectus

Adyen’s business will definitely rise along with the growing trend of global card payments.
According to Nilson’s report, the global card payments volume was around $23 billion in 2017,
and it would grow to $52.39 trillion by 2026, with the compounded annual growth of 9.6%. The
world is shifting from cash based to card based, driven by new technology, lower transaction
fees and growing online and mobile sales channels.

Most of its revenue come from processing fees and settlement fees paid by merchants on a
transaction basis. In 2017, it is reported that Adyen processed 3.7 billion with €108.3 billion in
processed volume, generating €218.3 billion in revenue. In the past three years, Adyen churn
rate is only 1%. It has gained trusts in many big tech companies. Its merchants includes Uber
(UBER), Netflix (NASDAQ:NFLX), Facebook (NASDAQ:FB), Spotify, Vodafone (NASDAQ:VOD) and
L’Oreal (OTCPK:LRLCF)

Adyen’s financial statement makes the company very attractive. It is not a typical an
unprofitable, high growth tech business, but a very profitable, high growth tech company. In
the past three years, Adyen experienced huge growth. Its revenue tripled from €331 million in
2015 to more than €1 billion in 2017, while the net income jumped from €33.6 million to €71.3
million during the same period. It is reported its 2017 free cash flow is €88.4 million, with an
annual growth of 34.67%. With the rising global payment trend and Adyen’s value to
merchants, I am not surprised that Adyen free cash flow will grow at least 20% per annum in
the next three years.

Adyen’s growth and financial performance outpaced bigger rival Paypal Holdings and Square
(NYSE:SQ). In the past three years, Paypal’s annual growth was only 12.27%, reaching $13.09
billion in revenue in 2017. For the full year 2018, Paypal expects to generate $15.2 - $15.4
billion in revenue, a y/y growth of 15% - 16%. Its free cash flow has been fluctuating, with the
minor growth from $1.82 billion in 2015 to $1.86 billion in 2017. Square’s three year average
annual revenue growth was 20.28%. In 2017, its revenue was around $2.21 billion. Both its net
income has been quite negative.

Moreover, Adyen has replaced Paypal as eBay’s primary payments provider. With Adyen,
merchants will experience lower costs and more control of their finances. eBay’s merchants can
have overview of their data, manage, and interact with customers via eBay. Adyen also allows
buyers to check out directly with eBAy, rather being directed to different page like Paypal
before finishing a purchase. The partnership with one of the largest global e-commerce sites
will definitely give Adyen access to millions of merchants right away, driving its business growth
much further in many years to come.

Retail investors might find the list of Adyen backers interesting. Princess Mabal van Oranje, a
sister-in-law of King Williem-Alexander of the Netherlands, owns 1.85% shares in the company.
Iconiq Capital, the fund which manages billions for Mark Zuckerberg, Jack Dorsey and Reid
Hoffman, has 4.3% stake. The founders and management, altogether, has a 15% in the
company.