Paysafe Fails To Meet An Unreasonable Demand
Paysafe (NASDAQ: PSFE) had a strong quarter just like we thought it would but there are two big problems with the report. The first, and to us the worst of the two problems, is the guidance. The company is guiding the third quarter to a sequential downtick in revenue and one below the consensus estimate. The company is also guiding the full year below the consensus target which we find surprising in a world of rapidly expanding e-commerce demand. The second problem is that some investors had been expecting Paysafe to declare a dividend and it didn't. What it did instead it used the cash it had to acquire another business. We view that as a net positive for the long-term and one of the many reasons why Paysafe is quickly becoming an attractive fintech investment.
Paysafe Beat Consensus And Guides Lower
Paysafe had a good quarter and one that beat the analyst consensus but it wasn't the blowout that it could have been. With pandemic tailwinds blowing, the company's forays into new verticals paying off, and internet gaming picking up in the US the 1.5% sequential growth and 1.5% beat aren't that impressive. The companies $384.34 in revenue is up 12.7% from last year so shouldn't be discounted, it just isn’t enough to get excited about. The company reports the total payment volume increase by 41% with notable strength in North America. North American volume increase by 48% driven by igaming with a 68% increase in the US.
Philip McHugh, CEO of Paysafe, stated, “We are pleased with the continued momentum Paysafe exhibited over the second quarter with impressive growth and several key wins across iGaming and other attractive digital commerce verticals, including crypto,”
Moving down the report, the company was able to post some other good news. The company was reversed a net loss in the previous year driving positive net income for the quarter. That income came in at $6.60 million with adjusted EBITDA just shy of $119 million. Looking forward, the company is expecting revenue for the next quarter to fall to a range of $360 to $375 which we think is a cautious estimate. This compares to the consensus of $389 million and there is a mitigating factor. The full-year guidance, while coming in below the consensus estimate, suggests that revenue will pick up in the fourth quarter and leaves the door open for results to match, and possibly beat the consensus target.
Paysafe Expands In Latin America
Instead of announcing a dividend, Paysafe spent $441 million on Safetypay. Safety pay is an eCommerce payment solution focused on South America and sets the company up as the leader in e-cash, mobile money, and online banking solutions in the region.
“ ...our recently announced acquisitions in Latin America, creating the largest open banking solution in the region. In total, we remain confident in our 2021 outlook and the years ahead as we continue to see the combination of our eCommerce gateway, digital wallets, online banking, and eCash solutions as a true differentiator in the market.”
The Technical Outlook: Paysafe Slides To A New Low
Shares of Paysafe shed nearly 15% in early action and may move lower. The move has price action trading at its all-time low but there is a caveat. Indicators on the weekly chart show the sell-off is losing momentum and ripe for a reversal. It may take another quarter or two for the market to get back under its feet but we view the stock as a value and see it rebounding back to the post-IPO highs once the market's expectations become realigned with the business's operations.
