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The Rundown (7/28/21)

Paysafe : Building A Payments Ecosystem

Paysafe is a U.K based online payments company, which recently closed its SPAC merger with Foley Trasimene Acquisition Corp in a deal that valued the company at $9 Billion. Despite reaching a high of $19 when the deal was announced, Paysafe stock has recently fallen to $10.64. This gives investors a chance to take a second look at a highly promising company in the payments industry at a significant discount compared to its listing. 

Strong Industry Partnerships 

Paysafe owns and operates B2B and B2C payment networks which offers different payment solutions including digital wallets, payment processing, e-cash, mobile engagement and card solutions. Paysafe provides a full stack of integrated commerce solutions to enable businesses to accept online and in-store payments.

The company is also present in the iGaming space, which continues to grow at rapid pace. The company’s iGaming eCash network is used in over 50 markets and its eCommerce and Point of Sale payments solutions are currently present across the U.S, Canada and Europe. 

The company’s payment’s processing services Skrill, Neteller and paysafecard are present in over 120 markets and processes annual transaction volumes of over $92 Billion. Paysafe competes across valuable vertices like Digital Goods, FinTech Services, iGaming, Integrated Payments and Travel & Entertainment.

Some of the company’s largest partnerships including Gaming Behemoth Xbox, Music Streaming service Spotify, Cryptocurrency giant Coinbase, Norwegian Airlines and iGaming companies like DraftKings and PokerStars. 


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Diverse Operating Verticals

The company’s commerce revenue is broadly split into three categories, namely Digital Wallets, eCash and Integrated Processing. The company generated $1.4 Billion in 2020, with over 75% of its revenue coming from online payments. Digital Wallets has a take rate of 1.9% and processes over $20 Billion in transactions every year.

While the segment has particularly been affected over the last year as a consequence of the company leaving China, the slump in revenues have been offset by paysafe’s growth in crypto revenue, which is a result of it’s partnership with 27 crypto exchanges including Coinbase and eToro. Digital Wallets now has over 3.5 million active users and with gross margins exceeding 75%. 

Consumers who don’t have a bank account or those who are increasingly looking to keep transactions anonymous are turning towards eCash. As the pandemic and social distancing continues, the number of new consumers shopping online for the first time is likely to continue to rise. Having eCash as an option makes consumers feel safe to shop online. 

eCash revenues continue to grow at a staggering pace, with 13 million active users and $5 Billion in transaction volume. eCash continues to see growth driven by extended lockdowns in Europe and increased online shopping. With eCommerce growth at 11%, eCash should continue to directly benefit from the secular trends in the market. 

Integrated Processing, which has over 250,000 merchants and $68 Billion in transaction volume, has continued to suffer due to lockdowns and social distancing rules.

Approximately 50% of Integrated Processing is made up of offline retail and Smb transactions, which pushes down the take rate to 1.1%, the lowest amongst the three segments. But Integrated Processing should directly benefit from countries coming out of extended lockdowns with earnings improving over time. 

Paysafe Will Benefit from Long Term iGaming Growth

Paysafe has been in the global iGaming market since 1999, with a presence across Europe and Canada. Paysafe has been in the US since 2013, but only recently has benefited from the secular long term trends in the iGaming market. As the pandemic has decimated state budgets, many states are now turning towards the iGaming market in search of tax revenues.

Paysafe now serves 34 operators in 14 states across the country and offers a single solution for both customers and operators. The deposit volume for iGaming in the US is expected to grow at a breath taking pace of 55% CAGR between 2019 and 2025, with volumes reaching $47 Billion.

Globally, Paysafe serves over 1000 operators and notable covers a 100% of the Canadian iLottery market. Paysafe is also the leading player in specialised wallets with differentiated consumer and merchant benefits. Paysafe boasts partnerships with the largest global operators in iGaming, including bet365, betfair, DraftKings, GoldenNugget, PokerStars and SportingBet.

Paysafe will continue to tap into the significant opportunity in the global market, which is projected to be $128 Billion in 2025 and expects to grow at a CAGR of 10% and should see a significant increase in revenues and margins.  

Compelling Financial Profile 

Paysafe has a compelling financial profile with highly diversified revenue streams. The company continues to build a payments ecosystem and is increasingly targeting the entire market through various segments.

As consumers continue to spend more money online and Merchants scramble to adopt to a digital checkout, Paysafe should continue to see a rise in volumes. The company expects volumes to go up from $92 billion in 2020 to $135 Billion in 2023 at a CAGR of 14%.

Paysafe is estimating revenues of around $1.55 Billion in 2021, which implies a forward Price/Sales of 4.96x, which is a substantial premium over forward sales, but still cheaper than peers like Paypal (14.04x) and Payoneer (7.97x). Paysafe has also seen a boost in its balance sheet with the SPAC transaction as Net Debt/EBITDA has come down from 6.2x to 3.6x. 

Furthermore, Paysafe has a highly profitable model with significant operating leverage and attractive unit economics, resulting in long term EBITDA margins of around 35%. Paysafe also displays an asset light business model, which doesn’t require significant Capex and generates high free cash flows in the range of 70-80%. 

Bottom Line 

Paysafe offers a highly differentiated B2B and B2C global payment network with a high take rate and consistent high margins. The company continues to expand across digital commerce in high value emerging verticals through various growth initiatives. Paysafe will continue to benefit from the expansion of the iGaming market and leverage its leadership position to expand revenues in the future.

While the company is currently trading at a premium, it is cheaper than comparable companies like Paypal and Payoneer and continues to improve its balance sheet through an asset light model and significant cash flow generating ability. Paysafe has created its own niche in the payments industry with an ecosystem of products and services and will continue to benefit as consumers spend vast sums of money in the future. 

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