Paysafe shares were slammed with more than a 40% decline following its earnings report this week — could this be a buying opportunity?
Nov. 12, 2021
First off, this highlights why diversification is key for any investor. At least if one of your stock picks gets beaten down like Paysafe this week, you can breathe a sigh of relief to see the majority of your holdings will hopefully have held up okay. If you want to learn more on how to diversify your portfolio, check out our Diversify Series here.
What does Paysafe do?
Paysafe (NYSE: PSFE) is a digital payments company. They offer a point of sale integrated payments, and digital wallets, as well as some smaller segments such as the Publisher’s Marketplace for advertisers and affiliates. Through its digital wallets, Paysafe makes cash available in digital worlds, primarily for gaming, iGaming, sports betting, and online gambling in general.
Paysafe’s Q3 earnings
Paysafe saw a huge slowdown in growth this quarter and even showed declining volume and revenue in some segments. Guidance was also weaker than expected, which has been a major factor in price swings following earnings reports this year.
Revenue was $354 million v.s. $360-$375 million guided, and net income was at $209 million v.s. $210-$220 million guided. Adjusted EBITDA came in at $106 million v.s. $95-$110 million, meeting expectations, but it was certainly no cause for celebration. One of the more worrying categories was the decline in Paysafe’s digital wallets segment, which saw a 17% decline in volume year-over-year, and a 15% decline in revenue YoY. As one of Paysafe’s largest revenue streams, it’s definitely a worrying sign.
Is Paysafe a good investment?
The company has a number of key partnerships, including ‘Fortnite’, Twitch, Walmart (NYSE: WMT), fuboTV, and DraftKings (NASDAQ: DKNG) in the Sports Betting sector, which shows promise. It also has future plans including its expansion into crypto, financial services, and travel, which could help with growth but could come with significant investment costs. But what I’m really struggling with on Paysafe is its competitive advantage.
Taken directly from its website:
“This is the ‘Paysafe difference’ and it flows directly from the DNA of our culture: to put the customer first, to make a difference, to always find a way”.
To me, this statement is too vague for a company tackling a multi-billion dollar industry. As an investor, I would love to see a statement as to why they want to bring about change, and how Paysafe is going to do it.
When you’re competing with the likes of Square, Paypal, Stripe, Visa, Mastercard, Google Pay, Apple Pay; this list goes on — it’s incredibly important to distinguish yourself — and otherwise, the big guys are going to eat your lunch.
Another worrying sign is growth. Paysafe isn’t a young company, with over 20 years of experience in the industry, and it hasn’t made the same headway as many larger competitors. Paysafe is far from a household name, so it really needs to differentiate itself from other product offerings.
We will need to see a turnaround from the company over the next few quarters and see if its future plans come to fruition and bolster results, but for now, I’d be trying not to catch a falling knife rather than buy the dip.
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