Conversations I have with the buyside + sellside on $ADYEN often starts with “love the business but the valuation is crazy”. That is lazy. @mjmauboussin has a great saying along the lines of “you have to earn the right to use the multiple as a reference point”. Quick thread.

2/ Let’s try go a layer deeper and understand why it is trading where it is. Adyen’s equity sits in Europe. Europe has a structural problem. You may be thinking the problem stems from the fact that the Greeks and Germans have to co-exist and be housed under one union.

3/Rather, I think the problem is growth or lack thereof. Per GS, just 13% of the companies in the STOXX 600 are expected to grow revenues above 10%. In the US, 33% of companies in the S&P 500 are expected to grow revenues above 10%.

4/This results in a growth/tech (and quality) scarcity dynamic. So when you can underwrite an asset with 35-40% rev growth for the next 3-4 years in a region with zero rates and growth, there is 1) less competition for capital and 2) that thing starts to look even shinier.

5/Re COVID, we all know there is a widening gap of haves and have-nots. There is a wall of liquidity (demand) trying to bid up a small number of beneficiaries (supply) who are seeing their long term FCF ests *increase*.

6/ Adyen’s platform is a call option on e-comm & increased digitisation entrenchment..By some ests, e-comm adoption just doubled and is thus far largely sticking and confirming structural underpinnings.

7/ I posit, what ST multiple should you pay for a business if you just saw 3-5 years of secular trend in 6 months?

8/ Next, Adyen is a very unique asset. Adyen has the growth of a SaaS $ money losing biz but ALSO the margins + ROIC of a more mature monopolist. $SQ is growing but is a low single digit margin & not a lot of FCF.

9/ Adyen’s growth is >2X than that of $PYPL but Adyen has >2X the margins. $SHOP is growing like a weed but again no margins. The list goes on but I struggle to find ANY biz that is growing like Adyen and with incremental margins of >70% and ROIC-WACC delta widening.

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