Paysafe (PSFE) is a leading global iGaming platform. Essentially, Paysafe’s products enable customers who don’t have a savings account or a charge card to make online payments and affordable cash transfers.
The company’s online payment services are utilized in key development locations like e-commerce or iGaming, where Paysafe has seen strong development over the last few years. I am neutral on the stock.
Paysafe also offers integrated processing services and a digital wallet that is found useful amongst those that want to make instant cash transfers.
Despite Paysafe playing a crucial role in enabling payments in the digital world, the stock has plummeted over the past few months, currently trading at around $3.75, near its 52-weak lows. This has been mostly the case due to the company’s revenue growth dissatisfying investors, as well as the company’s business model suffering from thin margins.
In its most recent earnings report, Paysafe posted revenues of $353.6 million compared to $355.5 million in the year-earlier quarter, implying a decline in revenue growth.
This is quite underwhelming considering that most fintech and payment-processing companies, in general, are currently enjoying strong tailwinds, which has resulted in robust growth,
Year-to-date revenues were $1.12 billion, suggesting growth of 5.6% compared to the first nine months of 2020. But again, this number is quite disappointing for a company in the space.
As far as Paysafe’s bottom line goes, the company posted a net loss of $147.2 million in Q3 2021, substantially wider than the loss of $38.1 million Paysafe recorded in the prior-year period.
On the one hand, the net loss included a non-cash impairment charge of $322.2 million that the company recorded to lessen the carrying value of intangible assets in the Digital Wallet segment.
On the other, the company seems to be struggling to produce consistent profits in general. Even if we exclude extraordinary and non-cash items such as depreciation/amortization and other such charges, the company’s operating cash flow for the first nine months of the year stood at $328.9 million, implying an operating margin of just 22.1%.
Hence, the company has little wiggle room to fund future investments and serve its financial obligations, let alone return capital to shareholders.
Weak Guidance
As if Paysafe’s Q3 results weren’t disappointing enough, management’s Q4 guidance further dispirited investors. Specifically, the greatest challenges for the company moving forward are gambling regulations and softness in key European markets, which are impacting Paysafe’s Digital Wallet segment.
For this reason, management forecasted Q4 revenues to be between $355 million and $365 million, which means that FY 2021 revenues should land between $1,470 million and $1,480 million.
This is a softer revenue range than management’s previous guidance including revenues between $1,530 million and $1,550 million, which is definitely upsetting, especially if lower revenues will cause margins to potentially further compress.
Wall Street’s Take
Turning to Wall Street, Paysafe has a Moderate Buy consensus rating, based on one Buy and one Hold assigned in the past three months. At $7, the average Paysafe stock projections imply 87.2% upside potential.
Conclusion
Based on Paysafe’s lack of meaningful growth, weak profitability, and underwhelming guidance, I believe there is little to like in the stock.
While some may argue that the stock has been beaten down and could potentially be undervalued at its current levels, I wouldn’t bet on the company due to the uncertainty surrounding its future outlook. For this reason, I will stay neutral and avoid the stock for the time being.
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