A Cart Full of Bread
Last weekend, I borrowed my neighbor's wheelbarrow for a minor backyard project. He didn't ask for any payment, but my wife baked him a loaf of sourdough anyway to express our gratitude. Was that an equal exchange of value? I have no idea.
We've come a long way since those early barter economies where people had to fish around for a spearhead or a basket or anything of equal value to “buy” a deer skin from their neighbor.
The Good Old Days
Those barter economies… never really existed. Our ancestors were cleverer than that. Different forms of money and ways to pay for things have been around as long as people have been exchanging stuff. Then, because carrying seashells or gold coins or whatever also wasn't super convenient, we created credit and then each proto-economy had their own different currency and, well, ways to pay really spiraled from there: checks, payment cards, Paypal, Cashapp, Venmo, Zelle, crypto (if you really wanted to). I could even pay for my Banh Mi sandwich for dinner yesterday at my local Vietnamese place "with my face" as the sales kiosk insisted. Things got really complicated.
Most companies just want to sell you their stuff. Most customers just want to buy it. They don't want to think too hard about how to pay for it. While each new way to pay for things makes it easier for buyers, it introduces complexity for sellers. Complexity is a problem for sellers, so there's a whole range of companies that solve it. The old timers grew up mostly processing payment card transactions like credit cards. Paypal/Braintree, Stripe and Square are among the more whizzy newer alternatives.
Crashing Wave
Another payments solution provider, Adyen, had been an investor darling. Based in Amsterdam, it was one of Europe's great hopes to create a Silicon Valley-type success story. Like other payment companies, it rode a wave of good fortune during the pandemic retail boom. Shares soared.
As economies opened up, enthusiasm waned and payment companies generally fell out of favor. Adyen faced the added indignity that its home market is Europe, which was sluggish before the pandemic and returned to that form since. Recession looms in several large economies. Growth slowed. Margins shrank. Shares crashed.
The booming US economy provided some respite for some US-focused payment companies. But, the US market is a relatively straight forward one (mostly dollars and mostly through card networks). It’s also the most price-competitive market. Adyen cut its teeth in Europe, where complexity begins to limit sellers at a much smaller scale. It suffered more for its Europe-centric business.
People Problem
Adyen sat out the hiring frenzy that suckered many Silicon Valley top shops from 2020 through 2022. As those employers thought better of their binge and decided to begin laying off workers, Adyen ramped up hiring to invest for further growth. Labor is more available than a year ago and the company has the pick of the litter. But it still takes time for those investments to bear fruit. Investors had none of it. Headcount went up squeezing margins. Share price went down.
A Simple Idea
All of it — the pandemic disruptions, recessions, labor market swings — its all cyclical. These conditions happened in the past and will happen again in the future. Still Adyen grew.
What will drive value for Adyen and its customers, though, is expanding complexity. New ways to pay for things crop up constantly. The pace of those new complex things appearing is increasing. Adyen solves the problems of payment complexity for its large, complex customers at the lowest cost and with the most value, delivering insights the big guys can’t always get elsewhere.
As payment complexity expands, Adyen will benefit. That will drive continued growth and cash flow for Adyen and that is something investors will come around to.