Should You Buy Adyen Stock While It's 50% Below Its All-Time High?

Adyen (OTC: ADYE.Y) gained a lot of attention in 2018 when eBay (NASDAQ: EBAY) chose the Dutch payment processor to replace PayPal (NASDAQ: PYPL) as its preferred payment platform. That transition, which lasted through 2023, generated strong tailwinds for Adyen and rough headwinds for PayPal.

The bulls initially embraced Adyen, and its over-the-counter (OTC) shares closed at a split-adjusted high of $32.74 on Aug. 24, 2021. But today, it trades more than 50% below that level at about $16. It lost its luster as its growth cooled off in a tougher macro environment, and rising interest rates compressed its valuations. So, does Adyen's stock represent a buying opportunity at these levels?

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Image source: Getty Images.

What sets Adyen apart from the competition?

Adyen doesn't provide consumer-facing digital payment apps like PayPal or peer-to-peer payment services like PayPal's Venmo, Zelle, or Block's (NYSE: XYZ) Cash App. Instead, its backend software integrates tools for processing payments, analyzing customer data, and organizing finances directly into a merchant's existing online, mobile, and in-store payment services. It also enables merchants to develop their own digital wallets and issue their own cards.

Since Adyen's platform is built on open-source software, it's compatible with a broad range of other payment platforms and doesn't lock its merchants into restrictive walled gardens. Its software is designed to support more than 250 payment methods, including credit cards, debit cards, mobile wallets, and other payment apps.

That flexibility makes Adyen an appealing option for companies that want to expand their digital payment options but don't want to tether themselves to a larger digital payments company. That's probably why eBay decided to switch from PayPal to Adyen, even though PayPal's Braintree also provides a similar backend software platform.

Adyen's growth is accelerating again

Adyen's growth in processed volumes, revenue, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) all accelerated in 2021 as online spending surged throughout the pandemic. But in 2022 and 2023, its growth cooled off as it lapped that growth spurt and faced tougher macroeconomic headwinds.

Data source: Adyen. YOY = year over year. 1H = first half. EBITDA = earnings before interest, taxes, depreciation, and amortization.

At the same time, Adyen ramped up its spending to expand more aggressively in North America and Asia. That mix of slowing growth and rising expenses spooked its investors, and its stock sank to a five-year low of $6.65 on Oct. 27, 2023.

But in the first half of 2024, Adyen's growth accelerated again. That recovery was driven by its 30% year-over-year revenue growth in North America, which accounted for 27% of its top line. Its core Europe, Middle East, and Africa (EMEA) segment, which accounted for 58% of its revenue, also grew 25%. For the full year, analysts expect its revenue and adjusted EBITDA to increase by 22% and 30%, respectively.

Adyen notably incentivizes some of its top merchants with a tiered pricing model, so some of its highest-volume customers don't necessarily generate the same amount of net revenue growth. Therefore, Adyen believes its net revenue represents a more accurate gauge of its top-line growth than its total processed volumes.

So, is it the right time to invest in Adyen?

Analysts expect Adyen's revenue and adjusted EBITDA to grow at compound annual growth rates (CAGRs) of 24% and 32%, respectively, from 2023 to 2026. But with an enterprise value of 43.7 billion euros ($45.2 billion), it doesn't look cheap at 17 times and 34 times its projected revenue and adjusted EBITDA, respectively, for 2025.

Adyen looks reasonably valued if you expect interest rates to decline, geopolitical tensions (especially in Ukraine and the Middle East) to cool down, and its ongoing expansion into North America to gain more momentum. But if those three things don't happen, its stock could easily be cut in half before it's considered a bargain. I think Adyen is worth nibbling on at these levels if you're optimistic about the macro environment, but it will remain volatile and stay far below its all-time highs.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adyen, Block, PayPal, and eBay. The Motley Fool recommends the following options: long January 2027 $42.50 calls on PayPal and short March 2025 $85 calls on PayPal. The Motley Fool has a disclosure policy.