Adyen’s got company

Hey!

One of my main takeaways from Shift4 Investor Day is that the company has outgrown the restaurants and hospitality segments. Over the years, they experimented with serving customers from other segments, which culminated with the launch of the Shift4 “Unified Commerce” product.

“Unified Commerce” is a platform for serving global omnichannel merchants. Online acquiring, in-person acquiring, U.S., Europe, Latin America, you name it - “Unified Commerce” can help. The name “Unified Commerce” and the product slogan “One Platform. One Integration” should ring a bell to anyone who is familiar with the European merchant acquirer Adyen.

It is not fair to continue comparing Shift4 to Toast; Shift4 is going into head-to-head competition with Adyen and Stripe. The launch of “Unified Commerce” made this rivalry official. What’s puzzling, though, is that Shift4 used to be valued lower than Toast (based on earnings multiples) because Toast generates a large portion of its revenue from software, while Shift4 was seen primarily as a pure payments company.

But now, the market assigns Shift4 $FOUR ( ▲ 2.68% )  a lower multiple than Adyen $ADYEN ( 0.0% ) , another payments company, even though both are delivering similar growth. So what’s wrong this time? Let’s dive in!

Jevgenijs
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One of my main takeaways from Shift4 Investor Day, which took place in February, was that it is probably not fair anymore to compare Shift4 to Toast. Yes, they are still competitors, but Shift4 has outgrown restaurants and now serves many industries. Restaurants now contribute less than a third of the company’s payment volume.

Over time, Shift4 began serving an increasing number of clients that didn’t fall into either the “Restaurants” or “Hospitality” categories. There were retailers, gaming companies, airlines, non-profits, etc. During the investor day, Shift4 announced the launch of Unified Commerce, the company’s new offering for global omnichannel merchants.

The name “Unified commerce” and the slogan “One platform. One integration” certainly ring a bell for anyone who’s heard of the European payments processor Adyen. Shift4 didn’t hide that they now consider themselves to be direct competitors of Adyen and Stripe. The product’s introduction video featured Shift4’s logo along Adyen and Stripe (see below).

Shift4 is still a much smaller player than Adyen. Thus, in 2024, Shift4 processed $165 billion in payments, Adyen processed almost $1.4 trillion (€1.29 trillion). Adyen’s “Unified Commerce” segment processes over $362 billion (€335 billion), more than twice the total end-to-end volume handled by Shift4.

I noticed sometime last year that Adyen began moving into Shift4’s territory by announcing new partnerships in the hotel sector and what they refer to as “Food & Beverage” clients. Let’s also not forget that Stripe won Accor Hotels last year. So, I’d say the launch of Shift4’s “Unified Commerce” offering made this rivalry official.

What’s important is that this competition is not limited to the U.S. market. In 2023, Shift4 completed the acquisition of a European PSP Finaro. They also brought the company’s restaurant offering SkyTab to Europe, and even acquired a German point-of-sale distributor, Vectron. Shift4’s ambition to go after European restaurants was clear.

However, what wasn’t clear (at least to me), that Shift4 had much bigger ambitions for Europe, Adyen’s home market. Shift4 already works with an airline, a multinational food delivery company, and is even rolling out transit payment solutions. Adyen had good times taking share from weak European incumbents, Worldline and Nexi. Now they have company.

However, Shift4's growth ambitions don’t seem to be limited by Europe. They are quickly expanding geographically, and now offer acquiring capabilities in LatAm, Africa, and Asia. So, Shift4 is ready to compete not only with global giants like Adyen and Stripe, but also with regional players like dLocal.

It’s also not only about launching a product offering for omnichannel merchants and expanding geographical footprint. Shift4 is building its own sales force. Last year, I wrote about Adyen overestimating the power of its platform and underinvesting in sales. Even great products needs sales, especially in the enterprise segment.

Shift4 is also notorious for growing through acquisitions, acquiring both customer portfolios and product capabilities. Thus, in addition to winning deals through their sales team, they can also acquire companies to gain new clients. This is something that Adyen would not do.

Alright, you might ask, but how does this translate to growth? Shift4’s management guided for “high teens” net revenue and Adjusted EBITDA growth (CAGR over the next three years) even if they “sit on their hands” and do nothing. However, if they continue doing what they are doing (including continuing to acquire companies), they aim to achieve 30%+ net revenue and Adjusted EBITDA growth (again, CAGR over the next three years).

In 2024, Shift4 delivered 44% YoY net revenue and 47% YoY Adjusted EBITDA growth. They also guided for 22-27% revenue growth in 2025 and 23-26% Adjusted EBITDA growth in 2025.

In the meantime, at their Investor Day 2023, Adyen guided for net revenue growth in the “low-twenties and high-twenties” and further improvement to the EBITDA margin (meaning EBITDA growth would be even higher). In 2024, Adyen delivered 22% net revenue and 34% EBITDA growth.

So, if Shift4 and Adyen are doing pretty much the same thing and plan to grow at similar rates, they should be valued at similar multiples, shouldn’t they? Wrong! As of this writing, Shift4 trades at less than half of Adyen’s forward P/E multiple (34.1x vs. 16.2x, see the chart below).

Shift4 has always been trading at a lower multiple than Toast, because Toast is considered to be a software company, and Shift4 is considered to be “just” a payments company (or at least this is the only explanation I managed to find in my last year’s essay).

But if Shift4 looks (and grows) more like Adyen going forward, why does it trade at a lower multiple? And it looks like analysts don’t actually believe that Shift4 can deliver on their growth targets. Analysts expect Shift4's Adjusted EBITDA growth to fall to 15% in 2027. The same analysts don’t question Adyen’s ability to deliver on growth targets.

You might wonder why I have Global Payments on the chart and in the table above. You see, Global Payments also went through a period of rapid growth. And this growth was fueled by acquisitions.

Global Payments has expanded its product offering and built a global footprint through acquisitions. However, at some point, this stopped translating into growth. The complexity actually started slowing them down, and now the company is looking at how to refocus on the markets where they have scale.

So what does the future hold for Shift4? Can they keep up with Adyen’s growth? Or will their acquisitions start hunting them down? This is the key question, in my opinion, that will define the multiples that the company trades on. If they are growing as fast as Adyen and can prove that this growth is sustainable, the stock should trade at similar multiples.

I will wrap up with the following. Stripe is trying to get a banking charter in the United States (Adyen is already a bank in Europe and operates in the U.S. through a branch). It’s a special type of charter, a Merchant Acquirer Limited Purpose Bank. It will not allow Stripe to take deposits, but it should allow it to directly connect to Visa and Mastercard and to process payments without a sponsoring bank.

Last year, Fiserv obtained such a license, but do you know which company got it first? Credorax, an Israeli firm that later rebranded as Finaro. Yes, the same Finaro that paved the way for Shift4’s global expansion. Adyen is bank, Stripe will soon have a banking license, and Shift4 should have a U.S. banking license somewhere in its drawers (Finaro has a banking license in Europe too).

Sounds like fun times ahead!

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Cover image source: Shift4

Disclaimer: The views expressed here are my own and do not represent the views of my employer. The information contained in this newsletter is intended for educational and informational purposes only and should not be considered financial advice. You should do your own research or seek professional advice before making any investment decisions. Read the full disclaimer here.