Paysafe (NYSE:PSFE) shares plunged over 40% yesterday after the company released a disappointing set of earnings. Quarterly reports are often the catalyst behind sudden drops or rises, so the cause isn’t too surprising. But what was in this report that has investors so upset? Let’s take a closer look.
What does Paysafe do?
Paysafe is one of the leading specialised payment platforms around. It aims to enable businesses and consumers to connect and complete transactions quickly and smoothly. This is achieved by combining its payment processing technology, digital wallets, and online cash solutions.
The company links businesses and consumers across 70 payment networks in over 40 currencies worldwide. The digital wallets are offered through Skrill and Neteller platforms, while its eCash solution enables users to shop online and then pay with cash to finalise transactions.
How big is this firm? Well, in 2020, the group reported an annualised transaction volume of $100bn! And with numbers like that, it’s not surprising that management decided to go public via a SPAC late last year.
Paysafe shares plunge on results
In its latest third-quarter financial results, Paysafe’s revenue declined by 1% year-on-year to $353.6m. For a growth company, that is pretty underwhelming. And since analyst forecasts were estimating $370.6m, it’s even more disappointing. To add more fuel to the fire, its Digital Wallet segment didn’t fare much better. Sales from this division also fell by around 15% year-on-year to $83.7m.
On the positive side, PaySafe’s eCash business did achieve a 10% growth in top-line income, reaching $90.2m. But it simply wasn’t enough to mitigate an enormous loss of $147.2m versus $38.1m last year.
On Thursday, Paysafe shares plummeted by nearly 42% at the end of trading, wiping out almost half of the group’s market capitalisation. This serves as a prime example of what happens when a high-growth stock carrying an inflated valuation doesn’t meet expectations from investors.
Is this a buying opportunity?
Since the start of 2021, Paysafe shares are down over 70%. That’s undoubtedly painful for investors who bought the stock at its peak. But has its downward trajectory created a buying opportunity for my portfolio? Personally, I don’t think so. Despite the price being slashed, Paysafe’s market capitalisation still sits at around $3bn. Comparing that to its current revenue-generating capabilities still makes it an expensive business. Therefore, I’m keeping this one on my watchlist.
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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned at the time of writing. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.
