Paysafe (NASDAQ:PSFE) is focused on big new opportunities in the payment space. But until they materialize, you can’t capitalize on PSFE stock.
That’s why the shares were off more than 5% for the month even before Tuesday’s sell0ff. Yet no reprieve is in sight and further moves down should be expected.
As I wrote recently, there are sunlit uplands for Paysafe, which is at its heart a payment processor like Fiserv (NASDAQ:FISV) or Fidelity National Information Systems (NYSE:FIS). There are international markets and cross-border money transfers. There is sports gambling, online gambling, and online sports gambling.
But the revolution hasn’t happened yet. That means speculators are going after other opportunities or shoring up their holdings against a debt limit storm.
Paysafe is backed by Bill Foley, who took it public as Foley Trasimene Acquisition II, a SPAC that traded under the symbol BFT. The market capitalization right after it was de-SPACed was $9 billion. On Sept. 28 it was $5.7 billion.
Foley is chairman at Fidelity National, which was once a title insurance business. He’s the owner of the NHL’s Vegas Golden Nights (one of the great team nicknames). He’s a mover and a shaker who knows how to make money.
Since coming public, Paysafe as been on an acquisition spree. Cash deals mean Paysafe is borrowing money. The resulting debt increases enterprise value, but hurts the market cap. An acquirer would be buying both the debt and the equity.
Paysafe goes to market under many different names. The Skrill virtual wallet is Paysafe. Neteller money transfer is Paysafe. In Latin America, SafetyPay and PagoEffectivo are Paysafe. If you’re doing business with viafintech, the German fintech, that’s Paysafe too. Paysafe is even getting into affiliate marketing.
What speculators are excited about are the sports betting deals. Paysafe is helping bring BetFred, a European bookie, to the U.S. market. BetFred will build a multi-state gambling network with Paysafe’s Income Access. As additional states legalize sports betting and online gambling, Paysafe can back the play. Paysafe has hired a former DraftKings (NASDAQ:DKNG) executive to lead its efforts in the space.
It’ll be interesting to see if and how much PSFE stock is put in the portfolio of the recently announced Roundhill Digital Payments ETF. In general, the exchange-traded fund plans to invest in stocks that are a part of the digital-transaction ecosystem. But Roundhill’s focus in sports betting and gaming would put Paysafe in a new realm of funds, beyond portfolios with little thematic relationship to its core business.
Paysafe has two values. There is the current value, which seems fair given the debt. Then there is the growth value, which our Mark Hake figures makes it worth $8 billion.
In my recent story, I suggested a third value, that is Paysafe’s value as an acquisition target. Potential acquirers could include FIS, other payment processors, even one of the gambling operations. But the acquirer would be paying enterprise value, including the debt. Before that value can rise, the investments in internet gaming and sports gambling need to pay off.
For now, gambling is a patchwork. Sports betting is legal in 24 states. Some only let bettors go to shops. Others allow online action, but some require in-person registration. Big states like Texas and California may never legalize it. Lobbyists are crawling all over state legislatures, offering the promise of tax revenue, trying to make deals. But until the deals are made, and implemented, they’re only potential.
Bottom Line on PSFE Stock
PSFE stock is a speculation. As this is written, traders are focused on keeping what they have against the debt limit, the reconciliation bill and potential tax increases. Some are worried about China and contagion from Evergrande. The speculation that marked the start of the year is out of fashion. SPACs and the companies that emerged from them, are out of fashion.
At some point, in October or November, the fear will fade, and greed will return. This will be reflected in both trading pits and boardrooms. Hold your fire until then.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.