After Paysafe’s (NYSE:PSFE) stock tumbled due to issues that should prove to be transitory, I’m even more bullish on the comapny’s longer-term outlook.
Paysafe is a leader in digital wallets, online cash and integrated processing. Digital wallets are used by consumers to make payments on iGaming and trading websites and also are used in many other online venues.
Given the company’s high exposure to multiple, powerful trends and the strong performance of its most promising businesses, the firm’s shares remain well-positioned to outperform the market over the next 12 months.
What’s more, the shares’ valuation is very enticing, and the background of Paysafe’s management team is quite impressive.
PSFE stock appears to have tumbled in August because the company’s third-quarter guidance came in slightly below analysts’ average outlook.
On its Q2 earnings call, the company explained that it had decided to give up a number of the clients of its direct marketing business earlier in the year. It made that decision as a result of its evolving views of its market as well as in anticipation of “some upcoming compliance changes,” CEO Philip McHugh explained.
Meanwhile, the market pullback has been stronger than Paysafe anticipated in the wake of the new rules. The company said that it was already detecting signals of a powerful rebound and that it expects the business to start boosting its overall results in Q1 of 2022.
Digital marketing is actually only a small part of Paysafe’s payment volumes, but its high margins make it a meaningful part of the firm’s revenue for now. With the company’s other businesses growing rapidly though, marketing should have much less impact on its financials over the longer term.
Also worth noting is that Paysafe forked out the money to acquire two Latin American payment companies last year, but its results will not be boosted much by these acquisitions until 2022.
Powerful Trends and Strong Numbers
Excluding the volatile digital-marketing business, Paysafe’s top line climbed 23% year-over-year in Q2. Very impressively, the number of transactions recorded by its North American gambling business soared 72% year-over-year.
Staying with the North American gambling business,the unit’s revenues jumped 48% year-over-year in Q2 Among its partners in the space are two top U.S. sports-gambling companies. One was Golden Nugget Online Gaming, which was recently acquired by another huge player, DraftKings (NASDAQ:DKNG), and another was Flutter Entertainment (OTC:PDYPY).
Overall, Paysafe has deals with more than a thousand sports betting operators globally, according to McHugh.
Paysafe has a few other well-positioned businesses that are growing rapidly. In ” digital goods, Crypto, financial services, travel, and integrated verticals,” Paysafe’s revenue jumped 30% year-over-year in Q2, McHugh reported.
McHugh has a great leadership record. Prior to becoming the company’s CEO in June 2019, he was the SVP and President of TSYS Merchant Solutions where he drove over 30% growth in two years through M&A, product and platform investments.
Paysafe’s CEO of North America Gaming, Zakary Cutler, is a former director of product management for DraftKings.
Unlike many other fintech companies and major players in the sports-betting space, including, respectively, SoFi (NASDAQ:SOFI) and DraftKings, Paysafe’s business is profitable. In 2020, the company’s operating income came in at $19.68 million. Last quarter, it reported EBITDA, excluding certain items, of nearly $119 million.
The Bottom Line on PSFE Stock
Trading at only slightly over three times analysts’ average 2022 revenue estimate, the shares are a real steal at this point and a great pick for both value and growth investors.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.