Paysafe (NYSE:PSFE) is a leading online payments processing platform. PSFE stock came public via a special purpose acquisition company (SPAC). The firm merged with SPAC Foley Trasimene Acquisition Corp. II in March.
That’s where the trouble started for Paysafe shares. You may recall that the peak of SPAC enthusiasm came this past spring. Indeed, Paysafe — back when it was trading under the Foley Trasimene name — traded up to $19 in February. It seemed like the market was going to love this payments firm.
Now, though, shares are down by nearly two-thirds. A big part of that is from the deflating of the SPAC bubble. It’s not just that though. In recent weeks, the payments sector as a group has also tanked. Weak earnings results from the likes of Visa (NYSE:V) have caused tremors, and the pain has been especially sharp in the legacy processing names such as Global Payments (NYSE:GPN) and Fiserv (NASDAQ:FISV).
Given the one-two punch of the SPAC exodus and the payments panic, PSFE stock has collapsed. However, despite all the volatility, the firm’s prospects actually remain bright.
Legacy Versus Next Generation Payments
The meta-narrative driving payments stocks right now centers around disruption. For the past decade or so, it’s been an easy trade to own Visa and Mastercard (NYSE:MA) as the ultimate winners in the “war on cash.” As the world goes from cash to plastic, it’s made fortunes for the credit card companies. V stock is up 800% over the past 10 years, for example.
Visa doesn’t exist on an island, however. It needs firms that manage the nitty gritty of handling credit and debit card payments. That’s where firms like Global Payments and Fiserv enter the mix. Their stocks have also gone to the stratosphere as total transaction volume has surged.
All that is now in question, however. Traders are looking at the massive upwards moves in both cryptocurrencies and FinTech payments players like Square (NYSE:SQ) and wondering if the party is over for credit cards. If it is, that’d reshape the whole payments ecosystem. Legacy payments names have been in freefall lately due to this concern. The actual evidence that alternative technologies are taking much market share remains limited, however.
Crypto in particular seems like a red herring at this point; the transaction fees on networks such as Ethereum (CCC:ETH-USD) are far too high to serve as an alternative to credit and debit cards for routine purchases. But for now, the fear is overwhelming.
Paysafe: Comfortably Straddling The Payments Divide
PSFE stock has gotten caught in the payments crossfire. It’s no coincidence that its own shares really tanked as peers such as Global Payments have plummeted.
However, it’s unfair to lump Paysafe in this group. Its online wallets are closer to FinTech than being a legacy solution. Look at the sorts of partnerships Paysafe has with high-growth sectors such as online gaming, crypto, and video streaming.
It’s one thing to be doing mundane payments for grocery stores, department stores, or gas stations. It’s understandable why the market might be fretting about those sorts of businesses. But that’s not where Paysafe is concentrated. Paysafe has built a large first-mover advantage collecting a ton of online accounts and building a broad merchant network in fast-growing parts of the digital economy.
Numbers Look Fine
Paysafe hasn’t reported Q3 earnings yet. However, its Q2 earnings were quite good. The company grew revenues 13% year-over-year, which topped expectations. The company generates a strong EBITDA profit and is even profitable on a net income basis. It showed promising trends in several of its more exciting payments verticals.
Admittedly, Paysafe’s guidance coming out of Q2 was a bit on the low side, and that explains part of the sell-off this fall. However, it also means that the company has lowered expectations heading into the upcoming Q3 report. And we’ve already seen reasonably decent numbers from other payments peers for this Q3 earnings cycle. The vast majority of the company’s stock price drop is due to sector and macroeconomic factors, rather than any singular problem at Paysafe itself.
PSFE Stock Verdict
It was really easy to buy into the Paysafe story back in February. It had a great deal sponsor with the Foley SPAC, a hot business category in payments, and SPACs were all the rage at that time. Now folks have forgotten about Paysafe’s strong backing, payments are out of favor, and SPACs are a scarlet letter.
This is all sentiment-based, however. Nothing nearly so material has actually changed with Paysafe’s business prospects over the past few months. If people liked the business in February, they should love it now. At $8.00 investors are getting to buy in at a 20% discount to the original deal price. Meanwhile, the original opportunity in it — getting access to booming online gaming and e-commerce transactions — has only grown stronger.
There’s no such thing as a blue chip SPAC stock. But Paysafe is about as close as you’re going to get to a steady reliable company out of the SPAC group. Paysafe is a most intriguing way to play an upcoming recovery in the SPAC names as the current rush of tax loss selling for 2021 finally subsides. 2022 should be a much happier time for PSFE stock owners.
On the date of publication, Ian Bezek held a long position in GPN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.