Shares of the up-and-coming digital payments enterprise Paysafe (NYSE:PSFE) took a severe beating this month. PSFE stock shed around 50% of its value this past month after reporting weaker-than-expected third-quarter results. The management tried covering up the lackluster performance with a few excuses, but it’s clear that the company faces some significant challenges. Nevertheless, the stock trades at a highly attractive valuation, and its incredible growth runway gives its bull case the decisive edge at this stage.
Paysafe is a digital payments platform with its tentacles in several profitable verticals, including online gambling (iGaming), financial technology (fintech), online gaming and sports betting.
Earlier this year, it went public via a special purpose acquisition company (SPAC) and saw its value surge as high as $20 before declining well below $5 today. It’s been a rough start so far, but it has the potential to mount a comeback in the not-so-distant future.
However, since it has been around for a while, its growth is only beginning to accelerate. Moreover, Paysafe isn’t scared of pivoting to new avenues such as crypto in driving new revenues.
Weak Third-Quarter Results
Paysafe has seen its digital marketing division struggle for a while, but it’s now in a spot of bother with its digital wallets segment as well.
The company reported a healthy 50% bump in the North American iGaming market but failed to register any growth in sales during the third quarter. Moreover, adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) just took a 1% hit despite the $17 million discrepancies from consensus estimates.
In commenting on the results, Paysafe’s management blamed “gambling regulations and softness in key markets” in Europe for the lackluster performance. And these problems look like they’re going to continue into the fourth-quarter. The company forecasts flat quarterly sales of $360 million in the quarter, significantly below analyst estimates of $406.1 million.
Paysafe is now faced with a tall order of convincing its investors to manage its multi-faceted platform. It plans to turn things around with its direct marketing business after cutting out high-risk merchants. Encouragingly, it is now back in growth mode as of October in this segment.
Future Outlook for PSFE Stock
Paysafe’s businesses aren’t expected to improve much in the coming year. It has guided for sales to $1.55 billion, which is essentially in line with its original 2021 estimate. A core aspect of its 2022 guidance relates to the $60 million in revenues it is likely to generate from its three recent acquisitions in Germany and Latin America. The company isn’t forecasting much in the line of organic growth for next year.
Nevertheless, Paysafe has several opportunities to grow its digital wallet. It can try expanding its crypto payment solutions and growing Skrill USA. And some of the massive eCommerce deals announced in the past year may lead to some substantial payment opportunities in the future.
One of the company’s major strengths is its deep partnerships. It connects with some of the top industry leaders who rely on Paysafe’s efficient platform for quick transactions. Paysafe is looking at over a $58 trillion market opportunity across all its verticals. Hence, if it can grab even a fraction of its total addressable market (TAM), it could be looking at a massive growth runway ahead.
Bottom Line on PSFE Stock
Paysafe’s third-quarter results have been highly disappointing for investors. Moreover, a similar scenario is likely to ensue during the fourth quarter. Paysafe’s long-term opportunities cannot be denied, though. If it can pull up its socks in the upcoming quarter’s things can change rapidly for the company.
Perhaps the company’s most attractive feature is that its stock trades below two times forward sales.
Hence, PSFE stock is investable at current levels over a long-term horizon at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.
