Paysafe (NASDAQ:PSFE), a payments processor with a focus on gambling, was a bad gamble in 2021. The company, headquartered in London, came public last year through a special-purpose acquisition company formerly called Foley Trasimene Acquisition II. Its value after being “de-SPACed” was $9 billion. PSFE stock entered 2022 trade with a value of $2.8 billion, down 73% over the last year.
Bulls ran off after its third-quarter earnings, reported Nov. 11, proved too much to bear. A loss of $153 million, 21 cents per share, on revenue of $353 million also brought out the plaintiff’s bar.
Class action suits have been filed on behalf of shareholders.
PSFE Stock: Is There Reason to Believe?
If PaySafe could fulfill its promise, it’s now a truly cheap stock. You’re paying just two times revenue for a payment processor with a focus on the fast-growing online gaming sector.
Management still believes in it. CEO Philip McHugh and his executive team bought $2.8 million of shares during the November rout. The news sent shares up 16% when it was announced.
Almost no one else believes in PSFE stock, however. Just five analysts still follow it, with most waiting for news. Negative news makes it too risky. That was the consensus recently found by Stavros Georgiadis.
Has the Foley Touch Failed?
The Foley who brought Paysafe public is Bill Foley. He also serves as chairman of Dun & Bradstreet (NYSE:DNB) and has made his money in fintechs like Black Knight (NYSE:BKI). Foley also owns the Las Vegas Golden Knights hockey club.
The promise when Paysafe came public was in Europe and Latin America, where Paysafe has been expanding its alternative payment business. That’s also the problem. The pandemic continues to hit these regions hard. It’s the U.S. that dominates the global economy today, perhaps as never before.
While the eCash business of Paysafe is growing, at 10% per year, the digital wallet business is declining faster. That business is done under the names Skrill and Neteller. Those wallets also support a range of cryptocurrencies.
Since August, the digital wallet business has been run by Chirag Patel. He was recruited from Santander Group (NYSE:SAN), the Spanish banking giant, where he was head of payments.
Out of Fashion
Besides being focused on troubled international operations, Paysafe is also a payments processor. Until recently this was a hot market. Now it’s a cold one.
Processors like Fidelity National Information Services (NYSE:FIS) and Fiserv (NASDAQ:FISV) have fallen out of fashion. Chamath Palihapitiya, the onetime King of SPACs, now says processors like Visa (NYSE:V) and MasterCard (NYSE:MA) are headed for the dumpster in 2022, to be replaced by Web3-based cryptocurrency projects.
When I wrote hopefully about Paysafe in September, my argument focused on the promise of online gambling, and the hope an existing processor could buy Paysafe. With gambling still in the future, and processors flat on their backs, that doesn’t look like a good argument.
The Bottom Line
PSFE stock right now is purely a speculation.
It’s dirt cheap compared with other payment processors. If online gambling takes off in the U.S., and if we get past the pandemic, there’s a real business here. Paysafe was involved in $31.1 billion of online payments just in the third quarter, and that part of the business continues to grow.
The risk to reward for this stock is tilted toward risk right now, but there remains hope for the business. I wouldn’t put any money into it I couldn’t afford to lose. But compared to a lot of the garbage floating around today’s market it may be worth the gamble for investors with sporting blood.
On the date of publication, Dana Blankenhorn did not hold (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.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.