- Paysafe Limited (PSFE) stock has declined almost 80% in a year and there is still room for more weakness.
- Restructuring has become a recurring expense.
- The balance sheet could take heavy knocks if ongoing reorganization attempts fail to deliver sustainable growth.
In an earnings presentation in March, Paysafe Limited’s (NASDAQ:PSFE) management team presented 2022 as a transitional year to realign business segments to better reflect an involving business landscape. Despite a short-lived 20% gain by Mar. 24, the PSFE stock price has slid by 8% since the company’s fourth-quarter and full-year 2021 earnings results were reported in March. A new chief executive officer installation helps the reorganization narrative. However, there isn’t enough realignment yet to convince investors on the sidelines to buy the dip on PSFE stock right now — even after its 80% decline.
Paysafe provides digital commerce solutions to businesses of all sizes worldwide. The company’s brands include Income Access, Paysafecard, Paysafecash, NETELLER, Petroleum Card Services, and Skrill.
The company is reorganizing its business segments in 2022, with an emphasis on its troublesome Digital Wallet segment. However, the Digital Wallet isn’t the only underperforming business line. It may not be a great idea to touch Paysafe stock even after its 80% plunge over the past 12 months.
The company’s income statement shows signs of further weakness. The balance sheet is still in bad shape. Additionally, shares could still trade lower still if these issues persist in the upcoming earnings report on May 11.
Paysafe’s Lackluster Financial Performance
Paysafe’s fourth-quarter total payments volume of $31.5 billion represented a 20% year-over-year increase in business activity. However, quarterly revenue of $371.7 million was almost unchanged from last year’s $370.3 million, even after the consolidation of some new acquisitions made during the past year. For the full year of 2021, payment volumes grew 22% to $122.4 billion year-over-year, but annual revenue only increased by 4% from $1.426 billion to $1.487 billion.
Changes to gambling regulations in Europe negatively impacted Paysafe’s market and its Digital Wallet business took heavy revenue blows. Its eCommerce segment hasn’t been doing well either. The Integrated & eCommerce Solutions segment was Paysafe’s worst performer in 2021 after its revenue declined by 12.5% year-over-year.
Although a fourth-quarter net income of $90 million painted a strong show when compared to a $3.4 million loss during the prior-year period, income was mainly boosted by a $64 million fair value gain on warrant liabilities and a $19.9 million decrease in interest expenses after a debt refinancing. It’s only the debt refinancing that investors may wish to acknowledge on management’s part.
Beware of Paysafe’s Sudden Change of Reporting Segments
PSFE stock investors watched the company suddenly move around reporting segments in March. The business is going through a rough patch. Changing how financial reports are presented is just one play in a financial department’s bag of tricks to spruce up the picture.
Instead of prominently reporting on its ugly Digital Wallet segment, a separate Integrated & eCommerce, and its weakening eCash Solutions segment where sales declined by 6.3% last quarter, management has created two new reporting segments: the U.S Acquiring and a Digital Commerce segment.
Interestingly, the new U.S. Acquiring segment — the company’s largest revenue segment — conveniently creates a new bullish narrative for PSFE stock. It shines a desperately needed light on revenue as the company frantically tries to steer the business back to a growth trajectory. Segment annual revenue increased by 6.4% year-over-year in 2021 and quarterly sales grew 9.7% year-over-year during the fourth quarter of last year.
Growth can be engineered by moving numbers around — sometimes.
Slow Growth May Persist Into 2022 and Hurt PSFE Stock
Paysafe’s new segment reporting emphasizes a growing U.S. Acquiring business. I wouldn’t be surprised if management’s commentary focuses on this revenue line going forward. However, the old bundled segments still constitute the majority of sales for the company. Problems in Digital Wallet and eCash segments will most likely weigh down on growth in 2022.
That said, the company provided a 4.5% revenue growth outlook to a range between $1.53 billion and $1.58 billion for 2022.
Although Paysafe is focused on making its Digital Wallet business more competitive in customer user experience and pricing in mature markets, there aren’t any guarantees that ongoing reorganization efforts to the Digital Wallet will deliver the goods.
The company’s revenue guidance for the first quarter of 2022 for $355 million to $365 million implies a 4.6% year-over-year sales decline for this quarter. Negative growth hurts PSFE stock price.
Recurring Restructuring Expense Weighs on Valuation
Paysafe recently went public in March 2021 through a special purpose acquisition company merger. Just a year later, the business is restructuring. Even worse, this isn’t the company’s first restructuring exercise.
The company recognized $20.6 million in restructuring expenses for 2020. It realized $25.9 million in restructuring costs for 2021, yet with a 2.5 times increase in impairment charges on intangible assets from $130.4 million in 2020 to $324 million for 2021.
It is not ideal to invest in a business that is constantly restructuring. Increasing impairment charges on a business with balance sheet assets comprised 65% in goodwill could imply that the long-term quality and value outlook for PSFE’s assets is increasingly questionable. Write-downs could happen sooner rather than later if turnaround efforts fail.
PSFE stock is a sad investment story for now. Barely a year after going public, investors have lost fortunes and the path to recovery isn’t so clear.
Investor Takeaway on PSFE Stock
Paysafe management’s recent guidance for 2022 still points to another problematic year for the business. It remains anyone’s guess whether Digital Wallet and eCash business lines will rebound to propel growth ahead. Moving some numbers around may not be enough to propel PSFE stock into recovery this year.
That said, PSFE stock looks too cheap with a forward enterprise-value-to-sales multiple of 3.1 times. This is far below a near competitor median of 5.3 and a forward price-to-earnings ratio of 12.3, which is below the sector average of 30.97. Bargain hunters may find shares attractive at current valuation levels.
Investing in PSFE stock looks like an uninspiring venture until the company’s potential litigation challenges subside or sales growth potential becomes more visible.
On the date of publication, Brian Paradza 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.