Is Paysafe a Safe Bet?

Shares of Paysafe (PSFE) moved down after the company released its second-quarter earnings results. The stock price lost 1.3%, to close at $8.51 on August 17.

Paysafe Ltd. is a payments platform that offers businesses and consumers secure payment solutions. The company has three business segments: digital wallets, eCash solutions, and integrated processing.

With a market capitalization of $6.16 billion, Paysafe lost almost 20% in the past five days and 29% over the last three months. (See Paysafe Dividend Date and History on TipRanks)

It’s worth mentioning that, despite announcing positive second-quarter revenue figures, Paysafe’s stock was unable to garner traction among investors.

Clearly, something went wrong somewhere.

What actually happened?

Let’s have a look below to get a better idea of what’s going on.

Paysafe Q2 Earnings Picture

The digital commerce solutions company reported impressive second-quarter top-line numbers on August 16. The company said it witnessed key wins across iGaming and other digital commerce sectors, including crypto, during the quarter.

Revenue came in at $384.3 million, up 13% year-over-year and above the consensus estimate of $378.45 million. Additionally, total payment volume (TPV), a vital metric, was up 41% from the same quarter last year to $32.3 billion.

At the same time, adjusted EBITDA increased 8% year-over-year to $118.8 million. However, the adjusted EBITDA margin was down 150 basis points (bps) to 30.9%, reflecting business mix, which included headwinds from the high-margin direct marketing vertical.

At the same time, adjusted EBITDA improved 8% year-over-year to $118.8 million. However, due to the business mix, which included headwinds from the high-margin direct marketing industry, the adjusted EBITDA margin fell 150 basis points (bps) to 30.9%.

Disappointing Q3 Guidance

Despite healthy Q3 earnings results, investors appear dissatisfied. They seem to be more focused on the guidance provided by the management than on the earnings results.

For Q3, Paysafe expects revenue to land in the range of $360-$375 million. The $367.5 million midpoint of the outlook falls short of the consensus estimate of $384.4 million.

Revenues for the full year 2021 are expected to be in the range of $1.53-$1.55 billion, versus the consensus estimate of $1.55 billion.

As the outlook remained considerably below the Wall Street estimates, investors’ disappointment is likely reflected in the stock price movement that followed the earnings announcement.

What the CEO has to Say

Paysafe CEO Philip McHugh highlights the company’s excellent long-term growth prospects in the future.

McHugh stated during the second-quarter earnings call, “In total,  we remain confident in our 2021 outlook and the years ahead as we continue to see the combination of our e-commerce gateway, digital wallets, online banking, and eCash solutions as a true differentiator in the market.”

Furthermore, Paysafe’s attempts to expand its operations through acquisitions also remain noteworthy. During the month of August, the company agreed to acquire two companies – PagoEfectivo and SafetyPay.

The company said, “Combined PagoEfectivo and SafetyPay acquisitions, gives us a market leadership position in Open Banking and eCash Solutions in the fast-growing Latin American market. These transactions are expected to be accretive to 2022 and further enhanced our long-term growth as we drive multiple cross-selling opportunities across all Paysafe business units.”

Paysafe: Analysts’ Opinions

Following the Q2 results, BofA Securities analyst Jason Kupferberg reiterated a Buy rating on the stock and a price target of $15.00. This implies 76.3% upside potential to current levels.

The five-star analyst stated, “While we acknowledge that the 2Q print was a bit disappointing overall, we continue to view the 2021 outlook as very achievable and modestly beatable and view today’s sell-off as a clearing event.”

Further, Kupferberg remains positive about the recent acquisitions and said that “these acquisitions will be accretive to revenue growth”…..and “offer meaningful synergy opportunities.”

Another analyst, Michael Del Grosso of Compass Point, reiterated a Buy rating on the stock but decreased the price target to $13.00 from $19.00. This implies 52.8% upside potential to current levels.

Grosso decreased his price target to reflect the lower-than-expected Q3 guidance.

Overall, consensus among analysts is a Strong Buy based on 8 unanimous Buys. The average PSFE price target of $14.75 implies 73.3% upside potential from the current levels.

Bottom Line

While analysts are bullish about PSFE’s underlying fundamentals, they are concerned about the company’s lower-than-expected Q3 outlook.

Nevertheless, based on the upside potential over the next 12 months, PSFE could be considered a great bet. Moreover, the stock’s TipRanks financial blogger opinions metric, which is based on 16 Blogger Opinions, indicates that 93% of the analysts are bullish on PSFE, compared to a sector average of 70%.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.