H1 2022
Shareholder letter
Designing the next phase of Adyen for scale
We evolved our team structure - adding commercial pillars to continue organizing for speed and scale
We successfully accelerated our hiring pace, with the Adyen team totalling 2,575 FTE at the end of H1 2022
Our focus on hiring for tech roles paid off as we scale our tech-first approach to problem solving
Reinventing traditional financial services by launching an embedded financial product suite for platforms
The under serving of SMBs by traditional financial institutions opens growth avenues for platform businesses and Adyen alike
Historical investments in technology and licenses make us uniquely well-positioned to capitalize on the banking-as-a-service opportunity
The Adyen embedded financial product suite offers business financing, card issuing, and bank accounts via a single integration
High growth and product investments in unified commerce
We operate at the forefront of a continuously growing space, remaining the only player to offer all sales channels via a single integration
We are investing in the most advanced customer journeys, including the launch of in-house developed terminals
Digital transformation is spreading across industries, making unified commerce journeys omnipresent
Persisting longer-term trends amid an evolving macroeconomic landscape
Since IPO, the majority of growth came from customers already on the platform with consistently low volume churn
The lifting of travel restrictions resulted in significant growth in travel volumes
We maintain our long-term outlook amid increased investments in building the next phase of Adyen
Building for scale as we enter the next phase of Adyen
August 18, 2022
Dear shareholders,
While reflecting on the main developments from the first half of 2022, one stood out foremost: we were able to meet our customers and the Adyen team in person again after predominantly connecting via our laptops for the better part of the last two years. Bringing the entire Adyen team together for our global company event - the first of its kind since 2019 - was a particularly major moment. The relationships we build face-to-face are vital to scaling our founding principles of speed, flexibility, and our singular focus on innovating to address our customers' needs. Although the past few years taught us that videoconferencing can be beneficial to building a global business, and that we can successfully pivot to operating fully remotely, it's clear that building trusted relationships and driving innovation moves faster when time is spent together.
When it comes to our product offering, the significant traction we continued to see in unified commerce was noteworthy. While digital transformation was initially a priority for a select group of industries (e.g. retail, hospitality), we now see this trend quickly spreading across industries and confidently state that unified commerce journeys are omnipresent. This unwavering trend is clearly reflected in our point-of-sale volumes too — these were €44.9 billion, and up 97% year-on-year for the period, matching the exact growth rate of H2 2021. This is a fast-growing space, and our runway is significant.
To further capitalize on this opportunity, we continue to drive innovation in the unified commerce space. Investments in in-store journeys were a focal point especially during the first half of the year. On this front, we launched the first models of our in-house developed terminal range. The launch of these devices, for which we partner with hardware manufacturers, enables us to set the pace of innovation and facilitates end-to-end control at the point of sale.
This in-house terminal suite caters to the needs of today’s, and tomorrow’s, most forward-thinking brands. The range currently consists of two portable, lightweight devices: an add-on card reader that can be attached to a smartphone or tablet, and an all-in-one Android terminal that allows for running a broader software suite (e.g. inventory management, loyalty programs) on the same device – enabling a wide variety of mobile use cases.
In addition to launching our own terminal range, we rolled out Tap to Pay on iPhone in collaboration with Apple during the first half of the year, enabling our customers to accept contactless payments on an iPhone. The speed at which we were able to bring this to market is a prime example of our Formula point "we launch fast and iterate." The host of household brands that will leverage Tap to Pay on iPhone include platforms that look to enable unified commerce strategies for their users such as Lightspeed and Fresha, and retailers looking to build industry-leading customer journeys like Nike, further points to our ability to address leading businesses’ needs at speed. The common denominator between these innovations is that they help our customers future-proof in-store operations by facilitating flexible in-store customer journeys.
Announcing the broadening of our product offering to include an embedded financial product suite for platform businesses during our Capital Markets Day was an exciting moment too. This expansion speaks to the broader banking-as-a-service trend, and we find ourselves uniquely well-positioned to seize the opportunity it presents due to historical investments in our global licensing footprint, product offering, and strong team. For the foreseeable future, we do not anticipate significant financial contributions from this offering — our focus is on building the products out with a handful of beta customers. To zoom in on the synergies this product suite brings to platform businesses and their users, an extensive overview of this product suite – which encompasses card issuing, bank accounts, and business financing – is included further down this letter.
On a macroeconomic level, the first half of 2022 was marked by changing patterns in many aspects. Developments including supply chain disruptions and the outbreak of the war in Ukraine further accelerated inflation, and impacted the day-to-day of many businesses and people around the world. Despite these developments, we are posting a strong set of results today, displaying sustained profitable growth amid a continuation of longer-term trends.
In line with previous periods, over 80% of our growth came from customers already on the platform, volume churn remained consistently low (<1%), and net revenue contributions continued to diversify across our customer base, regions, and industries as societies reopened around the world. The pervasiveness of these trends, which we have reported on every cycle since our IPO, underlines how resilient our business model is.
This resilience is reflected in our results too. Processed volume was €345.8 billion in the first half of 2022, up 60% year-on-year. Net revenue was €608.5 million, up 37% year-on-year. EBITDA margin was 59% for the period, following increased travel and events costs as we were able to meet the team and our customers in person again. Another factor impacting EBITDA margin is the 1% for the UN SDGs commitment we made earlier this year.
We are building for the next phase of Adyen, and remain focused on capitalizing on the substantial opportunity ahead. Investments in growing the team, building trusted customer relationships, the expansion of our product suite, and scaling our company culture are reflective of this approach, and help us further realize the operating leverage inherent to our business model on the long term.
During the first half of 2022, this translated to us growing our tech teams at increased pace, and meeting the team and our customers in-person when possible. We believe these investments are key to realizing our long-term growth and profitability potential. With that in mind, we will not deviate from our long-term perspective by optimizing for short-term gains.
The lifting of lockdown restrictions throughout the period impacted our volume mix, fueling the diversification of our net revenue contributions across industries. Most noteworthy is the growth of travel volumes during the first half of the year. This was reflected in our full-stack volumes as well, as we typically do not offer acquiring to airlines. Full-stack volume was 78% in H1 2022, down from 83% in H1 2021.
In a continuation of previous cycles, we saw a decline in take rate. H1 2022 take rate was 17.6 bps. For reference, H2 2021 was 18.6 and H1 2021 was 20.6 bps. This decline is a natural result of our tiered pricing model and the successful execution of our strategy, as we continue to onboard profitable volume at scale. The abovementioned growth in travel volumes impacted take rate too, by driving the percentage of full-stack volume down, and average transaction value up.
On our 1% for the UN SDGs commitment — this commitment is part of the Impact technology and social responsibility programs we have built over the last few years. Investments in developing our own technology to positively impact ESG matters and making direct donations to charitable institutions and NGOs will contribute to this 1% of net revenue figure. During the first half of 2022, our focus was on supporting UNHCR, the UN refugee agency, in their relief work following the war in Ukraine. Through Giving, our donation feature, we enabled our customer base to fundraise for the UNHCR, and the swift adoption of this option by many of our customers was impressive. To play our part beyond offering the donation infrastructure, we matched every donation, and absorbed all donation costs — the latter a default in our Giving feature.
To best execute on our long-term plans while continuing to grow at a rapid pace, we evolved our organizational structure by adding commercial pillars (digital, platforms and unified commerce) that will work alongside our product solutions. This structure allows us to delegate decision-making to keep our speed as we scale. To report in line with how we are building the business, and as shared during our Capital Markets Day, we aligned our reporting with the abovementioned commercial pillars, which you will find further down this letter.
Robust volume contributions across growth pillars
We saw strong growth across all pillars during the first half of 2022 — with customers already on the platform driving the majority of growth. By successfully executing our land-and-expand strategy, we are continuously able to win additional volumes across regions, product lines, and sales channels. As shared during our Capital Markets Day, we aim to communicate and report in line with how we are building the business. Therefore, we will share key trends and developments on our digital, unified commerce, and platforms growth pillars in these letters moving forward.
Unpacking the Adyen embedded financial product suite
We’ve built Adyen by reimagining financial processes through technology and helping businesses move into the digital age. First, through online payments. Then, we disrupted the in-store landscape with our unified commerce offering. To realize the speed and scale required to address our customers' needs, we then invested in building our own banking infrastructure (currently covering the US and Europe). We simultaneously built Adyen for Platforms, encompassing a suite of features (e.g. automated onboarding and KYC, payout capabilities), to cater to the needs of platform businesses.
In parallel with the development of Adyen for Platforms, the financial services landscape shifted due to SMBs becoming increasingly open to obtaining financial products from non-traditional players. Chief among these non-traditional players are platform businesses, of which many are already helping SMBs run their financial processes by offering embedded payments.
Today, the banking-as-a-service revolution is reaching the platform space and we have carved out a unique position to capture an already sizeable, and ever-growing opportunity. We find ourselves well-equipped to seize it due to historical investments in our global licensing footprint, best-in-class team, product offering, and our position at the intersection of multiple macroeconomic trends (e.g. the decreasing relevance of traditional financial institutions, the long-standing under serving of SMBs by these institutions, and the increasing pervasiveness of the platform business model).
By building an embedded financial product suite for platforms, we will enable platforms to capitalize on the opportunity the banking-as-a-service revolution brings. This suite of products enables platforms to integrate financial services into the proposition to their users, and provides fast and easy access to financial services for SMBs through the platforms they already leverage to run their business operations.
Once a complex undertaking for platforms, we will provide these businesses the opportunity to offer bank accounts, business financing, and card issuing through a single integration. For the platform business, this unlocks additional revenue streams while further cementing the relationship with users and competitive advantage. For the platform user, our financial product suite enables access to bespoke financial services at unparalleled speed and ease of use, as we can tailor these products to their profiles due to the insights we have on the platform users from onboarding and payment processing data (e.g. deciding on the maximum amount of business financing or the tailored percentage of daily sales to pay back this financing).
The expansion of our Adyen for Platforms offering is an investment we are making for the long term. For the foreseeable future, we will be focusing on developing this product suite with a select group of customers, in line with our customer-focused approach to product innovation. With that in writing, we would like to share a more detailed product overview of the main functionalities of the suite.
Accounts
Accounts enables SMBs to manage their finances in the same portal as their broader business processes — e.g. receiving incoming funds, spending funds via card or bank transfer, instantly accessing working capital, or leveraging our third-party payout capabilities to directly pay suppliers. For these third-party payouts, the SMB can exchange funds into their preferred currencies when required and payout via the local clearing in the respective country. Especially when paying out business suppliers in other regions, this is a significant further optimization of financial processes.
Capital
Our Capital product enables platforms to extend working capital to their users within the platform interface. Built on our own banking infrastructure, Capital helps SMBs realize their ambitions by providing access to business financing at unprecedented speed. Platform users eligible for this offering are those for whom we are in the money flow and have successfully gone through our pre-qualification process based on our in-house built credit risk framework. These business financing offerings typically run for a maximum timespan of six months, and are automatically repaid based on a pre-set repayment percentage of daily sales.
When combining Capital with Accounts, the platform can provide its users with the funds required to operate and grow their businesses within milliseconds due to our end-to-end banking infrastructure.
Adyen’s current part in this offering is providing funds, the platform user risk assessment, fund disbursement, and facilitating automated repayments. Over time, our position will further evolve. We are in the very early days of building this product, and will develop its functionalities based on our customers' needs and preferences.
Issuing
Issuing enables platforms to issue branded cards, allowing platform users to instantly spend their funds. Adding new cards to an account and setting spend controls can be done directly through the platform portal — speeding up historically lengthy processes.
Through Adyen Issuing, platforms expand their user relationships while building out an additional revenue stream, as the platform receives a revenue share of the interchange fee. For the platform user, Issuing enables them to instantly spend the proceeds of their sales with a virtual or physical card.
When combining Issuing and Capital, SMBs can directly spend the capital provided via a platform-branded card. The same goes for Accounts and Issuing — users can interchangeably spend their funds as they see fit.
We launched Issuing in 2019 and have seen it successfully implemented in multiple use cases, including expense management and on-demand delivery. As we iterated on the offering since that point, the increasing appetite and need for integrating Issuing into a broader financial product suite is evident.
An increased hiring pace as we scale Adyen for the next stages of growth
The Adyen team totaled 2,575 FTE at the end of H1 2022, adding 395 colleagues to the team during the period. This accelerated hiring pace reflects our investments in scaling our recruitment capacities and the extension of the group involved in final decision making on who joins the Adyen team.
The board continues to spend significant time on the recruitment process and meets the majority of new colleagues before they join the team. To maintain a hiring pace that allows us to best seize the opportunity ahead while operating at ever-growing scale, we added multiple members of our senior leadership team to the group conducting final interviews during the first half of the year.
Over the last years, we spent significant time on building out this senior leadership team which will help carry Adyen into its next phases of growth. We provide this group with the autonomy to act as leaders across all parts of the businesses, which allows us to keep our speed of execution. With this group solidly in place, of which many members have been key contributors to our success, we are confident about our ability to capitalize on the unique opportunity ahead of us.
Many of the complexities we solve for are industry firsts, and we have maintained a tech-first approach to doing so since our foundation.To scale that ability, hiring for tech roles was a focal point. We saw this focus pay off and we were able to grow these teams substantially — over half of the Adyen team was in tech at the end of H1 2022.
Our long-term opportunity is substantial, and we look forward to building the Adyen team to capitalize on it. We will maintain our increased hiring pace in the second half of the year.
Our gaze is ahead, and the time to execute is now.
Discussion of financial results
Processed volume growth driven by strong relationships with customers already on the platform in previous periods
We processed €345.8 billion during the first half of 2022, up 60% year-on-year. In line with previous cycles, the majority (>80%) of our growth came from merchants already on the platform.
Of processed volumes, point-of-sale volumes were €44.9 billion, making up 13% of total processed volume and growing 97% year-on-year. This growth rate underscores the relevance of this offering and its significant traction. We work with leading businesses in the unified commerce space, and are the partner that helps them build the customer journeys of tomorrow.
Figure 3
Net revenue per region in EUR millions. Comparative figures have been updated to reflect the Net Revenue geographical breakdown as disclosed further in note 1.3 Non-IFRS financial measures, in the H1 2022 interim condensed consolidated financial statements
All amounts in EUR thousands unless otherwise stated
Net revenue displaying growth with existing customers and continued diversification
Driven by the successful execution of our land-and-expand strategy, net revenue was €608.5 million in H1 2022, growing 37% year-on-year1.
A natural consequence of this strategy is how take rate declined during the period. H1 2022 take rate was 17.6 bps, compared to 18.6 bps in H2 2021 and 20.6 bps in H1 2021. This decline is driven by our tiered pricing strategy and continued growth of customers already on the platform, the growth of airline volumes as societies reopened, and ATV increasing — the latter a direct result from growth in travel volumes.
Net revenue contributions continued to diversify across industries and regions in the first half of 2022. On the geographical diversification of our net revenues — with EMEA contributing for 57% of net revenues, followed by North America (25%), APAC (11%), and LATAM (7%).
Year-on-year growth in net revenue contributions from APAC (up 53% year-on-year), followed closely by North America (up 52% year-on-year) and outpacing EMEA (up 30% year-on-year), and LATAM (up 25% year-on-year).
1 On a constant currency basis, net revenue of €608.5 million would have been 5% lower than reported. Please refer to Note 1 of the interim condensed consolidated financial statements for further detail on revenue breakdown.
Investments in scaling the Adyen team and culture as we build for the long term
Operating expenses were €277.7 million in H1 2022, up 47% from H1 2021. This increase is mainly driven by higher employee benefits as we continue to grow the Adyen team and increased travel and event spend as we prioritize meeting our customers and the team in person where possible — the speed and creativity these interactions spark are key to successfully executing our plans.
Employee benefits were €158.5 million, up 33% year-on-year. Our talent bench is quickly growing into more senior roles as they contribute to scaling Adyen, which resulted in employee benefits outpacing FTE growth during the first half. We continue to bet on the talent that joins our team, and stretch them to capitalize on our opportunity ahead.
In other operating expenses, sales and marketing expenses were €24.2 million, up 41% year-on-year, as we were able to meet our customers in-person by hosting events again.
Our 1% for the UN SDGs commitment is part of other operating expenses as well. In H1 2022, we dedicated the majority of these funds to supporting the UNHCR's relief work in Ukraine, together with our customers via our donation feature Giving. We matched all donations that came in via our customers shoppers to UNHCR, and absorbed the transaction cost of all donations - by default in Giving.
Continued strong EBITDA margins amid the lifting of travel restrictions
H1 2022 EBITDA was €356.3 million, up 31% year-on-year. EBITDA margin was 59% for the period. This was impacted by our 1% for the UN SDGs commitment and travel and event expenses returning.
Throughout the pandemic, travel and event costs naturally decreased. The speed and excitement that meeting each other in person brings has always been a crucial part of our success and our view on how to build the Adyen culture for the long term. Where possible, we will continue this approach.
Net income
Net income was €282.1 million for the period, up 38% year-on-year.
CapEx reflecting higher investments in the infrastructure of the single platform due to macroeconomic circumstances
CapEx was €40 million, and 6.6% of net revenue, up from 5% of net revenues in H1 2021. To remain a prioritized customer for our suppliers and ensure that supply chain disruptions will not hinder the scalability and global coverage of the Adyen platform, we invested in our data center infrastructure at a larger scale than we would have under different macroeconomic circumstances.
Free cash flow
Free cash flow was €308.9 million in H1 2022, up 25% year-on-year. Free cash flow conversion ratio was 87%.
Financial objectives
We've not seen any developments in the business over the first half of 2022 that would lead us to updating our guidance. Therefore, the financial objectives below remain unchanged from the last time we published results.
Net revenue growth: We aim to continue to grow net revenue and achieve a CAGR between the mid-twenties and low-thirties in the medium term by executing our sales strategy.
EBITDA margin: We aim to improve EBITDA margin, and expect this margin to benefit from our operating leverage going forward and increase to levels above 65% in the long term.
Capital expenditure: We aim to maintain a sustainable capital expenditure level of up to 5% of our net revenue.
A video call to discuss these results will be livestreamed from our Investor Relations page at 3PM CEST today. A recording will be made available on the same page following the call.
Sincerely,
P.W. van der Does
CEO
I.J. Uytdehaage
CFO
1 On a constant currency basis, net revenue of €608.5 million would have been 5% lower than reported. Please refer to Note 1 of the interim condensed consolidated financial statements for further detail on revenue breakdown.
Digital
Solving for complexity for large digital merchants has been core to our operations since founding Adyen, and helped us shape our offering throughout all stages of growth. Consumers are more comfortable with digital payments than ever before, and increasingly demand the most seamless digital experiences in which the payment process automatically runs in the background - and all but disappears from the shopper's interaction with our customers' brands. The evolution towards near-invisible payments that is synonymous with brands like Uber is now disrupting other industries (e.g. gaming, online retail) too, with no signs of slowing down. Our customers need a partner that can quickly adapt to these evolving circumstances.
This ever-increasing complexity paired with our customer-driven approach to product innovation makes us well positioned to continuously win volumes with existing and new customers. The quickly evolving needs of digital customers require a partner that builds fast — and our single code base enables us to move at forward-thinking businesses' speed of innovation.
Figure 1
Digital: Processed volumes (in billion euros) of non-platform merchants that process over 99.5% ecommerce volume.
Unified Commerce
The fundamental changes in shopper behavior and widespread digital transformation that took place over the last years drove unified commerce journeys from a nice-to-have to a need-to-have across verticals, creating urgency for businesses across industries to implement such strategies. This shift, paired with the strength of our single platform, means that our opportunity in unified commerce is larger than ever before.
In order to give our customers access to the most advanced shopper journeys, we continuously invest in broadening this offering. During the first half of 2022, these investments resulted in the launch of our in-house built terminals and Tap to Pay on iPhone in collaboration with Apple.
Our ability to translate the most complex consumer demands into seamless shopper journeys (e.g. self-checkout, cashierless stores, and order online, pick up in store) continues to drive growth with existing customers, and helps us win new customers too, with high-profile brands such as Dior, All Saints, and UNIQLO opting for our technology further underscoring the relevance of our offering.
We are operating at the forefront of innovation in this space, and remain the sole player offering a single integration for all sales channels.
Figure 2
Unified Commerce: Processed volumes (in billion euros) of non-platform merchants that process at least 0.5% of their volumes are point-of-sale. POS volumes shown in the shaded areas.
Platforms
We partner with platform businesses to address the long tail of the market in the most scalable manner. Through these partnerships, SMBs gain access to our industry-leading financial technology.
When further zooming in on platform volumes, the growth of our unified commerce offering in the platform space is especially noteworthy. Amid the broader trend of digitization reaching the SMB space, we saw point-of-sale volumes within the platforms pillar grow 304% year-on-year as we bring the value of unified commerce strategies to the long tail of the market.
When we launched Adyen for Platforms in 2017, we solely focused on online payments. Now, we are building out Adyen for Platforms into a single integration that offers unified commerce strategies, a full-fledged embedded financial product suite, and compliance and onboarding services. This all plays to the broader trend of platform businesses looking to further capitalize on the revenue opportunity the relationships with their users brings.
The platform business model is becoming increasingly dominant across a broad range of verticals, and its growth will only accelerate in the years to come.
Figure 3
Platforms: Processed volumes (in billion euros) of customers with at least 50% of volumes on Adyen for Platforms. POS volumes shown in the shaded areas.
Interim Condensed Consolidated Financial Statements
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