Shareholder letter

Dear shareholders,

The results for the past half year were strong, and the indicators of sustainable profitable growth remain intact. Having achieved new milestones of scale in 2021, our view of the prospects of our business are as strong as ever.

In the second half of 2021 we processed €300.0 billion for our merchants, up 72% year-on-year, with net revenues of €556.5 million, up 47% year-on-year. Combined with our first half numbers, this has led to strong results for the full year: 2021 processed volume surpassed the half-a-trillion threshold at €516.0 billion. Net revenues for the year were over €1.0 billion, and 2021 EBITDA margin was 63%.

As in previous periods, the results were bolstered by the unrelenting rise of online commerce globally, and an increasing need for merchants to implement unified commerce shopper journeys. These are further supported by the progressive disappearance of cash, and the democratization of access to global economies through digital tools and payment methods.

The increasing pervasiveness of unified commerce shopper journeys is reflected in the 97% year-on-year growth of point-of-sale (POS) volumes on our platform in H2 2021. These totaled €41.8 billion and comprised 14% of total processed volumes. This growth is a continuation of a longer-term trend, as POS growth has outpaced the growth of online volumes since we’ve begun reporting on these metrics, with lockdown-dominated 2020 as the lone exception.

We’ve always taken a long-term view of the business. This has been true since the foundation of the company. Still, as we operate a culture where our day-to-day focus is primarily on our merchants’ growth, and on continuously solving shorter-term problems, it's humbling to take stock of the scale at which we now operate – without having had the need to alter the way in which we work together.

This scale does not change our priorities. We will continue to follow the same course, in an industry buoyed by many long-term tailwinds. We will continue to invest in the team, in the product, and in the scalability of our operations. A noteworthy once-off investment was made in the expansion of our Amsterdam offices, resulting in a €7.7 million expense that pushed our CapEx to 6% of net revenues in the second half. Full year CapEx was 5% of net revenues.

The area in which we’ve arguably evolved the most as a business recently is in platforms. These platforms operate across a wide range of verticals and offer turnkey solutions to smaller businesses. As we can offer the leading onboarding, pay-in and pay-out solution to these platforms across regions and channels, we’re now increasingly able to help businesses of all sizes grow.

When it comes to building Adyen for the long term, it’s not just about market shifts and merchant needs. Operationally, it’s essential that we identify bottlenecks for future growth in order to sustain and accelerate from our current pace. One of these potential bottlenecks is in the hiring of  talent. Macro conditions (e.g. the war on talent) and a refusal to lower the bar for new hires in order to achieve scale in the form of quick additions has resulted in a growth of 226 FTE during the period. We don’t believe it’s in our interest to mortgage the long-term for short-term gains in FTE count.

That said, all things being equal, we would have liked to hire more during the period. Accordingly, we’ve invested in our recruitment infrastructure and in two new tech hubs to help ramp up hiring during 2022. These tech hubs – one in Chicago and one in Madrid – should provide us with increased global coverage and scale as we build out a technical organization that has historically operated primarily out of Amsterdam. On December 31, 2021, the Adyen team totaled 2,180 FTE. 

On the aforementioned indicators of sustainable growth – in line with previous periods, more than 80% of our growth came from existing merchants, volume churn was minimal at <1%, and net revenue concentration during the period decreased.

The metric perhaps worth celebrating even more than the previously discussed volumes and net revenues, is the fact that the share of regions outside EMEA was above 40% for the first time since we started reporting these splits. We view the continued regional diversification of Adyen’s net revenues as a great positive for the continued growth of the business.

Initially, the impact of COVID on merchants was dramatic. However, it has since proven to be a chance for businesses to build more robust foundations. Changing market conditions have accelerated digitalization. This has resulted in businesses now planning for resilience. We’re also seeing that the companies we helped during the early stages of the pandemic – supporting them through difficult times – are now powering a significant portion of our growth in the region. These enduring partnerships are definitely paying off.

In many urban spaces we’re seeing the rise of ultra-fast delivery services, bringing smaller goods from local stores to consumers almost instantly. There is a boost for the fast and no or low-touch ways to pay, and with that contactless payments have surged across Europe. Moreover, autonomous store concepts are increasingly popping up – allowing for a checkout-free shopping experience. For all these different environments and scenarios, our speed to market and technology are key assets.

Over the past two years overall, we’ve seen digital and online commerce become more dominant, as well as a heavy decline in the use of cash – especially in traditionally cash-dominant markets like Germany. The landscape is further completed by the increasing relevance of unified commerce and the rise of the platforms at the forefront of these shifts in consumer preferences. This has widened our natural customer fit from digital native companies to a much larger group of business types and industries.

The rise of new payment methods like BNPL, changing shopper demands and movements in the regulatory landscape have further complicated an already complex landscape. As we’ve seen before with previous shifts – where industries change, we’re able to help.

Initially when the pandemic hit, businesses whose existence was threatened were quickest to adapt and our focus was on helping them weather the storm. This was most true for businesses in retail and food and beverage. We saw delivery, contactless and online commerce, and curbside pickup spring up at scale across this group of merchants.

Now, as we exit the reaction phase of COVID, we’re seeing a second wave of innovation as merchants across other verticals – e.g. hospitality, large-format retail, leisure – are increasingly aware of the impact of consumer preference shifts. This has sparked a profound digital transformation across these industries as well as those first impacted by COVID. The mandate from boardrooms is clear – and we now see our customers structurally changing their businesses and technology stacks to embrace unified commerce and this newfound urgency for digital transformation. This shift was already happening, but has been accelerated drastically due to COVID. We're meeting the moment for these customers as financial technology is a core piece of any transformation strategy fit for this age. Our newly acquired federal branch license should help us be able to fully meet these merchants' needs.

It’s also worth touching on the increasing universality of SaaS platforms. These platforms tend to focus on a particular vertical, providing turnkey solutions and allowing smaller business owners to stay at the forefront of innovation. As transformation continues in the coming years we expect many more of these players to come into the market and have Adyen be their solution of choice. The end result is that we're powering transformation across all size segments – from enterprise directly to the smallest sellers via platforms.

We continue to work co-creatively with our merchants in our product development. The pandemic has not changed this. Similarly, our annual plans are set in a bottom-up manner based on merchants’ needs. This merchant-centered approach – central to our strategy – has allowed us to react quickly to shifts in the industry and in merchant expectations. 

An example of the efficacy of this approach is the launch of the smaller handheld range of all-in-one Android POS devices, allowing merchants to quickly launch in-store payments without the need for separate cash registers. Not only do these terminals help lower the barrier to launching an in-store channel – they also provide merchants with the option of running an increasingly light, unburdened set-up. This is a space that has evolved drastically over the past decade.

When it comes to the platform businesses that we discussed earlier in this letter, one aspect that is often less highlighted is fraud – which becomes exponentially more complex here when compared to traditional enterprise business. In enterprise, buyer-side fraud is the main issue, which is an area in which  tooling is more developed. In platforms, you’re dealing with a new problem: multi-sided fraud. There are many buyers and sellers on these platforms, and both numbers are constantly growing. The business that runs the platform is not a party in these buyer-seller transactions, it orchestrates and facilitates the interaction – that’s inherent to the business model.

However, the business does run the financial and reputational risk of any malicious behavior that takes place on their platform. This reality is why we launched Score, which employs network analysis and machine learning to work continuously to spot multi-sided fraud. First of its kind, it allows merchants to achieve huge efficiencies in their compliance operations while remaining in control. In an environment where compliance is often viewed as a cost center, these efficiencies and the boost to loss prevention makes this an especially attractive proposition. Due to Score and other investments in our capabilities to help platforms deepen relationships with their merchants, we’re bullish on our prospects in this space.