H2 2023
Shareholder letter
Expanding existing customer relationships delivered a period of profitable growth
Net Revenue was up 23% YOY, driven by continued growth across our existing customer base consistent with our underlying land-and-expand fundamentals.
Across each pillar, a range of variables determine exact go-live and roll-out dates, underscoring why maintaining a long-term commercial view is core to our decision-making and continued to serve us this period.
Growth is not always linear, as demonstrated across our commercial pillars. In the second half of H2, we significantly expanded our relationship with a single, existing Digital customer. Unified Commerce grew steadily despite inherent retail exposure. Platforms saw continued traction as the appetite for embedded payments further scaled.
Hiring gradually slowed as the team reached its next intended scale
We concluded our two-year accelerated investment period of significantly scaling our global team, which brought the company to its next level of maturity.
EBITDA margin was 48%, reflecting our intentionally slowed hiring pace.
We continued to prioritize hiring outside of Amsterdam across our tech and commercial domains.
Commercial ambitions were bolstered by iterative product innovation
Throughout H2, we further invested in a range of new and existing functionalities, from alternative payment methods to platform automations and optimized routing.
With many customers shifting focus to optimization this year, we helped them improve conversion rates, reduce fraud, and enable significant operational efficiencies.
Though it will take time for the impact to be realized, we adapted our sales and account management strategies to better emphasize the total cost of ownership benefits Adyen brings.
A period of expansion for our global team and customer relationships
February 8, 2024
Dear shareholders,
It's been just a few months since we were together at our Investor Day in San Francisco, which is still fresh in our minds. The market's reaction to our H1 results motivated us to host the event. At the time, challenging dynamics including shifting customer priorities – which have and will always evolve – posed a number of potential distractions as we executed our strategy. While navigating the turbulence we all experienced, our team spent time in dialogue, listening to your feedback, and making improvements where needed. We thank you for your valued input, and are pleased to have implemented meaningful changes that are built upon throughout this letter.
Our deliberate shift towards enriching our investor communications was one positive development. In November, we specified our expectations for the coming three years, discussed our product and commercial strategy, introduced you to a number of our global leaders, and provided more detailed metrics per pillar. By broadening and deepening the insights shared, we hoped to impress upon you that we have been proceeding with a clear vision. H2 validated our ability to execute on our long-term approach while also addressing your pressing feedback. As a result of this discipline, we scaled our global team to its most far-reaching to date and grew with our customers across each pillar.
Indeed, H2 2023 was an exercise in continued focus. Looking at it by the numbers, we closed the year with a solid set of results. This period, our net revenue landed at €887.0 million, up 23% YOY, driven as usual by our customers’ continued growth on our single platform. Even after a two-year accelerated investment period in our team, EBITDA had full-year growth, with H2 up 14% YOY. EBITDA margin landed at 48% for H2, a metric reflecting our deliberately slowed hiring. Still, we welcomed 313 new joiners in H2, bringing us to a total of 4,196 FTEs at the year's end. Net income outpaced this growth, as it also benefited from significant interest income in the period. Building our team over the last two years was a counter-cyclical decision compared to much of the industry, enabled by the profitable business we built and the flexibility it provided amid a favorable talent market.
As planned, H2 saw us gradually slow our hiring as we brought the company to its next stage of maturity. We now have the team equipped with the skills required to execute on our key growth ambitions, and to do so at scale. In line with our business strategy, the majority of H2 hires sat in tech and commercial roles located in offices outside of Amsterdam, which will remain the focus when we hire as needed moving forward. Over the course of 2024, we plan to onboard a couple of hundred net-new joiners. As previously communicated, the tempering of our hiring will allow our operating leverage to again become visible in our financials. Though this process will begin in 2024, the operational impact will be less visible as 2023 hires annualize, followed by more material leverage in 2025 and 2026.
As was essential to our hiring ambitions, we similarly recognized the importance of maintaining a long-term outlook from a commercial perspective. Across each pillar, a range of variables determine exact go-live dates. Each technical roadmap is unique. Negotiation periods can span the spectrum of many years to just a few weeks. Furthermore, roll-out complexity varies drastically between digital businesses compared to enterprise, global point-of-sale (POS) retailers. Pillar growth is therefore not always linear, and the importance of zooming out to the long-term trajectory cannot be overstated.
H2 2023 exemplified this, as Digital volume growth increased to 33% YOY, compared to 23% in H1 2023. This acceleration was predominantly driven by the further ramp-up of an existing customer in Q4. Substantial wallet-share growth with our customers undoubtedly drives value for our business, even when our tiered pricing model means volumes may outpace revenue. This is why we consciously manage on net revenue rather than take rate.
In North America, we further realized the growing opportunity presented by the region's digital sophistication. While it has long been dominated by card payments, the landscape is becoming more complex due to new payment methods, digital wallets, and regulatory changes – making it a dynamic environment ripe for innovation as businesses seek to keep pace. With our strategic investments in our US branch license and alternative payment methods like open banking, we ensure that our North American customers not only remain ahead, but also optimize their costs and processes along the way. This proposition resonates, and North America was our fastest growing region in H2 due to continued market share and volume growth with the majority of our largest digital customers.
Meanwhile, Unified Commerce volume grew steadily but at a slower pace in H2 at 24%, compared to 36% in H1. Despite the pillar’s inherent retail exposure – a vertical in which we saw a broader industry slowdown – we continued to handle peak volumes and record activity levels during Q4’s holiday season. Our infrastructure soundly combatted heightened fraud attempts and maintained the seamless experiences today’s shoppers not only expect, but demand. As the world continued to fluidly blur the channels across which purchases are made, we bolstered our leading position enabling this movement.
Being at the forefront of cross-channel journeys was illustrated by our S Group win, for whom we will process their portfolio of large-format grocery stores, restaurants, hotels, and service stations. While the retail factors mentioned above are at play in the near-term, longer-term trends remain intact, including the emerging digitalization of historically less obvious and large-format industries, for which we are the partner of choice. This Unified Commerce driver was underscored by our large-format retail activity sustaining YOY growth momentum in H2.
Demonstrating the functionality advantage and value we bring, this period, we entered a partnership with Straumur, a subsidiary of Kvika Bank hf. Straumur joins our growing number of financial services customers who are turning to Adyen’s technology to round out their offerings and meet advancing consumer expectations – not only in Digital and Platforms, but also in Unified Commerce. With a focus on user experience, the rapidly digitalizing financial services industry is a prime example of how our diversifying customer base reinforces our substantial opportunity. The wider group of verticals blending online and offline journeys, alongside our untapped potential in regions like North America, bolsters our confidence in Unified Commerce as a business driver.
Platforms also saw continued traction as the SaaS business model further embedded payments into its offering, a trend spreading across new and highly specialized verticals, such as parking technology and dental practice management, to name a few. This contributed to the pillar growing 19% in H2 compared to 3% in H1. A significant success story this period was with major, multi-national technology company, Oracle, for whom we are working to offer their customers a complete payments solution: Oracle Payments. Aligning with our shared goal of powering superior experiences for ambitious businesses, in 2024, we plan to expand our partnership into the UK and diversify into new verticals.
This cycle, we secured an exciting land-and-expand win with BILL, a leading financial operations platform for small and midsize businesses, to deliver advanced acquiring and issuing experiences for BILL’s accounts payable (AP) and accounts receivable (AR) solutions. The partnership, which started with Adyen for Platforms’ card acquiring, has grown to include card issuing capabilities, marking a natural progression across Adyen’s platform offering. Issuing traction has also been promising more broadly. Compared to H2 2022, during which we processed in the tens of millions, this period, we processed more than 100 million euros in issuing volume. While we still have a long way to go before it becomes a significant contributor, we see great promise in Adyen’s growing enterprise customer base adopting this newer product.
To continually improve how we meet customer priorities, we adapted our sales and account management strategies to better emphasize the total cost of ownership benefits Adyen brings. This includes explaining how unifying sales channels drives efficiency in new verticals; how reduced fraud and approval uptick supports Digital customers; and how embedding payments and financial services helps increase stickiness while opening new revenue streams for Platforms businesses. While it will take time for our evolved conversations to convert new business, we are enabling current and potential customers to better understand that Adyen is not only the financial technology provider to drive revenue, but also the one to help reduce backend operational and overall payments costs in the process.
Looking back at H2 2023, a number of challenges had the potential to divert our attention, but were navigated with many positive outcomes. As a result of this cycle, we implemented meaningful change in our investor engagement, iterated our sales and account management approach, and succeeded in both team and customer expansion. To get there, our focus was fixed on our north-star objective: to be the financial technology platform of choice for leading global businesses. Over an extensive runway, this will define the value of our company. Remaining long-term focused has always and will continue to serve us. We look forward to continuing in this stead in 2024.
P.W. van der Does
Co-founder and Co-CEO
I.J. Uytdehaage
Co-CEO
E.L. Tandowsky
CFO
Interim Condensed Consolidated Financial Statements
H2 2023 Adyen N.V
The information in this press release and the shareholder letter & interim financial results is unaudited.
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