Replace Paysafe CEO Philip Mchugh
Replace Paysafe CEO Philip Mchugh
First and foremost, would never ask for someone's resignation, but in my 20 years of investing I have never have seen such irresponsible & uninspiring communication from leadership. The stock price has been hitting all time lows daily while leadership continues to be silent. The silence speaks volumes, it's almost as if leadership is purposefully not commenting on anything to keep the price falling.
As SOFI stock dropped, Anthony Noto was on mainstream media to provide confidence to its shareholders, institutions and prospective investors. As Draft Kings stock price dropped, CEO Jason Robbins did the mainstream media circuit. Paysafe stock has been dropping for a year, where has leadership been?
Paysafe is making great acquisitions and progress, McHugh might make a great high-level executive, make a great employee, but he is a not a public face, a leader.
We need him to step down, bring in an inspiring, confident and vocal leader to amplify and communicate all of the progress Paysafe is doing.
As I outline below, I believe in the business model and fundamentals of Paysafe, but it is the CEO's duty to provide value for the shareholders and the current CEO Philip McHugh has not provided value, nor confidence, nor anytime of leadership in the public arena. Someone needs to be held accountable for this irresponsible drop in shareholder value.
McHugh has been extremely uninspiring in his limited communications and someone has to be responsible for the 12 month decline.
Paysafe needs new leadership, an inspiring and vocal leader that exudes confidence, that will amplify all of the amazing progress Paysafe is doing in its sector. A leader that can properly communicate Paysafe's vision to its shareholders, prospective investors and institutions. McHugh might be a great employee, but he is not a public leader.
When Paysafe went public via spac, it received price targets of:
Compass Point: $19 price target
Credit Suisse: $17 price target
Wolfe Research: $19 price target
RBC: $19 price target
Paysafe is on pace to bring in $1.5 billion of revenue for 2021, and as of October 8th, Paysafe has 9 analyst ratings, all with Buy Ratings.
Current Stock Price has dropped from $19.57 to $7.13, hitting all time lows daily while leadership remains silent, hence why we are asking for the resignation of Paysafe CEO, Phillip McHugh - or atleast step down to an executive role.
Paysafe continues to merely send our press release on the newswire and doing dull one x one fireside chats with limited viewership instead of hitting mainstream media to bring in new investors.
These past 3 months, Paysafe has completed the acquisition of PagoEfectivo to acquire a Peruvian-based alternative payments platform. The combination with the recently announced deal for SafetyPay targeted for year end close will provide a strong foothold in the fast growing Latin American market.
While also acquiring Germany-based viafintech, which offers the biggest bank-independent payments structure in the DACH region (Austria, Germany and Swizerland),
This quarter, Paysafe has further announced processing partnerships with Golden Nugget, WynnBET, Fubo, Betfred and XBox:
- Paysafe Powers Online Payments for Montana Lottery’s Sportsbook
- Paysafe Streamlines Payments for Interactive Wagering With Fubo Gaming in US
- bunq Partners With Paysafe to Enable Cash Deposits for Digital Banking
- Paysafe Expands Betfred USA Sports Partnership Through Income Access Deal
- Paysafe Completes Acquisition of PagoEfectivo
- Paysafe to Acquire viafintech
- Paysafe to Acquire SafetyPay
Paysafe is also helping bring BetFred, a European bookie, to the U.S. market. BetFred will build a multi-state gambling network with Paysafe’s Income Access. As additional states legalize sports betting and online gambling, Paysafe can back the play. Paysafe has hired a former DraftKings executive to lead its efforts in the space.
PaySafe is big in gambling, including online sports betting, just starting up in the U.S. While it’s a processor, not a gaming stock, some analysts lump it in with the gambling plays.
Last Earnings Q2 Results:
On Aug. 16, Paysafe reported that its total payment volume (TPV) increased 41% and its net revenue rose 13% year-over-year (YoY). Moreover, its net income turned positive at $6.6 million from losses last year, and its adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) grew 8% to $118.8 million. However, its adjusted EBITDA margin fell a bit from 32.4% to 30.9%.
- Total Payment Volume of $32.3 billion, increased 41%
- Revenue of $384.3 million, increased 13%
- Net income attributable to the Company of $6.6 million, compared to net loss of $15.9 million
- Adjusted EBITDA of $118.8 million, increased 8%
- Reaffirmed 2021 full year outlook
Analyst Mark Hake also likes PaySafe. He estimates it’s worth $8 billion, 40% more than it’s now trading for.
He called its latest quarterly results, released Aug. 16, excellent. They showed a net income of $6.6 million on revenue of $384 million, up 12.6% from a year earlier.
FULL SECOND QUARTER 2021 EARNINGS PRESENTATION
A while back I looked at a basket of fintech peers including PayPal, Square, Nuvei, Repay, Shift4, Adyen, Affirm, BILL, GPN, and Paysign.
Paysafe reports 30%+ EBITDA margin, mid to high teen EBITDA growth, and $362 million in free cash flow (now on track to increase 29%),
By comparison, a third of the peer group reported negative EBITDA, half reported negative EBITDA growth, and a third negative free cash flow.
Paysafe also has better EPS than over half the group and better Debt/EBITDA ratio than 3/4 of them.
The group's collective growth rate of ~12.5% is in the range of Paysafe's 10-13% projections but the company's estimates may be intentionally conservative as they do not take into account their current expansion into US iGaming nor do they factor in their "active M&A pipeline." Foley is apparently known for under-promising and over-performing.
As noted above, Paysafe was growing 28% CAGR pre-Covid, but taking into account last years slow down due to Covid-related business closures and strategic channel exits, it grew at 18% CAGR, a rate on par with PayPal's projected growth.
Given all the above factors, it seems fair to look at Paysafe's potential price based an average of the multiples for the above peers:
Paysafe’s share price with average of sector peer multiples:
EV/EBITDA ratio : $122.09
EV/Rev ratio : $83.91
EV/FCF ratio : $87.86
More realistic price after removing all outliers in each category which put PSFE share price over $100
EV/EBITDA ratio : $50.75
EV/Rev ratio : $44.64
EV/FCF ratio : $44.18
Average : $46.52
In a nutshell, the basket of sector peers has an average growth within Paysafe’s conservative projections yet they trade at 350-750% higher multiples. With Paysafe having better financials than most, it is hard to argue that this is proportionate. Either the entire field has to come down or Paysafe has to go up.
Unlike Paysafe, around half of these competitors report negative EBITDA growth and a third report negative EBITDA and negative free cash flow.
Used low end of Paysafe's projections and factored in debt and high-end of potential dilution.
As noted Paysafe’s 10.6% rev growth projection excludes planned inorganic M&A growth and projected 55% CAGR iGaming growth, which constitutes a third of their revenue.
RBC Capital 5-star analyst Daniel Perlin:
“We believe PSFE offers a unique combination of digital wallet capabilities, accelerated cash conversion for consumers who would otherwise be out of the ecommrece loop, and integrated payments, all focused on specialized & complex end-markets, which creates a competitive moat and pricing power.” “recent underperformance is largely due to the complex nature of PSFE’s business and the FTAC II transaction” and adds his view that Paysafe offers one of the best combinations of services in online payment space: “PSFE has created a unique two-sided network enabling merchants to accept online & in-store payments (in specific niche verticals), while also offering consumers a digital wallet & eCash solution, which converts cash-heavy users to digital users. We believe it’s this combination that enables PSFE to generate superior take rate economics vs. peers.”
BMO Capital, 5-star analyst, James Fotheringham:
“PSFE is a global leader in iGaming (online betting related to sports, poker, and other casino games, as well as lotteries and bingo). Indeed, 36% of PSFE’s revenues are from global iGaming. That is far more than for any of its peers.” iGaming deposit volumes in the U.S. will grow “at more than five times the rate of growth elsewhere in the world” with a "5-year CAGR (compound annual growth rate) of between 40% to 55%."
Evercore ISI analyst David Togut 'praised Paysafe for its “robust risk management operation,” and its high rankings in several key performance indictors globally, including cash network, stored digital wallet value, and amount of partnered independent merchants.'
There is absolutely no explanation for the continued decline in stock price, and leadership's silence is cause for concern, hence we are calling for the resignation (or step down to an executive role) of Paysafe CEO Philip McHugh.