Should you buy PayPal or this European payment company?


Payment processing is a lucrative business. By skimming the top of each payout a little, companies in this field provide themselves with an almost endless stream of income, making them potentially fantastic investments.

PayPal (PYPL 6.26%) was one of the first digital payment processors and has become the go-to system for many consumers. However, both the company and the stocks have fallen on hard times after enjoying several great years. Investors may wonder if PayPal is still a good investment in the payment space and if there are better ones out there. A name that appears to be a better potential investment is Adyen (ADYEN -1.51%).

Although these two do not operate in the same payment processing segment, they are both part of the industry. So let’s see if investors should stick with PayPal or if Adyen is a better choice.


PayPal’s business is self-explanatory: consumers can use various payment methods from their PayPal accounts and use PayPal to make purchases or send money to friends. Essentially, it is an intermediary between a customer and a company.

Adyen is similar except it is an intermediary used by businesses. Adyen gives businesses the power to process various payment methods in one platform, whether in-store or online. Moreover, since it is a single platform, Adyen can help its clients better understand their customer base. Moreover, it is able to process various forms of payment, including those found in less developed countries.

Since PayPal is consumer-oriented, it must serve millions of customers. On the other hand, Adyen focuses on businesses, and these customers usually have a long-term commitment with a payment processor. Overall, this makes Adyen a more cohesive company, as it is better insulated from consumer behavior.

This shielding was apparent in the second quarter, when PayPal’s active account growth slowed to 6%, a multi-year low. As a result, revenue grew only 9% year-over-year (YOY) to $6.8 billion, and total payment volume (TPV) increased 9% to 340 billions of dollars.

Adyen had a more successful first half of 2022 (the Netherlands requires reporting only semi-annually rather than quarterly) as revenue increased 37% year-on-year to €609 million ( $589 million) and processed volume increased 60% year-on-year to €346 billion ($335 billion). If we add PayPal’s first quarter numbers, we can better understand how these two companies compare. And we get a surprising result.

Company First-half 2022 revenue H1 2022 payment volume Trading Margin
PayPal $13.3 billion $663 billion 2%
Adyen $589 million $335 billion 0.18%

Sources: PayPal and Adyen.

Adyen’s transaction margin is much lower. This is deliberate, as companies have long complained about the amount of money payment processors get out of a transaction. While Adyen’s approach is a step in the right direction, investors should note that companies still have to pay fees to other entities such as credit card companies. PayPal’s margin is much higher because it charges similar fees to credit cards when consumers send money.

With all the caveats of this analysis, this is probably not a fair direct comparison. Yet investors need to understand this difference before labeling Adyen’s business as less profitable.

Because Adyen is just as profitable as PayPal, although historically it hasn’t been.

ADYEY profit margin given by Y-Charts

This chart illustrates the stability of Adyen and the volatile nature of PayPal. Even though the profits of PayPal may sometimes be higher, the regular profit nature of Adyen makes it easier to run the business as it can better forecast the expenses which makes it easier to manage.

Adyen’s advantages in dealing with businesses rather than consumers are obvious, but how is the stock rated?

Which stock is a better value?

PayPal’s revenue has suffered from its recent difficulties. Therefore, comparing price/earnings ratios is not fair. Also, Adyen has not yet optimized for profit. A better metric for both of these companies is free cash flow (FCF), which is another way to gauge a company’s earnings through the lens of cash in and cash out. From this point of view, Adyen is cheaper than PayPal.

PYPL price to free cash flow chart

PYPL price versus free cash flow given by Y-Charts

Fifteen times free cash flow isn’t a bad price for a business, let alone a growing company like Adyen. For comparison, credit card issuers Visa and MasterCard trade at 24.2 and 31.7 times FCF, respectively.

With Adyen’s consistent profitability, rapid growth, and cheaper valuation, you’d be hard pressed to convince me that PayPal is the best buy. A closing note before loading your brokerage with Adyen stock – it’s a foreign stock. Now, there’s nothing wrong with that, but Adyen won’t get the recognition or media coverage that domestic companies get. It could also be dragged down by a weak European economy, even though its business is global. These are just things to keep in mind before taking a stake in Adyen, but overall the pros far outweigh the cons.

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Elaine R. Knight