Paysafe Stock: Another Fintech SPAC On The Scrap Heap (NYSE:PSFE)

Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.“― Aleksandr Solzhenitsyn

Today, we put Paysafe Limited (NYSE:PSFE) in the spotlight for the first time. The share of this digital commerce solutions concern find themselves deep in “Busted IPO” territory. Not surprising, given it took the SPAC route to go public and as my regular readers know, most of these once high-flying names are now on the scrap heap. If you scroll through Seeking Alpha’s news feed, you will find this company frequently announcing new partnerships in payment processing across eGaming and other sectors. Unfortunately, that has not translated into shareholder value to this point. So will Paysafe continue to be a falling knife or is it an oversold gem? We attempt to answer that question via the analysis below.

Company Overview:

Paysafe Limited is headquartered in London. The company provides digital commerce solutions to online businesses, small and medium-sized business merchants, and consumers. These include PCI-compliant payment acceptance and transaction processing solutions for merchants and integrated service providers, including merchant acquiring, transaction processing, online solutions, fraud and risk management tools. The company also provides data and analytics, as well as point of sale systems and merchant financing solutions under the Paysafe and Petroleum Card Services brands and offers digital wallet solutions under the Skrill and NETELLER brands. The stock currently trades right at two bucks a share and sports an approximate market cap of $1.45 billion.

First Quarter Results:

The company disclosed first quarter numbers on May 11th. The company had a net loss of $1.2 billion for the quarter, which is entirely attributable to a $1.2 billion non-cash impairment charge. Total payment volume was up 13% to $31.2 billion from the same period year even as net revenues was down three percent to $367.7 million. On a constant currency basis, net sales were flat to 1Q2021. Adjusted EBITDA also fell eight percent (five percent on a constant currency basis) to $104 million.

The company guided to $370 million to $380 million of revenues in the second quarter, approximately $20 million below the consensus. The company guided to full fiscal year net sales of $1.53 billion to $1.58 billion, roughly in line with expectations.

This might have been somewhat of a “kitchen sink” quarter given the company appointed a new chairman in March and a new CEO took over on May 1st. On the earnings conference call, management seemed pleased with the progress on revamping the company’s digital wallet business in Europe as well as traction in both the U.S. and European eGaming markets.

Analyst Commentary & Balance Sheet:

The analyst community is mixed on Paysafe’s prospects at the moment. So far in 2022, five analyst firms including BMO Capital and Cowen & Co. have reissued Buy or Outperform ratings on the stock. Price targets proffered range from $4.00 to $7.00 a share. Credit Suisse ($2.25 price target), Evercore ISI ($4.00 price target) and Bank of America all have Hold or Underperform ratings on the equity.

Just over five percent of the outstanding shares are currently held short. The company ended the first quarter with just over $250 million in cash and marketable securities against approximately $2.7 billion in overall debt. The company is targeting some $20 million in annual cost saving this year via banking efficiencies and other cost saving measures.

Verdict:

The current analyst consensus has the company losing over a buck a share in FY2022 as revenues move up slightly to $1.5 billion. Next year the analyst community sees the company eking out a small profit on revenue growth in the high single digits.

Paysafe now sells at less than 20% of the market value it came public at. This is hardly an outlier in the Fintech space from former SPACs, unfortunately. The fintech space has become very competitive with myriad competitors, and Paysafe seems to have a lot of pots on the stove.

With a possible global recession on the near term horizon, headwinds aren’t going to ebb anytime soon. The company has a heavy debt load given its size as well. Given that, I am taking a pass on any investment recommendation around Paysafe at this time.

For the common good” is the most common excuse for uncommon evil.”― Jakub Bożydar Wiśniewski