Feb 9, 2022
Ethan Tandowsky
Hi everyone and welcome to the Adyen H2 2021 Earnings Call. My name is Ethan Tandowsky.
I’ll be your moderator today. And I am joined by our CEO, Pieter van der Does; and our CFO, Ingo Uytdehaage, who are both live from our new Amsterdam office.
We’re excited to talk you through the financial performance from the second half of the year. And to get started, like we’ve done in past earnings call, we’ll start with a short movie, which will take you through some of the developments we’ve seen in the industry and trends we’ve seen on our platform.
Hope you enjoy it. Hi everyone and welcome to our H2 2021 earnings call.
Let’s dive right into it. The results for the past half year were strong and the indicators of sustainable profitable growth remain intact.
We process 300 billion in volume in H2 2021 and 516 billion for the full year. Net revenue for the second half was €556 million and €1 billion for the full year H2 EBITDA margin was 64% and 63% for the full year.
As in previous periods, we saw merchants already on the platform contribute over 80% of volume growth and volume churn remain below 1%. The industry continues to grow and we’ve seen an acceleration in the digitalization of economies around the world over the last year.
For these results, we would like to highlight a few metrics we consider to be of note and that prove to us that we’re on the right track in executing our strategy. The contribution of net revenue coming from regions outside of EMEA was above 40% for the first time in Adyen’s history.
We see this as a great sign for the continued geographical diversification of the business. Point-of-sale volumes are once again outpacing e-commerce volumes growing 97% year-on-year for the period.
Businesses are looking for a partner that is able to combine both the online and in-store channels. This is true now more than ever in an increasing number of verticals.
This acceleration of digitalization is not just anecdotal. It’s happening everywhere.
In APAC, the payment culture is more digital than ever bringing an increasing amount of overlap regionally to what was historically the most fragmented payment markets. In EMEA, the initial shock of the pandemic resulted in businesses prioritizing quick adaptation to lockdown restrictions, a resilience that businesses are now designing for.
In LATAM, the shift towards online commerce seems unstoppable and we see a new payment methods pop-up and quickly gaining share as they’re able to democratize access to this new digital economy. In North America, unified commerce is more than ever top of mind for merchants across an increasing number of verticals, delivery, curbside pickup and contactless payments are becoming more and more daily interactions.
Here too, we’re now seeing the institutionalization of digital transformation and it’s now a critical part of RFPs from businesses. On products, we are continuously improving our Adyen for platforms offering and at its score, which employs network analysis and machine learning to target the multi-sided fraud that is specific to platforms.
We also launched a new range of handheld Android point-of-sale devices, providing merchants with a flexible option built for the new age of retail. As we continue to grow as a business, we’re looking to ramp up hiring in 2022.
This is partially why we were announcing today the launch of two new tech hubs in Madrid and Chicago locations where we’ll build engineering and product teams. All in all, we look back on a strong set of results from the second half of 2021 and look forward to what the next year has to bring.
Great. Well, we clearly have a lot to talk about, so we’ll dive next into a discussion with Pieter and Ingo, where we’ll touch on some of the key points and following that we’ll move to a Q&A session.
Just as a reminder, you can already start to ask your questions using the Q&A functionality at the bottom of your screen. And please do include your full name and firm you represent when asking your questions.
Now, Pieter, let’s kick it off. What would you like to highlight from the second half of the year?
Pieter van der Does
Well, of course, I’m well impressed with a billion of revenue, but also process volume. It feels to me not so long ago that we said one day we’ll do a trillion at the time that was 20x and right now we are over half a trillion.
So we are really getting there, so immensely proud of that. What I, of course, want to highlight is how the team has worked through the difficult COVID times.
We haven’t been able to see each other as much in the office as we like. And everybody went the extra mile, so I’m really, really happy and humble to work in such a team.
On the numbers, we said that we organically will build a global company and now with more than 40% coming outside of the EMEA region that is really happening. So, I’m also pleased with that, especially North America, growing 74% on net revenue year-over-year, I think, that’s amazing.
If you look at how we do it, we build strong partnerships with our merchants. More than 80% of growth come from existing relationships, whilst we’re adding new merchants at the same time that expand with us.
So, it shows that they like our services. So, we often work together with them on the new products, where we also are doing that is segment, which I want to point out that is the platforms.
Platforms are increasingly important as a business model and also part of the market that we are really interested in and successful in. It’s complex because you have to keep in mind the needs of the market, of the platform, but also the needs of the sellers on the platform.
So, you work on both ends and that complexity we thrive in. It works very well.
So those are the foundations of how we get to such a growth.
Ethan Tandowsky
Great. So, growing together with our merchants, further diversification together with them, all fantastic trends.
Ingo, I’m curious to hear from you, is there anything else that you’d like to highlight?
Ingo Uytdehaage
Yes, I like to highlight our growth in point-of-sale. We doubled volumes over the past year which is very impressive, the point-of-sale volume growth outpaced the ecommerce growth and at the same time ecommerce growth was probably one of the best years in the history of our platform.
So, from that perspective we’re looking at great performance. We’re also of course, happy to see that in the course of this pandemic, people returned in-store that helps us also to execute unified commerce strategies with our merchants, making sure that people are flexible to buy in the different channels and always come with the best customer journey.
So, I think it’s a clear proof point for us that the unified commerce strategy is helping merchants to execute their payment strategy. And yes, we’re are pleased to be their partners.
And that’s why we’re so happy with this growth in volumes
Ethan Tandowsky
Clear. So unified commerce is a trend definitely here to stay it seems.
Ingo Uytdehaage
Absolutely. Yes.
Ethan Tandowsky
Yes. Yes, great.
And I think that’s a nice natural transition into, of course, still we’re about two years out from the start of the pandemic and it’s changed a lot of things in this world, also, how merchants interact with their shoppers. Pieter, I’m very curious to hear from you, how has shopper behavior changed, yes, in the last half year?
Pieter van der Does
Yes, for merchants, it became really important to build a consistent brand to their shoppers over all channels. So that made unified commerce even more important because there is competitional service levels to shoppers.
So, it becomes business critical to be able to do unified commerce. And what we have seen during the pandemic is that as stores were closing other business models overthink about curbside pickup.
We’ve seen the move from cash to cashless. So there has been a lot of change for merchants and we have the systems to help them with that.
Also, as an effect of that you see that, merchants which were only on a single channel with us, so, for example, point of sale, were very quickly to add online to it. So, all the trends which were in the industry have accelerated because of the pandemic and those trends were exactly the trends that we build our products for.
Ethan Tandowsky
Got it. So, we clearly see our merchants adapting.
I’m curious as well, how our team has adapted. Ingo, maybe you can expand on that.
Ingo Uytdehaage
Yes, the team has clearly adapted to the new situation. Also, over the past year they have been extremely adapting to the situation helping to continue to build a company always in a combination, working from home or working from the office depending on the local situation.
And that’s been quite different, in different regions. If you look at our strategy there, we want to offer basically two options work from home or work from the office, but always have that moment in the week where if it’s possible given the local situation to get back to the office, because we strongly believe that that’s a great place to work together and contribute to the growth of the team, see each other, talk to each other.
That’s also why we continue to invest in new buildings. We are sitting here in a new Amsterdam office.
We’ve also opened new locations in London, in New York. And what was also said in the video, we’re launching new hubs in Madrid and Chicago for engineering and product.
And that’s all to basically continue to build out our team and have local presence close to where our customers are based. So that’s something that we’re very proud of, we continue to invest in those locations.
Going forward, of course, I really look forward to see people in the office again. We think that working together in the office is one of the best things.
And yes, that’s what we continue to focus on. Yes.
Maybe as a last thing also talking about being in the office or being virtual, we have also planned a new virtual event towards the end of March, the 31st of March, we are organizing new Capital Markets Day where we want to talk about the new horizons that we see. We’ve gotten to a couple of milestones that we just presented and we want to talk about our strategy going forward in a virtual Capital Markets Day end of March.
A - Ethan Tandowsky
Great. Well, thank you both.
Let’s now move to see what questions have come in. The first question comes from Mo Moawalla from Goldman Sachs.
Mo, you can unmute yourself and please go ahead with your question.
Mo Moawalla
Great. Thank you, Ethan.
Afternoon, Pieter and Ingo, thank you for taking my question. I had two.
First one for Pieter. Obviously, there’s a lot of narrative and debate around sort Of e-com slowdown.
You’ve always been fairly steadfast that you see this as a unified commerce market over the long run. Can you talk a bit more about maybe through some merchant examples of how you are sort of capturing some of this channel shift, how easy it is for your merchants to also kind of using the single platform roll-out in things like POS.
I anecdotally myself in London, see you guys a lot more at the point of sale. So clearly this is quite tangible.
Also maybe to talk about that and how this can offset any potential headwinds that may come on the e-com side. And the second question was for Ingo, obviously the take rate has several dynamics in there, but obviously as you grow your wallet share, customers are hitting kind of higher volume thresholds, but could you talk us through all the various moving parts around the take rate and how that should sort of shift over the medium term and related to that particularly in the mix.
Thank you.
Ingo Uytdehaage
Sorry, Pieter. I just interrupted, but go ahead on the unified commerce question.
Pieter van der Does
Yes, I think that the foundation under our growth is expanding with our existing merchants and why is unified commerce is so important there, that is, if you look at total addressable market first, it’s huge. So this is about outperformance for all the end to have its growth trajectory and outperformance, I think it’s a very good decision, which we took, I think in 2013, we started building on point of sale.
And to have that in a single platform means that you have a single view on your shopper, and that makes all those adjustments really easy. And you don’t get to the same product by doing acquisitions because with what we can do, that means that you can do a return in store.
And if theoretically, you could do it without talking, you show the product you want to return, which you bought online, you dip the cart and they can refund you on the cart. If you have that in separate systems, exactly those journeys are then very, very difficult.
So this is about building products, products which sometimes like in the case of point of sale, we built seven or eight years ago, start building on this. And that’s also what we do today.
We are today building products, which will take up years probably before they become a large part of our volume. You see it in point of sale growing, I think 97%.
But again, such a base of growing at the end that in terms of share it now grow to – grew to 14%, but there also is of course a huge potential still in those products. So I think that’s the answer to your question.
How dependent are you on the volume of single merchants? First, it’s way more important how successful are we rolling out our strategy?
And I think there are a lot of data points that we are successful in doing that.
Mo Moawalla
Great. Thanks, Pieter.
And I think for you Ingo on take rate, I know it’s not something we actively manage the business on, but what are some of the puts and takes that we see there?
Ingo Uytdehaage
Yes. So on take rate, I think there are a couple of things to highlight, of course.
First of all, the strategy has always been to grow with our merchants. And if a merchant brings more volume, the price print transaction goes down and it has a negative impact on take rate.
But there are some other factors as well. One of the factors is that we’ve seen over the past half year that the average transaction value has increased, and that has a negative impact on take rate as well, because part of our fees is in sense instead of base points.
So if we have less transactions with the same processed volume, the fees are lower and therefore take rate declines. That’s another important effect that we have seen.
Other than that, I think it is important to say that we continue to manage the business on absolute margins. So making sure that we continue to grow our business with our merchants and increase the invoice overtime.
That’s our main focus. That’s how we manage.
And therefore, we’re happy with current level of take rates.
Ethan Tandowsky
Clear. Thanks for the answers.
Next up, we have Adam Wood of Morgan Stanley. Adam, please go ahead.
Adam Wood
Hi, good afternoon, everyone. Thanks for taking the question.
And congratulations on very, very strong second half of the year. Could I also ask two?
The first one is maybe a little bit of a follow-up around the e-commerce market Mo alluded to the fact that that does seems to slow down in the second half and that slow down looks to have continued into January if we look at Visa and Mastercard data. Could you maybe just talk a little bit, we know that the merchant penetration is much more important for you than baseline market growth, but if you separate that out on the platform, could you talk a little bit about what you’ve seen and whether as we’ve come into the start of this year there’s any – in any big changes to that that you’ve noticed.
And then maybe secondly, just on the cost side of the equation, you flagged that you would’ve liked to have hired more in the second half of 2021. Do you see that as a barrier to growth at all in 2022?
And could you maybe just talk a little bit about how challenging attrition rates and hiring is now in the market and whether that pace of hiring the share could have a noticeable impact on the EBITDA margins? Thank you.
Pieter van der Does
Hi.
Ethan Tandowsky
Maybe to start Ingo on e-commerce I think the way e-commerce is developing, do you have anything to add there? And I know we’ll get to you Pieter afterwards on the rate of hiring.
Ingo Uytdehaage
Yes. So I think on the e-commerce side, it’s indeed hard to distinguish those strengths on our platform because we keep growing with our merchants.
80% of our growth comes from existing merchants. So we’re winning a lot of market share or share of wallet with our merchant.
And therefore, the trend that e-commerce growth would slow down what you maybe see or hear in the news that we have seen on our platform. And I also have no signals that that will be the case for the next year.
We continue to work with our merchants making sure that we get more volume overtime and that, that will be our main main focus.
Ethan Tandowsky
Pieter, maybe on the hiring side, how are we able to bring more people into the company and realize our growth ambitions?
Pieter van der Does
Yes. It’s the – it’s a competitive market.
I think if you if you look at all end, the magic is of that you can work in a team with such talented people. So we willfully make the choice that we are not diluting on the quality of people that we hire, still everybody is seen by a Board member to make sure that we don’t under the pressure of a competitive employment market dilute on that quality.
It would have the impact on the business. I don’t think so because this is not a audience specific problem, but it’s for the whole tech market.
And I think being able to get those excellent people on board in product, e-commerce, in engineering help such a great deal more than diluting on the quality. And also, if you look at the long-term, if you would now dilute the quality, that’s going to have a long-term impact on the company.
If you look at our attrition rates over the two pandemic years, they are similar to the years before. So you also see that we have a very loyal group of employees that like working here.
So it’s something that we are very protective of. In the same – at the same time, we also expanded where we are with our engineering team.
So we added Madrid and Chicago there to be closer to where the merchants are but also not to be just dependent on Amsterdam. So that’s how we look at strategy there.
Ethan Tandowsky
Got it. Thank you.
Next up on the line is Sandeep Deshpande from JP Morgan. Sandeep, please go ahead.
Sandeep Deshpande
Yes. Hi, thanks for letting me on and congratulations on great results.
Clearly, you’ve got really strong growth at this point, but clearly as a management team, you’re planning for the next three to five years. Do you need to put in place other drivers for your growth beyond North America in unified commerce, which are your biggest drivers of growth at this point?
Or do you see that there are so many new engagements in these existing markets, which will continue to drive this sort of growth for Adyen over the next four years or three to four years as such really. And my second question is, you’ve had new initiatives like issuing, and when will they start providing a reportable revenue stream?
Ethan Tandowsky
Let’s start with, yes, where we can expect our longer term growth to come from. After that we can go to issuing.
Pieter van der Does
I think it’s important for us to stay ahead of the curve. So I think we’re very advanced in respect to the rest of the market, but that shouldn’t mean that you are not looking very carefully on which initiatives we want to double down.
So we are picking our initiative as an example of that, of course, our platforms. So you see that there’s a shift in the business.
You see that there’s a shift to more global commerce. Yet at the same time, there we are doing very well with our existing products.
So this is developing things now, which will deliver only in the number of years. You’ll see that back in revenue, like an example, point of sale, how long that took.
Maybe Ingo you want to add on the second part of the question.
Ingo Uytdehaage
Yes. Maybe on, I think in general, like, we’ve always been successful in following our merchants and also understanding what they like to develop.
And that’s something that we continue to do so. So if we see new opportunities for new products, platforms is a great example that Pieter just mentioned, we will invest in it.
That’s the same way, how we will continue to develop unified commerce. And there is really no limitation and growth there right now.
The addressable market is huge and we only have a relatively very small share of it. But of course, we need to keep listening to our merchants to see what’s relevant and make sure that we develop it.
And that’s maybe a nice bridge to, for instance, issuing, that’s exactly why we build issuing for platforms, for instance, because we think it’s very relevant for our platform merchants. Currently, revenues from issuing is limited.
I don’t expect that it will have a significant impact on revenues this year. But we will certainly think about how we can make it more visible going forward.
And we would love to talk more about such a product, for instance, also on our capital markets day end of March, to explain, where we are, where we are on our journey and also to make sure that we build indeed, the right products for our merchants.
Ethan Tandowsky
Great. Well, thanks for the questions, Sandeep.
Next up we have Hannes Leitner from UBS. Hannes, go ahead.
Hannes Leitner
Thanks for letting me on and congratulations to the results. Some of my questions have been answered.
But maybe in terms of the hiring, can you maybe talk through, is there any particular emphasis on those two hubs, just thinking now, maybe on issuing, will there be some capacity? And then the second question is maybe on the stellar growth performance, can you break it down?
What is the underlying growth module get from, for example, license wings or acquiring license wings in Japan, Malaysia, Puerto Rico, you called them, so maybe to get a better feeling of what is still remaining for 2022.
Ethan Tandowsky
So to start maybe Pieter on the hiring side, what will we focus on in those tech hubs?
Pieter van der Does
Yes. We made the decision there that we don’t want to hire and mimic a coding factory.
So in the hubs, we will be working on specific products. So that there’s a certain that engineers can take a certain pride.
Also, you see, it’s close to where our merchants are, so that you feel connected to the business and that you see how your products are being deployed. I think that creates a loyalty to the company.
Ingo, anything to add and do you want to talk about the licensure?
Ingo Uytdehaage
Yes, sure. No, I think that’s indeed what we want to do.
So for the hubs, making sure that they are basically independent parts of our engineering teams that can code their own topic on the platform. And for instance, if we think about – if we think about a product like issuing, if we want to launch in certain market that could for instance be built in such a hope, I think that’s how you should look at it.
On the licenses, yes, the licenses are key to us, like making sure that those – that we have those license up and running is basically the right entry point for market, but it also takes time before you see volumes really taking off. So it’s always an investment to get them live, get merchants on it.
There’s always some local variation or implementation needed to make sure that you get to the best performance in the market. Because I think that’s where we known for as a company that we always process at the highest optimization rates.
And we start to work in those markets to tweak the settings to get to the best results. And then over time, we will increase market share in those markets.
Initial results look great. Of course, we don’t disclose separately per market.
But we’re very happy with progress so far.
Ethan Tandowsky
Great. Thanks.
Next up we have Jamie Friedman from Susquehanna. Jamie, go ahead.
Jamie Friedman
Hi. Good results here.
Good evening. I was hoping you could discuss the anti-fraud score product that is profiled in the shareholder letter.
What does multi-sided mean? Because that’s a word you use a lot in describing score for fraud.
And what kind of demand are you seeing for this service?
Ethan Tandowsky
Time to talk about score, Pieter.
Pieter van der Does
Yes. So if you look where historically we come from that is protecting merchants from shopper fraud.
And in the platform space, there is other element to fraud is that you could also have seller fraud people who claim to sell products, but they’re actually not delivering. And that means that you to get to a total different level of complexity in your fraud product, where you also look at how to put protect the marketplace from fraudulent sellers.
So that’s the product score, which is new area for us where we of course deploy machine learning and can help marketplaces to take a worry out of their hands.
Ethan Tandowsky
So this is really a fraud risk unique to the platform or marketplace model.
Pieter van der Does
True.
Ingo Uytdehaage
Yeah. And the multi side, it means basically buyer and seller.
So it’s both sides. That’s what it is.
Pieter van der Does
And on the buyer side, we also have revenue protect, which is wider than just on platforms. But then I understand score correctly is focused on platforms.
Ethan Tandowsky
So thanks. Thanks for the question, Jamie.
Next up we have Fred Boulan from Bank of America. Fred, go ahead.
Fred Boulan
Can you hear me?
Pieter van der Does
Yep.
Fred Boulan
Hey, good afternoon. One question on my side on the terminal side.
So you’ve introduced Android POS solution at the same time, we’re seeing low interest from Stripe, Apple Tap to Pay. So can you discuss a little bit the level of competition on the terminal side and how the upsell journey is going with some of your unified commerce customers?
Ethan Tandowsky
Yes. Good question.
Ingo, maybe you can tell us about Android and what we’re seeing in the market.
Ingo Uytdehaage
Yes, absolutely. So we decided to launch an Android terminal because it’s very easy to and also build your own application on it and get a smooth implementation on a single device for both cash register and the payment service.
We see a lot of traction there, also have a lot of emergency interested in it. Of course, we also look at what’s happening in the market.
The new announcement by Apple is something that we closely follow. We’ve always been a partner with Apple and Apple Pay.
And we can’t say anything about it right now, but of course we follow it very closely.
Ethan Tandowsky
Thanks. Next up is James Goodman of Barclays.
James, go ahead.
James Goodman
Thanks very much for taking – yes. Hi, Ethan.
Thanks. Thanks for taking the questions.
So maybe just following up a little bit on the last question, but more on the online side and linking to the hiring as well. I mean, appreciate all the comments about the intended increase in hiring.
But some of the other next-gen providers that we see out there, the Checkout.com’s of this world are growing exceptionally fast like yourselves, but also hiring very rapidly. Just wondering if you can comment a little bit on whether you’re starting to bump more into those providers than you have done in the past.
This historically have perceived it more that you’ve grown alongside other NextGen providers, but you are reaching such a scale now where I wonder whether you are seeing more direct overlap. And then just a more technical question.
I wondered if you could help us with the FX modeling. So 4% FX impact called out, I think a 6% year-on-year tailwind, definitely stronger than the headline and euro, USD change would suggest.
So, I imagine a bit of a mismatch there in terms of costs within the gross and net revenue. So wondering if you could help us a little bit with more specifically how we should model out FX, and thinking about that into 2022?
Thank you.
Ethan Tandowsky
Sure. Let’s start with Pieter on the hiring side, are we bumping into more of the new age players that James mentioned?
Pieter van der Does
Yes, I think that that if you look at the competitive field, we are winning mostly business from incumbents we’re working with the larger merchants. And that means that it’s not so much of a fight between the new players, and I don’t think the competitive field they’re changed.
So it’s always, there’s a lot of money in the market, and that means that a lot of companies get funded and we notice all of us notice that because of that makes the market very competitive to hire. But I don’t think in competition for the services, we see increased competition.
Ethan Tandowsky
Got it. And Ingo on the FX tailwind that we saw this half year.
Maybe you can give a little bit more color around that.
Ingo Uytdehaage
Yes. The tailwind is mostly the results of changes between the euro and the dollar.
There is a bit of a difference between need, how we build to merchants and how we get built. Merchants are free to agree certain currencies with us, how they like to get built.
And of course that not always congruent with our costs or how we get our fees charged by the schemes and that can be a bit of a mismatch why you see it? I think in general of course, if you just, in general, look at FX development, we don’t see like huge wings other than the USD, the euro lag and sometimes the way for Brazil.
But if we feel quite comfortable where we are.
Ethan Tandowsky
Great. Well thanks for the questions, James.
Next up we have Josh Levin from Autonomous. Josh, go ahead.
Josh Levin
Thank you. Good afternoon.
You’ve highlighted a few times that a large share of your growth continues to come from existing clients. Can you give us a sense of how much of that growth is coming from your client’s own growth and look just growing and they’re just growing very quickly, their own businesses versus you taking market share from competitors?
Thank you.
Ethan Tandowsky
So organic growth versus wallet share gains, Ingo maybe you can expand on that.
Ingo Uytdehaage
Yes, well certainly important part of the growth is coming from wallet share gains, because we continue to work with our merchants to grow their volumes over time. Of course, we have some high growth customers on our platform where we grow organically which we benefit from that.
But we couldn’t get to these growth numbers if we would not gain market share with our share wallet with our listing merchants. And it’s also, it is really part of our strategy.
We’ve always had this land and expand strategy where we start to work with a merchant and then win volume over time. It’s key how we operate also how we’ve build up our commercial teams.
So, we will continue to do that going forward.
Ethan Tandowsky
Got it. Well, thanks.
Next up we have Timothy Chiodo from Credit Suisse. Timothy can’t get onto the call right now.
So, I will step in and ask his question. I hope I do it eloquently.
Otherwise, Timothy, I apologize.
Timothy Chiodo
North America was once again, an area of strength and in the past, you’d mentioned an increasing ability to win domestic volumes from U.S. based merchants.
Could you elaborate on this trend continuing and some of the U.S. based share gains you are seeing.
Ethan Tandowsky
Maybe Pieter, can you take that one?
Pieter van der Does
Yes. What you see is that the first part in the world where we had the full strengths of the product was in Europe.
So the U.S. followed later with being able to process end to end under our own control.
In the meantime, what would the way we develop the product in Europe, by being able to do that unified commerce what we excel at, that we could bring that to the U.S. market in combination with having all the – with having the product in the right place, means that that’s then the next area where you would expect the growth.
Asia is much more fragmented. So it doesn’t surprise us that takes longer to get through the same numbers because it’s phased over time.
So through our lens, very understandable.
Ethan Tandowsky
Got it. And the second question that he had was on the ATV dynamics that we’re seeing, especially in the second half.
And how that differs by industry, or if inflation had any impact. They’re just curious to hear what’s driving that if we expect it to persist or not.
Yeah.
Pieter van der Does
That has to do with portfolio mix. We are getting a – that has to do with more retail, large exposure of retail on our – in our books, so that brings the ATV up.
Ethan Tandowsky
Got it. And maybe Ingo, are we seeing inflation play a role there as well or not yet?
Ingo Uytdehaage
Yeah, I wouldn’t say that currently has a big impact. Of course there inflation is going on.
We’re tracking as closely. But I wouldn’t say that’s the main driver of the ATV increase right now.
The main drive of ATV increase is indeed the shift in volume mix coming now more from retail compared to for instance the more online e-Commerce type of transactions.
Ethan Tandowsky
Clear. Okay.
Thanks. Next up is Nooshin Nejati from Deutsche Bank, Nooshin, please go ahead.
Nooshin Nejati
Hi. Thanks for letting me on.
I had a couple of questions as well, just to get a follow up on e-Commerce and your growth decomposition. Can you tell us how much of your growth was pure e-com and then on your OpEx?
I want to know, like what do you expect your OpEx to evolve in 2022? Is there soon any employee compensation due, like what we see in H1 2020?
Trying to understand if you are reaching your midterm guidance on margins anytime soon? And then when it comes to the strategy on a structural share, again, going forward, is there any vertical or geographic that you’re focusing on?
Thank you so much.
Ethan Tandowsky
Got it. Thanks.
Nooshin, maybe Ingo to start on the first two peer e-com growth, how has that been developing and then yeah, follow that by – sorry. Nooshin you, should you had three, I tried to write them down.
Let’s start with the first it’ll come back on the second and third.
Ingo Uytdehaage
Yeah. So the e-com growth over 2021, well, close to 70%, so lower than point of sale.
It’s a growth where we’re really pleased with, of course, given the other signals that you get from the market. If you look at for next year.
So we don’t – I think part of the question is like, do we track e-Commerce only type of volume? And that’s something that we don’t track right now, because we want to be transparent on where point of sale volume comes from.
So if you look at the platform, 14 percentage point of sales volume, that means and that 86% of our transactions is originated on the web or on the mobile. But like, what is purely the type of merchants that only have e-Commerce with us is something that we do not disclose.
Ethan Tandowsky
Got it. Thanks.
And the second question I’ve got it now was, how we expect our operating expenses to develop in the next year or so.
Ingo Uytdehaage
Yeah. So if you look at operating expenses, we don’t specifically guide on operating expenses.
That’s why we have given the long-term EBITDA guidance. Long-term, we want to grow to an EBITDA margin above 65%.
If you look at the things that we indicated, this show letters that we want to ramp up hiring, and we expect that marketing spent will go up. At the same time, we don’t want to specifically guide on the EBITDA margin for 2022.
So don’t expect like big surprises, because then we will tell you, I think we’ve been quite consistent in our performance. But we surely want to make sure that we continue to invest in the business for the long-term.
And that’s why it is important to hire people, to invest in marketing. And that potentially could have a bit of impact on EBITDA margin compared to where we landed it for the full year 2021.
It is not something that we actively manage right now. We want to make those long-term right investments.
Nooshin Nejati
Thanks, Ingo. And the last question maybe for you, Pieter was on the structural share gains.
How do we look to gain market share? Is that through specific verticals or regions, geographies?
How do we look at that going forward?
Pieter van der Does
Yes, that’s a great question. If you look at how we do it is by working together with our merchants.
So if you look at how do we go to a new region, it’s often with an existing merchant going into that region. So it’s in close collaboration with our merchants.
And also if you look at industries, for example, hospitality, then we work together with those merchants what’s needed contactless check in, contactless check out stuff like that fully so having fully the physical and online working together. So it’s both, it is you move through the regions with your merchants.
And usually we start with existing merchants expanding to the next region. If you look at products, we are working together with merchants in a certain vertical to further expound with those products.
A new product in a new market is always tricky. So you do the new product with an existing merchant who is already in the market, or you deepen the product with an existing merchant so that you get better at that vertical.
Ethan Tandowsky
Clear. So follow our merchants, do it step by step.
Thanks for the answers. Thanks for the questions, Nooshin.
Next up is David Togut of Evercore ISI. David, please go ahead.
David Togut
Thank you. Good afternoon.
Please discuss your growth strategy and account to account payments both in Europe under open banking. And in the U.S.
where account to account payments are growing through innovation instead of through regulatory changes as they are in Europe. And then my follow-up is just an update on your strategy to expand into Brazilian payments?
Pieter van der Does
Let’s start with account to account payments, Ingo, maybe you want to take that one?
Ingo Uytdehaage
Yes, sure. So if you look at account to account payments, it’s how we see it is just one of those variations in payment methods.
So we absolutely want to make sure it’s available to our merchants where it’s relevant. That’s also why, for instance, invested in where open banking is already relevant in – like in the UK.
There are other account to account payment methods already in Europe active. The Netherlands is well known for ideal, and you have so forth in Germany.
We always want to make sure that we also depending on the vertical bring the right mix of payment methods and therefore if new initiatives occur, we will make sure that we implement when relevant. I think the same goes for Brazil.
If you look at Brazil it’s a market where I think very quickly a new payment method was introduced. This is fix and the absorption rate of fix is very high.
We immediately implemented it and I think that’s exactly also what our customers expect from us. That if new payment methods are introduced, that we assess whether they are really relevant and if they are relevant that they get access through it – to it through our platform that’s always been our strategy and we will continue to do so.
In general, I would say that all that complexity that is brought to the market is good for a company like ourselves because we are solely focused on helping merchants. So we’re not on the consumer side, we’re helping merchants to accept payments.
And if new complexity is introduced, we help to basically reduce that complexity for our merchants.
Ethan Tandowsky
Great. Thanks for the answer, Ingo.
Next up is Sanjay Sakhrani from KBW. Sanjay, go ahead.
Sanjay Sakhrani
Thanks. Good morning.
I guess when we think about excess cash, obviously been a strength for you guys in terms of your counterparties emerges. Has there been any shift in the thought process of utilizing some of that cash for capital management purposes or acquisition?
Pieter van der Does
Yes. So far we – it has really helped us to keep the speed.
It helps in talking to large merchants; it helps to talk to regulators to convince them that we’re a very stable company. I think that’s also being confirmed by our now public rating of S&P which A- and we find it very important that we have this stamp of stable – being a stable company that is very financially healthy.
Of course if there are good investment opportunities we will always look at it. Like that’s also why we are expanding into new markets.
That’s why we’re expanding the team. But we still believe in organic growth strategy so likelihood that we will start into or go into M&A is very low.
Sanjay Sakhrani
Clear. So no real change there then from the way we’ve discussed in the past?
Pieter van der Does
No real change. That’s right.
Yes.
Sanjay Sakhrani
Got it. Thanks.
Ethan Tandowsky
Next up, we have Antonin Baudry from HSBC. Antonin, please go ahead.
Antonin Baudry
Yes. Thank you.
Thank you very much and good afternoon. My question is about North America and the U.S.
in particular. We possible to have an update on the new product launch in the U.S.
related to your new banking license? And when you expect to see a pickup of revenue growth in the U.S.
relative specifically to this banking license? Thank you.
Pieter van der Does
Ingo, I think you can talk us through the license in the U.S.
Ingo Uytdehaage
Yes, absolutely. I think the banking license in U.S.
is very similar to the license and why we applied for license in Europe to improve our service levels. So being less dependent upon third party banks where we settle through.
So by having that license we have the ability to settle ourselves to merchants and that improves the service level to our merchants. Of course it also gives some opportunities to do like short-term lending, et cetera which we already introduced by in some products.
But we don’t expect to have any big launches because we have this license. So it’s mainly focused on improving the service level of our current offering in U.S., which is also very relevant for instance for platform merchants because their payout is like a key thing in the offering.
Like having a very reliable payout service is key to being successful as a platform provider because you need to pay out to millions of sellers on a daily basis and that needs to perform really well. So that’s one of the examples why it is so relevant to not be dependent upon third parties.
Antonin Baudry
Got it. And from a revenue perspective, would you expect much change?
Ingo Uytdehaage
No, not really. It’s of course payout product is a paid product, so that’s why we already get paid for this is more like a yes, optimization improvement.
So no real margin impact, it’s also not why we started it.
Antonin Baudry
Got it. clear.
Ethan Tandowsky
Got it clear. It looks like we’re almost running out of time.
So let’s take one. Last question comes from the line of from AlphaValue.
Please go ahead.
Unidentified Analyst
Yes. Good afternoon, everyone.
Thank you very much for taking my question. I think you’ve done quite an amazing job maintaining your workforce so far at a certain level, even though you wanted to hire more this half year.
But with your point of sale exposure increasing drastically in the launch of Android point-of-sales terminals, could you please guide on the impact this might have on your workforce? Like what is the marginal costs in terms of workforce for rolling out point-of-sale products from an existing merchants, and are these the same in beginners and product teams, support team that rollout were already assisting the same clients.
And then just on the original breakdown of your point-of-sale growth, is this sort of the same as, the whole group level?
Pieter van der Does
Ingo, I think best on the Android and how that affects the, the number of people that need to work on it. And also how point-of-sale looks across the globe.
Ingo Uytdehaage
Yes. I think if you look at point-of-sale the way we’ve built it over the years Peter already said it’s a long term investment.
We started with it like years ago. It’s always been to build it differently than the traditional players.
Like the traditional point-of-sale model is that you have a service engineer that goes to a store and install a terminal, and it’s all kind of configurations that need to be made. And we, from the start said like, let’s completely do this remotely.
Like we can update terminals remotely. So this whole field engineering thing is not part of our business model.
We just send the terminal to a store if it’s is connected to internet, it works. And that of course brings down the total cost of ownership significantly.
So ramping, our point-of-sale does not mean that our FTE’s will grow very, very quickly because it’s very scalable this model. And if you have, for instance, like large rollout project with our customers, that is typically done also by a third party to help the merchant to make sure it’s installed in stores very quickly.
And we have done those rollouts, big rollout plans also in the past very, very quickly. So I think it’s not really a limitation.
And that’s also why we continue to invest in point-of-sale because it’s just very scalable in the way we build it.
Unidentified Analyst
Got it. And, and how do we look at point-of-sale volumes around the world?
Is that well aligned with the way our net revenues are distributed?
Ingo Uytdehaage
Yes, it depends a bit on when we started it. I think it’s very similar, like how you typically build out a new product.
Of course, point-of-sale started off in Europe. That’s why you still see most of the revenues then brought it to U.S..
And now it’s, we’re also active in Brazil Australia, Singapore, Hong Kong. So there are many other markets where point-of-sale is introduced.
I think the best proxy is probably indeed how net revenue is distributed. But there can be some lagging effect because point-of-sale was introduced later than eCommerce, of course.
Ethan Tandowsky
Yes. And that that follows up on Peter’s point of step by step.
So, I think that makes a lot of sense and it’s a good place to close off Peter and Ingo. Thank you very much for the time for talking us through second half results.
Thank you all for watching. We hope to see you at the Virtual Capital Markets Day on March 31st, and for now goodbye from Amsterdam.
Take care.