After a pandemic-driven hyper-charged growth followed by a steep slowdown, it looks like the e-commerce and digital payments ecosystem is back to a normalized growth environment. That should give investors more comfort in assessing and valuing e-commerce and fintech assets and reasons to reenter the theme now that expectations and valuations have been reset.
In the last couple of days, strong Black Friday and Cyber Monday sales have made the headlines, confirming that consumer spending remains healthy in the important holiday shopping season and that the online channel keeps gaining share at a fast pace, obviously a positive for e-commerce and payments providers.
According to Adobe Analytics and Mastercard SpendingPulse, Black Friday and Cyber Monday e-commerce sales hit all-time highs ($9.8 billion and $12.4 billion, respectively), growing in an 8-10% range, materially above expectations. This growth was mainly driven by order volume rather than inflation. For context, US retail sales excluding autos were up 2.5%.
Several payments platforms and providers have taken the opportunity to highlight their own performances in this extended shopping weekend with Shopify announcing a 22% surge in Black Friday sales on its platform and Block a 14% increase in Black Friday/Cyber Monday transactions, both figures hinting at topline upside in Q4 compared to consensus expectations.
This strength should then ease investors’ concerns that emerged in previous months about the outlook for digital payments following a couple of poor earnings (Adyen, Worldline) and suggest that consensus bearish expectations have gone too far. Interestingly, Adyen reset its long-term guidance in recent weeks to levels much better than feared (low-20s to high-20s revenue growth and EBITDA margins >50% by FY26), sparking a stock price rally. Block’s initial 2024 guidance also surprised on the upside ($2.40 billion adjusted EBITDA vs. $1.9 billion expected).
In all, we believe that expectations have now been largely derisked, while valuations remain conservative and still discount in our view significant EPS downside risk. Many Fintech companies indeed trade at depressed earnings multiples (PayPal at 11x 2024 EPS, Global Payments at x10, Wordline at 7x), Block is trading at a reasonable 21x multiple and Adyen and Shopify are the only names to sport more extravagant P/Es (40x and 65x, respectively).
Corporate action and M&A activity could also be the sign that payments and e-commerce players are bottoming out. We have already seen this year billion or multi-billion deals in the space (Worldpay, Network International, Pismo, Paya…), and recent reports about Farfetch’s founder ambition to take the company private (with the help of banks and investors) or a potential Shein IPO suggest that investors are starting to warm up to the e-commerce and Fintech theme.