Paysafe Primed for Long-Term Gains by Rise of iGaming
Paysafe (NYSE:PSFE), a London-based online payments company, and Foley Trasimene Acquisition II Corp, billionaire Bill Foley’s special purpose acquisition company (SPAC), completed their reverse merger in March. Since then, shares of PSFE stock have oscillated wildly. But this month, PSFE stock has fallen nearly 25%.
This should not come as a surprise, as most SPAC stocks lose steam after a merger close. In fact, a recent study revealed that SPACs tended, on average, to lose a third of their value post-merger.
That being said, not every SPAC stock is a dud post-merger. A good case study is DraftKings (NASDAQ:DKNG), which merged with Diamond Eagle Acquisition, a SPAC, and SBTech, a business to business (B2B) sports betting solution provider.
The daily fantasy sports company is up 40.23% in a year. Granted, a lot of that is built-in speculation. Still, it does tell you that not every SPAC stock will grind to the ground within weeks of debuting on the markets.
Coming back to Paysafe, I expect the stock to struggle in the short term. SPAC costs can be hard to overcome even with a strong merger candidate. Additionally, retail traders will take profits and invest them elsewhere after the initial SPAC euphoria dies down.
But in the long run, Paysafe is well-positioned to benefit from the explosive growth of iGaming. And this firm has a history of success, something that most SPAC targets cannot boast.
PSFE Stock: Strong Catalysts for Sustainable Growth
Paysafe is a blend of fintech and iGaming — two industries expecting rapid growth in the next decade. The company connects businesses and consumers through payment processing, digital wallets, and online cash solutions. Its product suite combines significant mergers and acquisitions (M&A) activity with impressive organic growth.
Paysafe’s digital wallet, Skrill, is particularly impressive. The platform is active in over 120 countries and supports 40 different currencies. This business vertical has a huge total available market. Estimates vary, but one report expects the global digital payments industry to increase by 22% to over $6.6 trillion in 2021.
Looking forward, Paysafe projects a CAGR of 11% from fiscal 2020 to 2023. Revenues and EBITDA are projected to reach $1.88 billion and $660 million by 2023, respectively. Considering the war chest Paysafe now has at its disposal, there is a significant upside to these estimates.
Based on Paysafe’s latest earnings report, things are moving in the right direction. Fiscal first quarter net loss came in at $49.1 million compared to $51.1 million a year ago. This is largely down to year-on-year top line growth of 5%.
Overall, Paysafe has raised $3.6 billion from the merger. That includes $2 billion in PIPE from several institutional investors. That is a significant chunk of change for acquisitions.
Consider Investing for the Long Haul
At a market cap of $7.86 billion, no one will make the argument that PSFE stock is cheap or that it’s trading on fundamentals. However, it’s important to consider the industry in which Paysafe operates.
Valuations in the fintech space are astronomical. For example, PayPal (NASDAQ:PYPL) and Square (NYSE:SQ), both relatively mature enterprises, are trading at a 52.02x and 138.56x earnings, respectively. As a result, investors are very bullish on digital payment platforms, which leads to outsized valuations.
However, the potential is still there, especially for a stock like PSFE.
Paysafe’s iGaming segment is active in over 50 markets, with customers like Epic Games’ Fortnite, Roblox (NYSE:RBLX), Amazon’s Twitch (NASDAQ:AMZN) and DraftKings.
Its network of digital wallet solutions allows users to upload, store, withdraw and pay funds in more than 120 markets through a virtual account. Major clients include Bet365, William Hill and Betfair.
Finally, Paysafe’s point-of-sale and e-commerce solutions allow merchants to accept payments across the U.S., Canada, and Europe.
Paysafe Will Only Grow From Here
Paysafe is one of the most exciting companies in the iGaming space. It is focusing on high-growth areas that will increase substantially in the years to come.
Investors who are skeptical of pouring capital into the SPAC space can rest easy. Revenues are rising, gross margins are good and the business model is asset-light. The industry will grow significantly in the next decade, and it’s trading at a discount to its peers.
What’s not to like?
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.
