PAYO - Payoneer Global: Global Payments At A Discount

2023-11-15 16:06:56 ET

Summary

• Payoneer Global Inc. reported Q3 2023 results that missed estimates, but the company did report 31% growth.
• The fintech has strong growth plans in global areas with surging demand for global payment solutions.
• Payoneer stock trades at only 7x forward EV/EBITDA targets.

Payoneer Global Inc. ( PAYO ) is another small cap that executed over the last couple of years, yet the stock went nowhere. The global payments company is one SPAC that has generally executed on expectations since going public. My investment thesis remains ultra Bullish on the fintech, still trading near the yearly lows.

Another Big Quarter

As with a lot of small caps, the business has soared over the last few years while the stock has gone nowhere. Payoneer global closed the SPAC happy to generate $100 million in quarterly revenues, and the Q3 '23 revenue total reached $208 million, yet the stock still trades below $6.

Payoneer Global did report a disappointing quarter, missing analyst estimates as follows:

The amazing part is that the global payments company grew revenues 31% during Q3 . A big part of the growth story is definitely that soaring customer funds held by Payoneer Global provided a strong revenue boost in the rising rate environment.

The company saw customer funds increase another 7% YoY to $5.4 billion, but the amount did decline sequentially from $5.5 billion in Q2. Payoneer Global earned $60 million in interest income from these balances in Q3.

The payments company plays in global economies, providing substantial long-term growth opportunities without an investor having to invest directly in a company from the related region. Payoneer Global easily allows small and medium-sized businesses, or SMBs, from Brazil, China, India and other countries to pay customers, get paid by vendors and to obtain access to crucial capital via their payments platform.

The fintech only currently processes ~$70 billion in annual payments for a global payments market reaching $6 trillion now. Payoneer Global only needs to gain a few percentage points in market share in order to double and triple the business from 2023 levels.

The company guided to mixed numbers for Q4, with total revenues for 2023 between $820 to $830 million amounting to ~$220 million for the quarter for 20% growth based on consensus estimates. Payoneer provided some similar weak guidance around the Russian invasion of Ukraine that impacted up to 10% of the business, far higher than the 3% from Israel.

Though the company has a large workforce in the country, the financial impact will probably be negligible again. Remember, Payoneer lowered guidance for 2022 to only $535 million and the stock swooned to below $4. Now, the company is still targeting revenues of over $820 million for 2023, and the stock can't budge above $6, though sales have grown over 50% from the original guidance during a troubling period.

Absurdly Cheap

The stock valuation sits at ~$2.2 billion, while Payoneer ended the quarter with cash of $591 million , up $83 million or 16% YoY. The stock valuation clearly hasn't kept up with the surging revenue base.

The business is now set to reach $950 million next year, even with growth rates slowing due to the limited growth from the interest income with rates peaking around the globe.

The stock is so cheap that Payoneer has already repurchased 35 million shares, including 15 million during Q3. The company plans to repurchase 55 million shares for the year, amounting to 20 million shares during Q4.

The company is producing $200 million in adjusted EBITDA this year with a strong growth path ahead. Due to the recurring nature of payments volumes, related stocks usually trade at solid premiums.

Payoneer Global is forecast to just generate 10% EBITDA growth in 2024 followed by a more normal 20% growth in 2025. The lack of interest income boosts in the next year will contain the growth rates and maybe even provide a headwind.

Though, the stock only has an EV of $1.6 billion for $200+ in adjusted EBITDA. Global payments companies riding the wave of international growth normally trade at premium valuations to growth rates, while Payoneer Global actually trades at a discount to growth at only 7x forward EB/EBITDA targets.

Takeaway

The key investor takeaway is that Payoneer Global Inc. stock is far too cheap for the company's growth rate. The stock trades at an absurd valuation for the growth rate and hasn't rallied for years despite reporting massive growth. Even with some headwinds in 2024, the company should report solid growth warranting higher stock prices.

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