Paysafe Limited (NYSE: PSFE), a specialized payments platform targeted at businesses, is among many SPACs (special purpose acquisition companies) leaving early investors wondering where things went wrong. The stock has lost nearly 82% of its value in the past 1-year. Investors will find it difficult to recover their capital after such a dramatic loss. In the last year, its price has been as high as $17.25, but PSFE stock opened at $3.13 on Feb. 25. It’s cheap, but is it worth it?
Most — if not all — SPACs sell the possibility of huge growth to shareholders. That often turns out to be an illusion.
Back in September, I wrote about Paysafe and identified two major problems: a liquidity issue and sluggish revenue growth. Has anything changed for the better today, or has this bad deal gotten worse?
A Disappointing Third Quarter
In Q3 2021 Paysafe reported a GAAP EPS (earnings per share) loss of 20 cents and revenue of $353.59 million. Analysts were expecting a loss of a penny per share and revenue of $370.63. A miss on both EPS and revenue is bad news for any public traded company. Revenue was a 1% drop from the same period a year prior.
The fintech company lowered its 2021 and 2022 outlook due to Digital Wallet business being weaker than expected. The company says that European demand was lower than expected and that actions have been taken to revise pricing match interest.
The take rate, which represents a percentage of every transaction in exchange for facilitating the movement of funds from the buyer to the seller, also dropped in Q3 2021. It was 1.1% compared to 1.4% in Q3 2020.
Despite a 19% increase in volume to $31.1 billion versus $26.2 billion in Q3 2020, net loss widened to $147.2 million versus $38.1 million.
Though revenue as a whole is down, Paysafe reported strong growth across the majority of its businesses, including a year-over-year estimate for eCash revenue of nearly 18%, and the same estimated growth for Integrated Processing.
What Went Wrong With PSFE Stock?
In the mid-term, the decision to expand crypto capabilities and partnerships is risky for Paysafe. With a current risk-off sentiment, the cryptocurrency market is tumbling, and any global regulations that come in 2022 would be bad news for cryptocurrencies. Big risk can lead to success, but it can also lead to failure.
In Q3 2021, the firm revised lower its 2021 guidance for revenue, gross profit and adjusted EBITDA and estimated a slight increase in its cost of services.
Paysafe issued guidance for Q4 revenue as well as updated full year revenue. Q4 revenue is projected at $355 million to $365 million, and full year revenue was adjusted from a prior expectation of between $1.53 billion and $1.55 billion to between $1.47 billion and $1.48 billion.
Everything that was bad for Paysafe last time I wrote about it is worse now, it seems. Increasing losses, poor revenue growth, lower guidance and a miss on quarterly results are all bad news for PSFE stock.
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Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.