PaySafe ($BFT) Overview
Thesis
Paysafe are an attractive yet speculative investment opportunity within the payments/FinTech space. They have a diverse platform with a defensible market position, a clear plan to grow into a rapidly expanding market segment (iGaming) and strong new management in order to help deliver on an operational/strategic level.
All this being said, I’m not completely convinced in the long-term competitive advantage for the company. I would like to see a couple of encouraging quarters before I create a worthwhile position.
Key Stats
Market Cap: $3.08 billion
Bill Foley who has a track record of reducing costs/creating value in acquired companies has a solid plan for growth.
iGaming market volume to see huge increase by 2025
Contract with Roblox for pre-paid cards
Contract with DraftKings for payments in the UK
Who are PaySafe?
Paysafe is a leading integrated payments platform processing nearly $100 billion of annual payment volume with 20 years of experience in digital commerce. Paysafe’s operating brands include Skrill, Paysafecard and Income Access. In gaming circles, Paysafe provides services to Twitch, Fortnite, bet365, betfair, William Hill and DraftKings.
They have strong digital commerce products on both the consumer and merchant side that come together to create a powerful two-sided network.
Massive TAM with expertise in high-value verticals.
20 years as global market leader in iGaming payments and well positioned to capitalize on the expanding US market.
Scalable platforms – driving a Mergers & Acquisitions playbook.
Clear 4 point strategy for growth. Partnering with Bill Foley, the company sees 4 clear strategies including:
a. Platform consolidation.
b. Unlocking revenue and expense synergies across Paysafe.
c. Continuing to win in core verticals and in the emerging verticals.
d. Driving proactive M&A.
Paysafe have 3 core product offerings – Digital Wallets, eCash and Paysafe Integrated Processing which makes up the majority of Revenues.
Core products
Digital Wallets
Digital wallet transactions. Take Rate 1.9%, margin 82%.
It’s a deep and functional wallet able to service engaged and digitally savvy gamers and traders with over 4 million customers in over 100 markets.
The wallet fundamentally does a few key things:
Fund in and out of that wallet very effectively across dozens of APMs (alternate payment method) and hundreds of markets. You can take these funds into the merchant and then back out again. This back and forth functionality is key for the true gamers and players who are playing across multiple sites.
You can take the funds from the wallet back out and instantly clear into a bank account.
You can move funds from wallet to wallet effectively.
You can move funds from wallet to international bank account, effectively creating an international remittance. On top of this, in 30 markets PaySafe have a pre-paid card account as well, so the funds are effectively omnichannel.
You can use it in store, online, or wherever you want to use those funds
E-Cash
Converting cash into e-cash.
Take rate of 6.8%
650,000 distribution points
53% margin.
This is a unique and flexible product. Effectively, Paysafe make cash available in the digital world. They do this through 650,000 distribution points in over 50 countries, whilst servicing over 12 million customers.
They service clients in two ways; a prepaid way, and in invoicing way. On the prepaid method, you can go to any one of the distribution points, put down a sum of money, and get a pre-funded account that you can then go use to buy things in online marketplaces.
In terms of the market for this product – it’s main demographics are Gen Z and Millennial gamers. They’re playing Fortnite and PlayStation or downloading songs on Spotify. ‘PaySafe eCash’ services the casual gamer who doesn’t bet very often, but it also services millions of security conscious and under-banked customers who don’t want to expose their card online for general commerce. They may use it to fund the Amazon cash account to buy online, or even more recently, Paysafe partnered with digital banks like Monese, where they became the ATM money in solution.
Paysafe integrated processing
Integrated processing for e-commerce
take rate 1%
margin 57%
This is about 50% of revenues. “We’re a scaled player across the United States, Canada, and Europe, and we really cater to two distinct populations. Global eCommerce players – that is specific verticals like iGaming, direct marketing, property management, health, and wellness. We’re also a scaled SMB player across the U.S. with over 200,000 merchants in the U.S.”
Across digital wallets and eCash, we have 15 million consumers that we bring into the network, and that creates a really two-sided impact, which we’ve really developed in iGaming, but we’ve seen developed in several other verticals where we’re seeing growth. Because of that, we see a sustained and superior take rate that is almost double the industry average.
Market size?
US iGaming market projected to grow at CAGR 52% between 2019 and 2025 from $3.4 billion to $47 billion.
The global online gambling market size was valued at USD 53.7 billion in 2019 and is expected to grow at a compound annual growth rate (CAGR) of 11.5% from 2020 to 2027[RG-UI2] , reaching a value of $128.3 billion.
How they win?
I believe iGaming is the focus here, and will be responsible for the majority of the growth moving forwards. PaySafe have been in the iGaming business for 20 years now. Other aspects of their growth strategy include:
Platform integration
Accelerating existing organic revenue growth strategies
Winning in US iGaming
M&A strategy
Part of the moat includes a global brand, trusted by both BTB and B2C clients.
iGaming
Europe + Rest of World
In Europe and the rest of the world, we’re a global leader with over 1,000 operators. We’ve continued to grow there, and we have great stories of being your global partner, but also able to react locally when regulation changes.
Canada
We have 100% of the Canada iGaming coverage in all the provinces. That’s a huge point of pride, it’s a great part of our business, but it’s even more important when we look at the growth in the U.S.
US
As the U.S. grows, we enter the U.S. market with a reputation with our partners. The regulators look for reference points. They look to Canada as a very well-regarded and very successful regulatory regime. We are the reference for them, and of course, we enter with extremely strong products, a single API that brings you all the processing needs, it brings you the digital wallet, eCash, and a full set of risk and regulatory reports. Because of that, we have an extremely strong position in the U.S. with 75% of the operators already integrated to Paysafe as we speak. We think we’re well-positioned to win this market, to continue to be a leader in all the markets we serve.
Financials
Not profitable
EBITDA around $500 million
Volume growth expected at 15% CAGR up to 2023 from $89 billion in 2020 to $135 billion in 2023
Revenue also expected to grow at around 11% CAGR over this initial period, though organic revenue growth slowed down from 2019 to 2020.
Ability to convert 80% of EBITDA to free cash flow as operating needs consist primarily of capital expenditure and working capital.
Expanding margins allows maximum flexibility to pursue inorganic growth, make key investments, and/or improve the leverage profile.
Conclusion
Overall, the uniqueness of the business model, combined with a solid outlook for growth, foundational elements of sustainability and the experience of Bill Foley looks like a positive story for Paysafe moving forwards.
In all honesty, it wasn’t the easiest task here reading the investor presentation. The language used felt ‘sales-pitchy’ with big promises and little evidence to back up all the lofty estimates.
I generally feel like this will be a good investment opportunity long-term – PaySafe are an established player in a global payment market, whilst strategically focusing on growing and potentially lucrative markets. However, I’m not completely sold on the idea that Paysafe can remain entirely competitive with the likes of Square and Paypal operating within similar industries.
If Paysafe can fully establish themselves within the iGaming market and provide consistently positive financial results then I may look to add a larger position in the future. However, for the time being I will be allocating maybe 1% and keeping an eye on the progress.
Not enough high-quality information here for me to add any more.
Cheers,
Innovestor