I would like to introduce you to Payoneer (PAYO), a company that me and some fellows have been bag holding (in the red) for a while.
Me – Bagholder of Warrants @ $4.0Payoneer vs PayPal
Payoneer, the Paypal for Shithole Developing Countries
Payoneer is Paypal for B2B global commerce, particularly outside North American and Europe. The company provides B2B services for millions of SMB and enterprises around the world
The growth of Payoneer’s global network included a move into India in April 2016, following a partnership with Pune-based IndusInd Bank and expressions of interest in its services from more than 10,000 freelancers and small businesses across the country.
2018 PayPal study suggest that India’s freelancers represent around one quarter of the world’s gig workforce.
In August 2019, Payoneer announced a year-on-year increase of 400% in its customer base and a threefold increase in payment volumes processed in India.
“PayPal says to shut domestic payments business in India” ~ Reuters
NEW DELHI (Reuters) – PayPal Holdings Inc will wind down its domestic payments business in India from April 1,2023 the company said in a statement on Friday.
The ideal customer is a small but growing SMB doing business all over the world which needs currency, compliance and business services. Payoneer is an obvious candidate to handles these needs given its global network.
· Payoneer offers vendors the ability to move money with a U.S. bank account and pay suppliers, without having to deal with too many banking hurdles or red tape.
· A lot of freelancers on Upwork.com use Payoneer because many of them live in countries that Upwork.com can’t wire money to.
· Once vendors receive funds into their Payoneer account they can either withdraw the cash using their Payoneer provided Master Card or do a direct bank transfer from Payoneer to their local bank. Usually funds arrive within 1-2 business days.
So, it is basically a bank that includes an accountant to help meet a business’ needs. The one product or feature that is missing is digital coins.
Say a consumer wants to rent an airbnb. They use a credit card (or other payment method) to pay airbnb, a payment gateway facilitates payment acceptance. The payment is then processed and Airbnb ends up with the money from the transaction. Airbnb has now gathered cash through its acquirers (e.g., Adyen, ACI). Airbnb now needs to distribute funds to its SMB sellers. Airbnb uses payoneer to disburse funds to sellers. From this example, you can see Payoneer isn’t competing with companies like Adyen or other acquirers/ processors, even though they are processing payments.
Payoneer signs up individual sellers, which allows the sellers to use payoneer across platforms (e.g., facebook marketplace and amazon). Hyperwallet (owned by PayPal) is one of their competitors, but Hyperwallet operates completely differently, they sign up users via the platform, but this means you can’t use hyperwallet for your business on both amazon and fb marketplace without going through the onboarding process again. Given the trend towards SMB sellers operating across multiple marketplaces, this is a huge benefit for payoneer, and makes PayPal’s offering a lot less competitive. It also means Payoneer owns the seller relationship in a way that PayPal doesn’t do as effectively, and makes it easier for them to package other offerings (e.g., working capital). These other offerings provide a two-fold benefit – their customer relationships become stronger, so revenue is seen as more recurring and investors will pay a higher multiple; and they’ll make more money per customer.
My view is that Payoneer should see an S-type growth curve, where they’ll hit a critical mass of users and see exponential growth, like cashapp, or venmo. Their investor presentation projects 25% revenue growth over the next couple years, I think this is super conservative, especially considering that 25% growth rate doesn’t account for the two travel related marketplaces that got screwed by covid. Once they hit that critical mass of users, they’ll pop off, sales & marketing expenses will drop, and they’ll become profitable.
The company’s focus on investing for future services is actually what gets me most excited as it may ward off near-term investor interest and improves its competitive position. It’s also a sign of a mature management team. The opportunity to provide additional services such as working capital, compliance and tax services seems like an obvious strategic move to drive growth. Specifically, working capital is far and away the most important service and something SMBs are desperate for.
Who are their customers and where are they know? 5 million businesses in 190 countries. Customers include Amazon, Wish, Lazada (owned by Alibaba) Shopee, and Ebay. Weird right, they work with Ebay given Paypal does too. This is because they work with countries and specific clients that Paypal not accept into their platform. Investors need to understand that sometimes people have to use other platforms because they the Paypal’s or banks are NOT willing to take the risk. Sure the risk is probably higher but the amount of people that need access to capital or payment process is high when many banks in many countries do not approve people for such type of access.
B2B global marketplace. The attractiveness of FinTech can be summarized in a few words, namely, “scale” and “network effects”. From the metrics Payoneer shared, it looks like they’re benefitting from these dynamics. Analysts estimate the global B2B market at tens of trillions $ and cross-border payments at $300bn. Obviously the pandemic only accelerated these trends. (From the presentation, it looks like company B2B AR/AP volume more than doubled at 140% in 2020 although the CFO later cited a 53% increase in volumes so not sure exactly how to interpret that.)
Volume and customer growth drives revenues. Volumes grew over 53% in 2020 (67% adjusted for the pandemic) and are expected to grow at 44% and 33% in 2023 and 2023, respectively, which translates into 25% annual revenue growth per year for the next two years.
The benefits of network effects cannot be overstated as Paypal has proven. As a company acquires more customers, the value of its network increases. Payoneer’s business model leverages this same dynamic. Moreover, its network would be very difficult to replicate. The company’s global platform includes over 80 banks and clearing partners in over 100 countries. The company also provides customers data about its transactions, which I believe will be increasingly useful and sticky.
What do I think the future holds for Payoneer? I actually think there are several exits for this company.
Growth:
Note that Payoneer currently doesn’t do B2C, hence it may be quite common for retail to never even have heard of it, unless they are a business or in the gig economy. That is one of the problems for the stock, no one has heard of it (yet) because it works quietly behind the scenes. Given enough funding, who knows, Payoneer may well expand to B2C. Alibaba initially started as B2B as well but has since expanded to B2C (Taobao).
We just need Payoneer to be 5% of PayPal (ie. $15B market cap) in order for stock price to be in the $30-$40 range. ($6B market cap corresponds to around $13-$15 stock price.)
**Acquisition:**Large international payments processer buys them. Could be Paypal, Square, Stripe, First Data, etc. consolidation WILL happen in this space and I think short-term Payoneer will acquire some companies and then be sold to a bigger company. Think of this as how banks in the USA were allowed to merge in 1995 given the law that passed. Before you had 100,000 banks then it was 50,000 banks, then 10,000 banks and now like 5,000 banks but the top 10 banks make up a large % of the business/volume.
Wildcard: CRM business buys them. What many people do not realize is that CRM’s have been changing the game. First it was to help you sell with marketing tools, then it is to improve communication within the team, then it will be storage, and legal transactions then it will be financial transaction. They are literally going to control the beginning to the end of the customer relationship and all of that data they possess is very valuable to help their customers grow.
This is not financial advice, i am not a financial advisor. I have a long position with the warrants that I purchased in February and are therefore in the red.
This article is written by u/Jerome_BRRR_Powell.
