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Is Checkout.com really worth $15bn?

Payments fintech Checkout.com raised at a $15bn valuation last month. Was it worth it? And how did VCs come to this figure?

By Katja Staple

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Credit: Guillaume Pousaz, founder and CEO of Checkout.com

This is the third piece in our series about European startup valuations, looking at how VCs got to these valuations and if they are justified. The first here was about Hopin and the second was about Tier

Checkout.com’s recent $450m Series C has catapulted Guillaume Pousaz’s payments business to a $15bn valuation, making it Europe’s second most valuable privately held startup unicorn. How did VCs come to that lofty valuation?

The basic facts about the company are compelling. For one thing, Checkout.com’s larger US competitor Stripe is currently valued at $36bn and supposedly seeking funding at a far higher valuation. Its publicly-listed European counterpart Adyen’s market cap is above $60bn. 

Online payments companies are thriving and very attractive businesses. Their revenues are predictable, they are sticky and their credit risk is limited. They are also pandemic winners: for example, in the US alone, about 20% of third-quarter retail sales were online, up more than a third from the previous year.

So it is no surprise that all of Checkout.com’s existing investors including Insight Partners and Blossom Capital followed on in this January funding round. Just two new ones made it in: Tiger Global and Greenoaks. But the nearly $10bn uplift in valuation just six months after a $150m raise at a $5.5bn valuation in June 2020 was extraordinary. 

While Checkout.com’s business model and opportunity are real, can the valuation be? 

The valuation: looking at revenue

Unicorns are elusive creatures. And so are the financials underpinning Checkout.com’s $15bn valuation. 

Revenue figures are only available for 2019 and only for Europe ($146m), which Sifted has previously reported is 50% of transactions. Checkout.com was contacted for this article but declined to share any 2020 figures or to comment on global revenues. 

But what might revenues be? Adyen’s performance offers a useful touchstone. In the second half of 2019 and the first half of 2020 combined, Adyen reported about $3.6bn gross revenues, meaning it is trading at a roughly 18x trailing gross revenue multiple.

Had Checkout.com’s investors used the same 18x multiple in the recent round, it would have implied Checkout.com’s total revenues topped $830m in 2020.

The trouble is though, it is hard to imagine that Checkout.com has revenues near that $830m number given it reported 2019 European figure of $146m. It’s possible, but unlikely.

More likely is that investors were paying a premium for Checkout.com relative to Adyen. How much of a premium depends in part on how close Checkout.com’s revenues were to that $830m number. 

The valuation: looking at EBITDA

The difference in EBITDA with Adyen is also stark. On the day of its IPO in 2018, Adyen soared to a $16bn market cap – similar to Checkout.com’s valuation today. However, Adyen’s IPO valuation was underpinned by a global EBITDA of $116m*. For 2019, Checkout.com reported European adjusted EBITDA of just $5.5m on Companies House.

Again, these Checkout.com numbers were from 2019 and were only for Europe. But still, this is a world of difference.

Aside from a hot market for pretty much all assets at the moment, growth is the principal reason for investor optimism. 

In the third quarter of 2020, Adyen reported 25% year-on-year revenue growth. While Checkout.com’s growth rate is undisclosed, its board member Deven Parekh from Insight Partners, who led the Series A, says it is ‘significantly higher’ than Adyen’s. 

The fact that Checkout.com is exclusively online while point-of-sales accounted for 12% of Adyen’s processed volume pre-pandemic** would have contributed to this difference. 

Coming second also helps. Pousaz can simply point to Adyen’s knock-out IPO and subsequent growth to show that online payments are a huge opportunity. 

No doubt investors will have dwelled on the colossal and growing total addressable market for payments. According to consultancy McKinsey, the total global payments revenue was just under $2tr in 2019

Betting on the future

Investment in Checkout.com is a bet on the future.

Or, as Parekh put it: “People are valuing things not just purely based on what the current revenue performance of the company is, but also partially what it can become.” The metric indicating what a company can become is its growth rate. So sustaining fast growth is the key pillar sustaining the valuation. 

However, there are several threats to growth. Adyen and Stripe are well established direct competitors. While Parekh states that Checkout.com might have grown around those competitors in early days (e.g. in the Middle East), they are increasingly going head-to-head. Checkout.com is aggressively expanding into Stripe territory, announcing office openings in Denver and New York. 

Yet future growth will primarily come from existing customers. Since Adyen’s IPO, consistently over 80% of its growth has come from merchants already on the platform ***.

In addition to growth challenges, the total addressable market is a risky proxy for opportunity: a company’s resources to support growth are finite. Checkout.com doubled employees to 1,000 in 2020 and will continue growing, but the market it can realistically service is constrained by its resources and their successful deployment as well as competition. So above a certain size, the total market value should not have an impact on growth expectations.

Lastly, pandemic-level growth of online payments may not continue at the same pace as this year. The fatigue of living online is real and there is a chance that, when the pandemic finally eases, consumers breathe a collective sigh of relief and stream outside to enjoy their lives offline, prioritising shops, restaurants and live events over e-commerce from their living rooms.

In 2018, several commented Adyen’s IPO pop was reminiscent of the Dotcom bubble.  So far, Adyen has proved naysayers wrong and quadrupled its valuation since the IPO pop. Checkout.com’s investors will hope for Checkout.com to deliver a similar performance in order to rapidly grow into its valuation.

* Adyen IPO prospectus, 2017 financials, page 71

** Adyen annual report 2019, page 12

*** Adyen annual report 2019, page 10

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Ken
Ken

Very interesting point of view… how do these number compare to other players like – Nuvei from Canada