On Wednesday, Paysafe (NYSE:PSFE) experienced a significant decline in stock price, dropping approximately 25% despite the company's third-quarter earnings report, which surpassed both top and bottom-line expectations. BTIG has maintained its Buy rating and $26.00 price target on the stock, emphasizing the strength of the earnings report and the reaffirmation of full-year 2024 guidance.
The third-quarter report highlighted a 10.8% increase in Merchant Solutions gross profit, which exceeded the Street's estimate of 9.2%. Additionally, the FXN Digital Wallet, excluding interest revenue, saw a growth of 5.3%. These figures signify robust performance in comparison to the fiscal year 2023, where Merchant Solutions gross profit grew only 2.3%, and Digital Wallet revenue was flat when adjusted for foreign exchange and excluding interest.
Despite the positive results, there was a noted deceleration in SMB Direct sales growth, which also impacted the gross profit margin. Moreover, the guidance for the fourth quarter of 2024 implied a modest revenue growth of around 5.3%. However, BTIG points out that Paysafe is actively engaging in portfolio pruning efforts, removing high-risk customers from its platform, which is expected to create a 1% to 1.5% headwind to total growth.
BTIG views the current pullback in Paysafe's share price as an attractive buying opportunity, stating that the fundamentals of Paysafe's story remain unchanged. The firm believes that management has not only stabilized the business but also returned it to growth. The current 6.5x FY25E EV/EBITDA multiple and the 20% FY25E free cash flow yield are considered very attractive by the analyst.
In conclusion, BTIG stands by its assessment of Paysafe as a solid investment, despite the market's reaction to the recent earnings report. The firm maintains a positive outlook on the company's financial health and growth prospects.
In other recent news, Paysafe Limited reported Q3 earnings that did not meet analyst expectations, despite a revenue beat. The company posted adjusted earnings per share of $0.51, falling short of the projected $0.61. However, Paysafe reported revenue of $427.1 million, surpassing the estimated $423.15 million and marking an 8% year-over-year growth.
Paysafe's CEO, Bruce Lowthers, expressed satisfaction with the company's performance, emphasizing the consistency of strong revenue growth. The company also reaffirmed its full-year 2024 revenue guidance ranging between $1.713 billion and $1.729 billion, aligning with Wall Street's estimates.
Despite solid revenue growth, investors' attention was drawn to the earnings miss. Paysafe reported a net loss of $13 million for the quarter, primarily attributed to foreign exchange impacts. However, the company's eCommerce channel continues to experience double-digit growth, particularly in North American iGaming, and it reported a decrease in net leverage, indicating progress on cost initiatives.
InvestingPro Insights
Despite the recent stock price drop, InvestingPro data reveals some positive trends for Paysafe (NYSE:PSFE). The company has shown a strong return over the last month and three months, with a 17% and 23.7% price total return respectively. This aligns with BTIG's view that the current pullback could be a buying opportunity.
InvestingPro Tips suggest that Paysafe's net income is expected to grow this year, and analysts predict the company will be profitable. This supports BTIG's assessment of Paysafe's improving financial health. However, it's worth noting that the company has not been profitable over the last twelve months, with a P/E ratio of -89.53.
The company's revenue growth of 8.37% over the last twelve months and 9.34% in the most recent quarter reflects the positive trends mentioned in the earnings report. Additionally, Paysafe's gross profit margin of 58.54% indicates a strong ability to generate profit from its core business activities.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for Paysafe, providing a deeper understanding of the company's financial position and market performance.
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