?

Even the Sky Has a Limit

A deep dive into the prospects, moat potential, and valuation
of Dutch payment industry disrupter Adyen.

Morningstar Equity Research Executive Summary

13 August 2019 It is easy to see why the market adores Adyen. The company benefits from the exponential growth
prospects of e-commerce. Yet, while some titans of tech are burning through billions in operating and
Contents capital expenditures, Adyen already generates 20%-plus returns on equity. Adyen's highly scalable,
2 Adyen Continues the Dutch Legacy of capital-light business model supports even higher future profitability. The payment industry generates
Enabling European Trade
7 How Great Is the Opportunity? data in volumes matched by few other industries, yet few incumbent merchant payment providers have
13 Currently No Economic Moat for Adyen, made the exploitation of Big Data through the machine learning central to their business model like
but Its Moat Trend Is Positive
Adyen has done. Why then is our EUR 425 per share fair value estimate 40% lower than Adyen's current
19 Our Growth Estimates Are Less Bullish
Than Consensus share price? First, we believe the industry overestimates the true addressable market that Adyen can
27 Valuation—Priced for Perfection realistically serve—therefore, our revenue growth estimates are below consensus. Second, Adyen's lack
30 Appendix A: Key Financial Statistics and
of a moat means it is vulnerable to competition. Trading at a forward EV/EBITDA multiple of 70 times,
Estimates
31 Appendix B: Payment Industry Refresher there is no margin of safety when investing in Adyen. Nearly 70% of our fair value estimate is
attributable to cash flows 10 years or more in the future. The slightest disappointment in revenue
Johann Scholtz, CFA, CA(SA) growth reported could lead to an amplified correction in Adyen's share price.
Analyst
+31 (0)20 797 0018 Key Takeaways
[email protected]
× The market overestimates Adyen's realistic total market. First, China makes up nearly 40% of global e-
commerce payments and will contribute 70% of expected e-commerce growth over the next five years;
however, Adyen's ability to accept payments in China is limited. Second, Adyen's competitive position in
the United States, which contributes 25% of global e-commerce, is weak. Third, we view cross-border e-
commerce payments as Adyen's core market, and currently this makes up only 25% of the total e-
commerce payment market.
× Adyen does not qualify for an economic moat rating yet, but we believe a positive trend exists. It will
potentially benefit from the network effect driven by Adyen's ability to use machine-learning tools to
provide merchants with superior payment outcomes. Adyen still faces serious competition from
established payment processors, payment-tech startups, and the tech giants that have access to
immense data libraries that could support even better payment results for merchants.
× Upside risk exists to our fair value estimate. First, there's the potential of a takeover bid for Adyen. For an
incumbent firm in the payment industry with outdated technology or for a new entrant, Adyen is an
Important Disclosure attractive target. Some may view Adyen as a cheap way to get access to industry-leading payment
The conduct of Morningstar's analysts is governed
by Code of Ethics/Code of Conduct Policy, Personal intangible assets, rather than develop it themselves. Second, a change in Chinese payment regulations
Security Trading Policy (or an equivalent of),
that would allow non-Chinese merchant acquirers access to the Chinese market poses meaningful
and Investment Research Policy. For information
regarding conflicts of interest, please visit: upside risk to our fair value estimate.
http://global.morningstar.com/equitydisclosures
Page 2 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Companies Mentioned
Economic Moat Currency Fair Value Current Uncertainty Morningstar Market
Name/Ticker Moat Trend Estimate Price Rating Rating Cap (Bil)

Adyen ADYEN None Positive EUR 425 688.00 Very High QQ 20.1

Adyen Continues the Dutch Legacy of Enabling European Trade

It is no accident that Adyen has its roots in the Netherlands. Partly because of their location among
three of Europe's powerhouses—Britain, France, and Germany—the Dutch have fulfilled the role of
European middlemen in various guises over the centuries. Whether it is through its markets, exchanges,
or ports the Netherlands has been central in bridging European divisions to facilitate cross-border trade.
Adyen fulfils part of this function in the digital age, making cross-border payments easier within Europe
and between Europe and the rest of the world.

In a globalized world, some elements of merchant payment services remain stubbornly localized. In
contrast to the card-dominated U.S. payment landscape, alternative methodologies have been part and
parcel of making payments in Europe for a long time. The advent of e-commerce was a major stimulus
for cross-border trade, which complicated payment acceptance for merchants wishing to expand outside
their own countries. Shoppers were reluctant to switch to unfamiliar payment methodologies and sales
were lost because of merchants' inability to accept payments in the preferred payment method of
shoppers. E-commerce merchants faced the daunting task of contracting with different local payment-
service providers in each country they operate. Adyen provided a solution: a single platform that enabled
merchants to accept payments in various countries, using different payment methods and through all
online, mobile, or physical channels.

Complexity In, Simplicity Out

Adyen assists merchants by providing a "one-stop shop" or integrated platform that allows the
merchants to drastically reduce the number of payment service providers they need to contract with.
Merchants sign one contract with Adyen and can accept payments using the preferred methodology of
the shopper across multiple geographies. Adyen offers the full stack of merchant-payment services,
eliminating the need for separate gateway, processing, and acquiring service providers.

Adyen admits in client pitches that it is not always the cheapest solution; its initial value proposition to
merchants is reducing the complexity of accepting payments, not offering the lowest-cost service. In the
absence of complexity, Adyen's initial value proposition to merchants becomes less clear. For instance,
diners at a London restaurant will settle their bills mostly by card or cash. Adyen's ability to accept
payments in multiple countries using various methodologies is of little concern to the restaurateur.
However, to a U.S.-based clothing retailer looking to expand e-commerce globally, Adyen's service is a
godsend. Rather than dealing with an exponentially increasing range of local payment providers, the
merchant can sign one contract with Adyen.
Page 3 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Adyen also offers a second, and over the longer term even more important, benefit to merchants. Using
machine learning Adyen can offer merchants improved acceptance rates and reduce losses because of
fraud. This forms the basis of a potential network effect economic moat source, which we will discuss in
greater detail.

Rise of the Machines

The success of machine learning is determined partially by the quality of the algorithms used, but the
largest predictor of successful machine learning is having access to a substantial amount of relevant,
clean data. Increased data means more accurate and precise models, leading to better predictions of
fraud and improved acceptance rates. The more payments Adyen processes the better it becomes at
identifying why payments do not clear or why fraudulent transactions do clear. Improvements of even a
fraction of 1% can make meaningful differences to the bottom line of online merchants that often
operate with razor-thin margins. This will easily exceed the few basis-point benefits that lower-cost
merchant payment providers bring.

De-commodifying Payments
Payment processing has traditionally been a highly undifferentiated service. Most merchant providers'
strategy seems to be to build scale to gain efficiencies and undercut the competition's prices. Adyen is
not focused on being the cheapest acquirer in the market. It is seeking to assist its merchants to
increase their revenue by increasing payment acceptance, reducing fraud, and providing merchants with
insights into the payment behaviour of its clients. Adyen is one of the few payment providers that puts
improving merchant results using machine learning at the core of its strategy.

Adyen Is Ahead of the Competition

We do not believe any of Adyen's competitors currently offer an integrated solution that rivals Adyen's
for the breadth and depth of its coverage of payment methods and geographies. Additionally, Adyen's
rivals—especially banks—are hamstrung by legacy-technology systems that use layers of outdated
software, developed over years, if not decades, creating a fragile patchwork of solutions where holistic
insight is almost impossible. Independent financial technology, or fintech, research house Forrester rates
Adyen at the top of its 2018 rating of global merchant payment providers.
Page 4 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Sevenfold Revenue Increase Over Past Four Years, While Generating Cash
While a compound annual revenue growth rate of 67% over the past four years is impressive, what is
truly striking about Adyen is it remained profitable and cash-generative while growing at this breakneck
speed. The rate at which startups lose money in a bid to gain critical mass, the so-called cash-burn rate,
is one of the most closely watched metrics for tech startups. Unusually for a tech startup, Adyen was
profitable from day one and is not burning through its investors' cash, rather, it is generating free cash
flows.

Exhibit 1 Adyen's Excellent Historical Performance

400 Net Revenue EUR million 120% 400 60%

EBITDA EBITDA Margin % (lhs)
Growth yoy % (lhs)
350 350
100% 50%

300 300

80% 40%
250 250

200 60% 200 30%

150 150
40% 20%

100 100

20% 10%
50 50

0 0% 0 0%
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018

Source: Morningstar, company data.

Page 5 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Alternative Play on E-commerce Growth

Adyen's client base is dominated by some of the leading global e-commerce businesses. An investment
in Adyen therefore provides investors with exposure to the same attractive growth fundamentals that
these firms enjoy. An argument could be made that Adyen is a lower-risk player in e-commerce growth
because compared with some of its larger clients it is already profitable and its future capital
requirements are limited.

Exhibit 2 Some of Adyen's Clients

Source: Adyen corporate website.

Page 6 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Profitable and Scalable

Tech startups and positive free cash flow may seem like a contradiction in terms, but Adyen has been
profitable since it first opened. As a knowledge business its capital needs are limited and its true assets
are not computer terminals, but the network it has created, algorithms, coding, and other intangible
assets. None of these assets is on Adyen's balance sheet. Additionally, its cost base, at least for its
current operations, is largely fixed, which supports a great deal of scalability in its business model.

Exhibit 3 Adyen Comfortably Exceeds Its Cost of Capital

30%
Return on Invested Capital
WACC
25%

20%

15%

10%

5%

0%
14 15 16 17 18 19e 20e 21e 22e 23e 24e 25e 26e 27e 28e

Source: Morningstar, company data.

Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.
Page 7 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

How Great Is the Opportunity?

Even Blue-Sky Potential Has Its Limit
"Gee, Brain, what do you want to do tonight?" "The same thing we do every night, Pinky. Try to take over
the world!" This quotation from 1990s cartoon "Pinky and the Brain" springs to mind whenever we
consider some of the hype around the potential for payments in a digital world. Adyen is very well-
placed to benefit from some very strong, secular revenue growth drivers, but investors should be aware
there are also some constraints to Adyen's potential market. When analyzing a high-growth business
such as Adyen the biggest challenge is to define the potential market that a firm can realistically expect
to serve. Some important considerations regarding Adyen's current business model that may help to
frame the discussion around Adyen's potential market include:

× E-commerce makes up 90% of Adyen's revenue and while Adyen does offer in-store point-of-sale
services as well, its competitive advantage remains facilitating e-commerce payments. E-commerce,
however, makes up only 10% of payments currently and while its share of total payments is growing
rapidly in-store payments will remain relevant in future.
× Adyen has been acquiring licenses in countries that make up 49% of global e-commerce payments.
Notably, Adyen is unable to acquire card payments in the fast-growing Chinese market.
× A large part of Adyen's initial value proposition is making cross-border payment acceptance easier for
merchants without material cross-border business. Adyen's value proposition is less clear. Cross-border
e-commerce currently makes up only 25% of total global e-commerce.

Exhibit 4 Adyen Total Addressable Market and Share

25,000 100%
Adyen Total Adressable Market USD billion Adyen Share of Total Adressable Market (lhs)
90%

20,000 80%

70%

15,000 60%

50%

10,000 40%

30%

5,000 20%

10%

0 0%
Total Global Card Payments Total Global Ecommerce Total Ecommerce in Total Global Crossborder
(Nilson) (Emarketer) countries were Adyen Has Ecommerce (McKinsey)
Acquiring Licence
(Emarketer/Worldpay)
Source: Morningstar, Nilson, Emarketer, Worldpay, McKinsey, company data.
Page 8 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

The total addressable market for a product or service is often used by tech startups to illustrate the
underlying potential of an opportunity. The startup's current share of its total addressable market
(normally very low) is meant to show the substantial "blue sky" left in the opportunity. The estimates we
have seen for Adyen's potential market, expressed in the value of payments processed, ranges from $23
trillion to $700 million. In Exhibit 4 we illustrate Adyen's total addressable market and current market
share using different definitions of its addressable market. At its widest we use all global card payments
as Adyen's addressable market. On this basis Adyen's current market share is less than 1% of the total
global card payments of $23 trillion. This could create an impression that the potential for market share
gains is virtually endless. At the other end of the spectrum, we define Adyen's addressable market as
total global cross-border e-commerce payments. Under this narrow definition Adyen already has a 26%
share of a $700 million market.

It is difficult to make an exact estimate of Adyen's addressable market because Adyen's services overlap
categories. While Adyen's core market is larger, global, e-commerce businesses that are looking for a
solution to simplify their global payment acceptance, it would be wrong to limit Adyen's addressable
market to this narrow definition. In a closely integrated region such as Europe nearly all businesses will
benefit from the ability to accept payment methods from other European countries. In large, single
markets such as the U.S. or China, the need for cross-border payment acceptance is less acute.

High-growth prospects must make sense in the context of the total market that a firm can realistically
expect to serve. A firm's market share cannot be greater than 100% of its market: investors may think we
are stating the obvious, but too often forecasts do not incorporate this basic check.

Adyen Can Accept Card Payments in Regions, Making Up 49% of Global Payments
Currently Adyen has full acquiring licenses from Visa and Mastercard in the European Union, Australia,
New Zealand, Singapore, and Hong Kong, while in the U.S., Canada, and Brazil it piggybacks on other
acquirers' licenses for a fee. Outside these areas Adyen cannot perform the merchant-acquiring
function. It is still able to act as a gateway, directing merchants to other acquirers in the country of the
merchant. Adyen, however, misses out on the lucrative acquiring fees.

Using regional data from one of Adyen's main competitors, Worldpay, we estimate that Adyen can
perform full-stack acquiring, or the full-payment service to merchants, in countries that makes up just
under half of global e-commerce payment volumes.
Page 9 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 5 Adyen's Full-Stack Acquiring Presence Contrasted to the Location of Global E-Commerce

0% 20% 40% 60% 80% 100%

China

United States

Europe ex UK

United Kingdom Share of Global Ecommerce Payment

Value
Japan
Portion of Adyen Revenue based on
Canada Legal Entity Location

South Korea Portion of Adyen Full Time Employees

India

Russia

Australia

Rest of the World

Source: Morningstar, Worldpay Global Payments Report 2018, company data.

Adyen and other non-Chinese, merchant payment providers are sidelined by regulations from accepting
renminbi card payments in China. While China accounts for around 40% of global e-commerce currently,
we calculate, based on forecasts by Emarketer, that China will account for up to 70% of e-commerce
growth over the next five years.

Exhibit 6 Emarketer Global E-Commerce Growth Expectations

1,000
Yearly Growth in Ecommerce - Rest of the World $ bn Yearly Growth in Ecommerce - China $ bn
900

800

700

600

500

400

300

200

100

-
2017 - 18 2018 - 19e 2019e - 2020e 2020e - 2021e 2021e - 2022e 2022e - 2023e

Source: Morningstar estimates, company data.

Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.
Page 10 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Indirect Chinese Opportunity Pales in Significance to Direct Chinese E-Commerce

The argument has been made that a merchant payment provider does not need an acquiring presence in
China to exploit Chinese e-commerce. Merchant payment providers could still benefit from Chinese e-
commerce merchants looking to expand into the rest of the world or from international e-commerce
merchants looking to expand into China. We are not disputing the existence of this opportunity; we
merely highlight that current Chinese cross-border e-commerce is small compared with local Chinese e-
commerce. The indirect play on Chinese e-commerce is therefore a distant second best to being able to
offer full-stack merchant acquiring in China itself.

U.S. Also a Tough Market

Adyen's sweet spot is merchants with complex payment needs that have a global presence or wish to
expand globally. Given the size of many European countries, cross-border trade is almost essential for
many merchants. The same does not apply to countries with a large internal market such as the U.S.
Even U.S. merchants with large existing international operations may well choose to continue with its
local merchant payment provider for its U.S. business because this may be a cheaper solution, or it may
be part of a package from its bank. The following quote from Adyen's prelisting statement confirms our
doubts: "Moreover, in the United States, Adyen's competitors that are financial institutions or are
affiliated with financial institutions may not incur the sponsorship costs that Adyen incurs for
registration with the card networks in the United States. These advantages could potentially allow U.S.
competitors to offer more attractive fees to Adyen's current and prospective merchants."

Exhibit 7 U.S. Card Not Present Market Share

100%
US Card Not Present 2018 Market Share
90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Chase Wells Fargo Worldpay Elavon Tsys Other

Source: Nilson.
Page 11 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

The U.S. card not present, or e-commerce, acquiring space is even more concentrated than for card
present, or instore, acquiring. Adyen is up against stiff competition for domestic e-commerce merchant
acquiring in the U.S.

Point-of-Sale Will Remain Relevant

While e-commerce will continue to grow significantly ahead of instore, point-of-sale purchases, it will
remain the most important distribution channel for the foreseeable future. We do not believe that Adyen
will be an attractive option for traditional merchants, often smaller, that mainly seek to use physical
sales channels—think for instance restaurants and hairdressers. Adyen is unlikely to offer the cheapest
solution to these merchants and they might well be better placed to stick with their established
merchant payment providers.

Exhibit 8 E-Commerce Faster Growth Rate but Point of Sale Remains Relevant

30 Global Ecommerce $ trillion

Total Global Retail $ trillion

25

20

15

10

0
17 18 19e 20e 21e 22e 23e

Source: Morningstar, Emarketer.

For businesses with simple payment needs that sells most of its goods instore the appeal of Adyen will
be limited. Since the introduction of chip cards or EMV cards, fraud is not an issue for merchants
anymore; if there is fraudulent activity it will be for the issuers account. Low authorization rates are also
not nearly as big a problem for card present sales as it is for card not present or e-commerce sales.
Page 12 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 9 E-Commerce Makes Up 90% of Adyen's Processed Volumes (EUR Billions)

Enterprise (Large Clients Ecommerce) Unified Commerce (Point of Sale) Mid-Market

160

140

120

100

80

60

40

20

0
2014 2015 2016 2017 2018

Source: Morningstar, company data.

For Adyen's current e-commerce merchant clients looking to expand their presence in the physical
channel, it would make sense to use Adyen's solution and have an integrated payments platform.
Page 13 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Currently No Economic Moat for Adyen, but Its Moat Trend Is Positive
We do not believe that Adyen has established an economic moat yet, although we do believe that it has
positioned itself well to achieve an economic moat in the future.

Adyen's Main Potential Economic Moat Lies in the Network Effect

Typically, we find economic moats for payment providers in network effects, cost advantages, and
intangible assets. We believe that Adyen will live or die by its ability to build on its budding network
effect. An economic moat for cost advantage should follow, but Adyen will not develop cost advantages
without having the network effect working its magic. Additionally, a reputation for consistently
producing higher payment acceptance and lower fraud losses can build a strong brand, but this is
largely dependent on Adyen having access to data superior to its competitors', which would be a
consequence of the network effect.

Under Morningstar's moat methodology we believe network effects occur when the value of a good or
service increases for both new and existing users as more customers use that good or service. The firm
must also be able to monetize the network effect for it to be a moat source.

It Is All About the Data

We believe that Adyen has the potential to carve out a network effect-moat driven by the insights it
gains from the payment data it generates. Adyen uses the data it generates to the benefit of its
merchant client base to optimize payment acceptance, generate additional insights, and limit fraud. The
more data Adyen generates, the greater the potential value that it can add to merchants becomes. If
Adyen signs a new merchant onto its platform or, if an existing merchant uses Adyen to process more of
its payments, all users will benefit from the greater accuracy the increased data brings to Adyen's
algorithms and machine-learning processes. Adyen's operations therefore meets the definition of a
network effect; however, we are not convinced that Adyen has gained enough scale yet to guarantee
that it will generate excess profits over a sustained period and therefore be able to successfully
monetize the initial network effect Adyen might enjoy. While we see potential for a network effect moat
for Adyen, it is not the only payment provider that has identified the latent potential in payment data to
increase revenue—and reduce costs for merchants.

Do Not Confuse Adyen With Visa and Mastercard

The traditional players in the payment industry, credit card schemes such as Visa and Mastercard, are
often held up as the prime examples of the network effect in action. For these companies, which
connect merchants and shoppers, a strong network effect depends on widespread acceptance and
usage of its payment network. It brings consumers paying by credit card together with merchants that
accept credit cards as a method of payment. Adding a credit card user or a merchant to the
platform/payment methodology has incremental benefit for all users—new and existing, which is the
definition of the network effect. Card users can spend their money at a wider range of merchants for
every merchant added and merchants are able to sell to an ever-increasing number of credit card users.
Page 14 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Look Toward Google as an Example of Adyen's Potential Network Effect

Google has what we view as an indirect network effect. Indirect network effects are not obvious to the
end user and indirect networks often benefit from data network effects. A Google search user does not
see the direct benefit of another Google user conducting a search; users benefit indirectly as Google is
able to use its accumulated search queries to build better algorithms in order to provide future superior
search results. Likewise, Adyen uses algorithms and machine learning to improve the acceptance rates
of payments and limit fraudulent transactions. The more transactions Adyen processes for merchants,
the more granular its database becomes. This improves the results of its algorithms and machine-
learning tools, which in turn leads to better outcomes for its merchants.

To be clear, we are not saying that Adyen is the next Google as an investment, we are merely saying
that like Google, Adyen's network effect is data-driven as opposed to the more familiar platform
networks that bring different users together.

How to Entice Clients When the Network Effect Is Not Yet in Place
Like most firms embarking on a strategy to establish a network effect moat, Adyen is confronted by the
chicken-and-egg problem: How to attract merchants to its network when it has no data to enable its
algorithms to produce improved results for merchants? Adyen employed a strategy that Chris Dixon
labelled "come for the tool, stay for the network" in a 2015 blog post. There needs to be a hook that
entices clients to use an application, despite the application not yet being able to deliver the benefits of
the network effect to clients. The "hook" that Adyen used to entice merchants is that it provides a one-
stop-shop solution for merchants, providing a single platform alternative to the myriad legacy providers
that merchants had to rely on previously. Adyen provides a fully integrated payment service across
various geographies using most payment methodologies from global card networks to local direct
payment methods.
Page 15 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Competition Not Standing Still

The window of opportunity for Adyen to establish the network effect will, however, not remain open
indefinitely. From PitchBook's data we gather that over the past 10 years 694 deals were done in the
"paytech" space.

Exhibit 10 Competitors Investing in Payment Technology Businesses

Number of Paytech Deals Last 10 Years

0 5 10 15 20 25 30

Mastercard

First Data - including Fiserv

Alphabet (Google)

Visa

Commerzbank

Intel

Global Payments

Citigroup

Source: PitchBook.

False Positives and Negatives

We believe that over the long term Adyen's key value proposition to clients is its ability to maximize
acceptance while minimizing fraud. These two issues are interrelated. Merchants thus need to strike a
fine balance between setting its fraud filters finely enough to limit losses from fraudulent transactions,
while not rejecting perfectly good transactions. Rejecting good transactions—false positives, in industry
jargon—can potentially be more harmful than letting through fraudulent transactions—or false
negatives—as in addition to the lost margin on the sale the merchant also risks damaging its
relationship and reputation with clients. A 2015 report from Javelin Strategy & Research estimates that
only one in five fraud predictions is correct. Adyen's machine-learning tools and algorithms can be used
to strike this balance. Having the ability to run checks across multiple channels, payment methodologies,
and countries improves the accuracy of Adyen's algorithms and leads to higher acceptance rates and
lower losses to fraud. For instance, Adyen might have an online clothing retailer signed up in the
Netherlands as a merchant. A regular shopper of the online retailer who normally pays via the Dutch
direct payment methodology iDEAL makes an online purchase while on holiday in Morocco with the
same merchant, using a credit card. Traditional payment networks operating in isolation from each other
might reject the transaction, because the transaction is not in the shopper's country of residence or the
transaction is done using a different payment method from what the shopper normally uses. Adyen,
Page 16 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

having a holistic view, will accept the transaction and avoid brand damage and loss of margin from a
false positive transaction.

Independent Research Confirms That Adyen Adds Value

The results from a study by payment specialist research house Forrester Research was striking. Forrester
analyzed the impact that Adyen had on three merchants based in the U.S. and are expanding abroad.
From these three merchants Forrester constructed a composite merchant with international, non-U.S.
revenue of $1.5 billion. The following is a direct quote from Forrester Research's 2016 study.

× Revenue uplift of 1.43% due to optimal payment routing, smart issuer logic and auto-retry of failed
transactions.
× Successful authorizations increased by 1.5%.
× Chargebacks declined by 27%, previously 0.8% of sales had to be written off due to chargebacks, under
Adyen this improved to 0.6%.
× False positives were lower by 20%, previously 2.5% of legitimate orders were incorrectly flagged as
fraudulent. Adyen's solutions improved this to 2%.

Exhibit 11 Adyen Big Data Analysis—Reduced Fraud

Source: Adyen Capital Markets Day Presentation, April 2019.

So Why No Moat?
Given that Adyen is this well placed, why do we not award it with an economic moat? Our moat
methodology makes an explicit distinction between first-mover advantage and the network effect. While
we believe Adyen has clear first-mover advantage, this does not mean it will be the ultimate winner.
History is littered with the corpses of firms that enjoyed first-mover advantage, only for a competitor to
copy its product, make some minor changes, gain the upper hand in market share, and end up
benefiting from the network effect once critical mass was reached. Google trumped Yahoo, and
Facebook put Myspace out of business and perhaps most famously JVC-manufactured VHS-format video
recorders and cassettes won the battle with Sony's Betamax-format. JVC triumphed and VHS became
Page 17 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

virtually the sole format despite Sony's superior picture quality and the greater initial availability of
movie titles in Betamax format. This was the result of the rather innocuous decision by Sony to limit the
recording length of Betamax cassettes to an hour while VHS cassettes could initially record up to two
hours. As consumers preferred the longer recording times the network effect kicked in and movie
studios released fewer titles in the Betamax format, spelling the end for Betamax. This perfectly
illustrates how a small, possibly even tangential benefit can lead to a firm gaining the upper hand in the
race to achieve the benefit of network effects.

Only at the Start of the War for Dominance

While it is difficult to pinpoint at what level of penetration Adyen will have sufficient share of global
payment data to ensure that it will be able to produce the highest payment acceptance and lowest fraud
losses for its merchants, we believe we are only at the start of the war for dominance in global e-
commerce payment processing. We believe that there will be significant consolidation and there are
only going to be a few winners. Some of Adyen's current competitors, that currently process
substantially greater payment volumes and therefore have much more payment data available, have not
even yet fully woken up to the changing reality in online payments We do not believe that any of the
current leaders in global online payments offers the same range of services, payment methods and
geographies served as Adyen. Adyen's established competitors therefore lack the hook of Adyen. This
does not mean existing competitors cannot replicate Adyen's model. Adyen itself have illustrated itself
the cost of establishing a new platform is relatively low, since inception Adyen has invested only EUR 34
million in PPE and intangible assets, while its cumulative operating expenditure has been only EUR 300
million. The most dangerous competitor to Adyen may well not even exist yet. Payment startups are
mushrooming across the world, but the major threat in our opinion would be from nonpayment firms
that have other datasets available that could be used in conjunction with payment data to provide
merchants with higher approval rates, lower fraudulent activity and better shopper insights. Google,
Amazon, Alibaba, and Tencent are just a few names that spring to mind. For instance, to prevent fraud
Google could use its location data to verify that a shopper is in the indicated location. Privacy concerns
may put pay to such a development but as far as we know there are no barriers currently to social tech
firms to enter the acquiring space. We also believe the possibility of a competitor following an
aggressive pricing strategy to gain the upper hand in the race to achieve enough scale to establish an
insurmountable network effect economic moat cannot be ruled out.

Over Time a Moat for Cost Benefits Could Follow if Network Effect Is Established
Cost advantages also contribute to moats in the payment industry. Companies can benefit from
economies of scale because the incremental costs of processing additional transactions are minimal. We
believe that a cost advantage moat will come as a byproduct of Adyen achieving a network effect
economic moat, which will drive up payment processing volumes for Adyen.

Under our moat methodology we believe that a cost advantage is present when a firm can produce a
good or service at a lower cost than competitors. Scale, proximity to customers or access to low-cost raw
materials typically underpin cost advantages. It allows businesses to offer lower prices to secure greater
volumes and/or extract higher margins than competitors.
Page 18 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

There Is Potential for an Intangible Asset Moat Based on Adyen's Brand and Reputation
Intangible assets can also enhance pricing power for companies that handle payments and other money
transfers. While Adyen benefits from some proprietary coding, algorithms, systems, and processes we
believe that competitors can replicate all of this. Adyen itself is an example of this vulnerability. Adyen is
a Surinamese word for "starting again"—a reference to the fact that the same team that started Adyen
started a similar business—Bibit—that it sold to Royal Bank of Scotland in 2004. Adyen's founding team
used the experience gained at Bibit to start Adyen in 2006 after their restraints of trade expired. RBS
thus stumped up the school fees for the establishment of Adyen. Adyen has signed arrangements with
over 270 different payment methodologies, across different regions spanning the full range including
POS, local interbank, global cards, and mobile wallets to enable Adyen's merchants to accept virtually all
payments. We do believe that this is not something that can be replicated overnight and currently no
other acquirer offers the same width and depth of coverage of payment methods, but we believe it is far
from impossible and not very expensive to replicate. Adyen does have a very good reputation in
especially Europe among merchants but it will need to consistently deliver superior acceptance rates
and lower losses from fraudulent transactions to its merchants before we believe that Adyen's brand will
be strong enough to qualify as an intangible asset economic moat.

Positive Moat Trend Exists

We believe that Adyen is on the path to establish an economic moat by virtue of network effects. The
network effect will also support Adyen to develop economic moats for cost advantage and intangible
assets.

Adyen has grown the volume of transactions it processes and the number of transactions it processes
per user exponentially. Transaction volume growth results in more data which drives further
improvement in the algorithms that Adyen use to improve authorization of payments while reducing
fraud.

We believe that Adyen should achieve a cost advantage over time. If Adyen gains market share due to
its superior product and the network effect kicks in Adyen will naturally gain scale as well. This should
support Adyen in achieving a cost advantage as it will allow Adyen to spread its fixed costs over a larger
amount of transactions, lowering its marginal costs.

Until now Adyen has clearly delivered in its client's requirements with a customer churn rate of less than
1% from 2015 to 2017. Adyen also gained the business of eBay from rival PayPal's Braintree solution. We
view Braintree as one of Adyen's most serious competitors. Given eBay's prior relationship with PayPal
and its intimate knowledge of the PayPal business it is insightful that eBay choose to switch sides. Client
satisfaction levels of this nature will enhance Adyen's reputation and place it on course for an intangible
asset economic moat.
Page 19 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Our Growth Estimates Are Less Bullish Than Consensus

Our estimate for Adyen's 2019 net earnings of EUR 204 million is 4% higher than the S&P Capital IQ
consensus estimate. Our revenue growth estimates for 2020 and 2021 are, however, below consensus.
We believe that the market's focus is on the very bullish outlook for global e-commerce, without taking
any of the obstacles we discussed earlier into consideration. The more-bullish growth is extrapolated
into the future where the bulk of a high growth business like Adyen's value lies.

Exhibit 12 Adyen: Growth Estimates—Morningstar Compared With Consensus

Revenue Growth Estimates Net Profit Growth Estimates

Morningstar S&P Capital IQ Consensus Morningstar S&P Capital IQ Consensus

60% 60%

50% 50%

40% 40%

30% 30%

20% 20%

10% 10%

0% 0%
19e 20e 21e 19e 20e 21e

Source: Morningstar, S&P Capital IQ; Data as of July 30, 2019.

Our Revenue Growth Estimates Are Still Very Robust

Under our base-case scenario, we estimate that Adyen increases its revenue by an annualized rate of
29% per year over the next five years and 24% per year over the next 10 years. This is still very robust
growth, but not as robust as market expectations. Our base case is based on mid-double-digit global e-
commerce growth rates and on Adyen continuing to increase its market share.

Adyen guidance is that it aims to: "… achieve a CAGR (compound annual growth rate) between mid-
twenties and low thirties in the medium term …" We pin this guidance down to a band of 25%-35%
compound growth per year. Adyen management does not intend to define medium term. We have
sympathy for Adyen management's reluctance. Too often management teams prioritize arbitrary short-
term goals at the expense of the long-term health of the business.
Page 20 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 13 Morningstar Estimates: Adyen Revenue Growth

70%
Adyen Management Guidance Revenue Growth Morningstar Estimate

60%

50%

40%

30%

20%

10%

0%
17 18 19e 20e 21e 22e 23e 24e 25e 26e 27e 28e

Source: Morningstar estimates, company data.

Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

We base our revenue growth estimates on three key variables:

× The overall e-commerce growth rate in the markets Adyen has an acquiring presence.
× Changes in Adyen's market share.
× Adyen's average fees as a percent of sales processed, known as the "take rate," in industry jargon.

Growth Rate in Adyen's Key Markets Are Below Global E-Commerce Growth
While Adyen is looking to expand its point-of-sale presence, payments on e-commerce platforms still
made up 90% of its revenue in 2018. E-commerce growth rates and not overall retail growth rates (which
includes physical point of sale sales) therefore form the basis of our revenue growth estimates for
Adyen. This also ensures that we reflect the rapid expected growth of Adyen's key client base in our
forecasts.

We base our revenue estimates on the expected e-commerce growth rates, excluding China. China will
account for around 70% of expected global e-commerce growth. Adyen and other non-Chinese merchant
payment providers are precluded from accepting payments in China. The e-commerce growth
expectations for Adyen's key markets: Europe and the U.S. are, however, much lower than the continued
strong growth expected from Chinese e-commerce.
Page 21 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 14 Emarketer Expectations for E-Commerce Growth Rates

35% Global China Global Excl China

30%

25%

20%

15%

10%

5%

0%
2015 2016 2017 2018 2019e 2020e 2021e 2022e 2023e

Source: Morningstar, Emarketer Report, Global E-commerce 2019.

Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

Emarketer expects global e-commerce to grow by 18% per year on average over the next five years.
Emarketer anticipates average Chinese e-commerce growth of 22% per year over the next five years. We
calculate that e-commerce outside of China will therefore grow by 12% per year on average over this
time frame.

Adyen Will Continue to Increase Its Market Share

Adyen's value proposition remains ahead of the pack and it should continue to entice new merchants,
especially within what we view as its core target market—cross-border tech businesses. Securing a
higher share of wallet from merchants already on Adyen's books could drive even more meaningful
market share gains. This is where Adyen's the potential network effect kicks in. If Adyen provides
superior acceptance and lower fraud rates to a merchant, this will motivate the merchant to use Adyen
for a greater portion of its payment needs. This in turn leads to Adyen processing a greater volume of
payments, which gives it access to more data. More data improves the outcomes of Adyen's algorithms,
and the virtuous cycle continues. Adyen management has indicated that more than 80% of its volume
growth comes from its existing book of merchants, which also accounts for the bulk of Adyen's market
share gains.

We Assume a Stable Take Rate

We forecast a stable take rate of 0.22% for Adyen. Multiple issues have an influence on the take rate,
but on balance we believe that the take rate will face pressure from higher volumes from existing clients
with lower sliding scale percentage charges. But this will be offset by a higher portion of higher-margin
full-stack acquiring revenue. The importance of the legacy book of low-margin non-full-stack acquiring
Page 22 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

business will decline and in line with Adyen's strategy, a higher portion of revenue from midmarket
clients, in line with Adyen's stated strategy, where it can typically charge higher fees.

Exhibit 15 Morningstar Estimates: Adyen Stable Take Rate

0.35%
Adyen take rate (net revenue/value processed payments)

0.30%

0.25%

0.20%

0.15%

0.10%

0.05%

0.00%
15 16 17 18 19e 20e 21e 22e 23e 24e 25e 26e 27e 28e

Source: Morningstar estimates, company data.

Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

Adyen itself does not view the take rate as a key measure of its business, but sees it as a function of its
strategy and individual merchant negotiations; its focus lies with the absolute value of revenue. This
makes perfect sense to us. Adyen's pricing is done on a sliding scale; higher volumes from a merchant
results in a lower percentage fee. If Adyen targeted take rate as a key measure it would result in
suboptimal decision-making where one could end up with the ludicrous situation that Adyen says no to
new business simply to preserve a higher take rate. The high scalability of Adyen's business model plays
a role as well. Additional revenue from existing clients comes with little or no incremental costs or
capital requirements. Adyen's pricing model is also vital to this argument, charging on a cost-plus basis
means Adyen carries no pricing risk on its cost of sales.

Adyen's Pricing Model Also Supports a Stable Take Rate

For traditional credit card payments Adyen charges on the so-called Interchange ++ Basis, which means
it charges the merchant the interchange fee payable to issuers, plus the card scheme fee sometimes
known as an assessment fee, plus its own acquiring mark-up and processing fees. The risk of changes to
interchange or card scheme fees gets passed on to the merchant.

The alternative to Interchange ++ is to charge merchants a bundled or blended fee that is a set fee
regardless of the interchange or scheme fee costs. Under this arrangement the risk of changes to
scheme fees or interchange fees remains with the acquirer.
Page 23 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Adyen's cost plus pricing model also lowers the importance of the take rates as Adyen does not face the
risk of margin compression due to changes in interchange or scheme fees.

Exhibit 16 Illustrative Example of Adyen's Fees

EUR EUR

Large Small
Merchant Merchant
Shopper paid for goods 100.00 100.00
Interchange fee paid by Adyen to shoppers bank - issueing bank (1.00) (1.00)
Scheme fee paid by Adyen to Visa or Mastercard (0.12) (0.12)
Processing fee Adyen - per transaction (0.06) (0.10)
Acquiring fee Adyen - % of transaction value (0.20) (0.50)
Paid into merchants account by Adyen 98.62 98.28

Adyen's take rate 0.26% 0.60%

Source: Morningstar, company data.

This is only for illustration. Actual fees are affected by multiple factors including regulations, card scheme terms, and negotiations with merchants

The acquirer is the last step in the process, but it is the acquirer that needs to handle negotiations with
the merchant. The acquirers' mark-up is therefore the only element of the of the fee that is negotiable.
Another way to look at it is that the acquirer is like a building contractor that contracts out various bits of
work to subcontractors. The homeowner deals only with the building contractor, while the plumbers,
carpenters, electricians, and other subcontractors' contract with the building contractor. Similarly, the
merchant's contract is with the acquirer, the acquirer sells the full value chain to the merchant, and the
acquirer is responsible that the issuer and card scheme gets paid.

As a processor Adyen charges its clients a maximum flat processing fee of EUR 0.10 (or $0.12 outside of
Europe) per transaction. It is our understanding that Adyen does provide for lower per-transaction rates
above certain volumes.

However, the juicier margins are on the acquiring side, where Adyen charges a percentage of the
transaction value as its fee. The acquiring fee depends on, among other things, the payment method
used, geographic location of merchant, and location of the shopper. The most important determinant,
however, of the acquiring fee is the size of the merchant and the total value of transactions acquired for
the merchant.

Highly Profitable and Scalable Business

We believe that Adyen will reach its profitability target earlier than what management is guiding and
what consensus is expecting. Management guidance is that it expects Adyen to generate an EBITDA
margin north of 55% in the long term. Once again, management is loath to pin down "long term." Given
Page 24 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

that Adyen generated an EBITDA margin of 51% in 2018 already and the high degree of operational
leverage inherent in its business model we believe it can achieve this target in 2019.

Exhibit 17 Morningstar Estimates: Adyen EBITDA Margin

Adyen EBITDA Margin Adyen Management Guidance (minimum over long term)

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
15 16 17 18 19e 20e 21e 22e 23e 24e 25e 26e 27e 28e

Source: Morningstar estimates, company data.

Note: EBITDA margin calculated in line with Adyen methodology, which is EBITDA/revenue net of interchange fees.
Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

Adyen has a very scalable business model. Excluding interchange fees there is almost no marginal cost
for Adyen in processing another transaction from the same merchant on its platform. There are obvious
incremental costs if Adyen enters a new market and there are some incremental costs to onboard a new
client, but the bulk of its cost base is fixed.
Page 25 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 18 Operating Leverage Clearly Evident

120% 70%

60%
100%

50%
80%
Gross Profit Growth
40%
60%
30% Operating Expenses
Growth
40%
20%
EBITDA Margin

20%
10%

0% 0%
15 16 17 18 19e 20e 21e 22e 23e

Source: Morningstar estimates, company data.

Note: EBITDA margin calculated in line with Adyen methodology, which is EBITDA/Revenue net of interchange fees.
Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

Adyen's stated strategy is that any new development or coding that it implements on its platform must
not be a bespoke development for the benefit of one merchant solely, it must be for the benefit of all
users. This allows Adyen to benefit from revenue from multiple merchants in the future. If Adyen
provided bespoke coding or development to one merchant only, the revenue opportunity would be
limited to that one merchant. Initially, we found the strategy puzzling. Surely if you deliver a bespoke
service it locks in a client by creating switching costs. However, it became evident to us that this
strategy allows Adyen's business model to remain highly scalable as the same platform is used for its
whole business and no new cost centres are created to service select clients.

Highly Cash-Generative Business Model

The combination of a high EBITDA margin, limited capital expenditure and very low working capital
needs make Adyen highly cash generative. Adyen management is guiding that capital expenditure in the
medium term will not exceed 5% of net revenue. There is no explicit guidance for working capital. The
stated dividend policy is that Adyen will not pay a dividend in the medium term and that it prefers to
reinvest into the business. Given the highly cash-generative nature of the business we believe Adyen
may well start to pay dividends in the foreseeable future.
Page 26 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 19 Adyen—Limited Capital Expenditure and Working Capital Needs

Capex % of Net Revenue

Net Working Capital % of Net Revenue
Adyen Management Guidance Capex (maximum over medium term)
8%

7%

6%

5%

4%

3%

2%

1%

0%
15 16 17 18 19e 20e 21e 22e 23e 24e 25e 26e 27e 28e

Source: Morningstar estimates, company data.

Note: Working Capital
Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

Cash Position Overstated

Cash makes up 66% of Adyen's balance sheet. This is misleading. When Adyen performs full-stack
acquiring for its merchants, and it receives payment from the shoppers' issuing bank, it does so as the
bank of the merchant. The cashflow is recorded in Adyen's books. In most if not all instances, however,
the cash is transferred rapidly to the merchant's main bank account held at a commercial bank. We
believe it is important to exclude any cash flows that ultimately relate to merchants or financial
institutions from the cash flows one may use to value Adyen. Ultimately, we only want to discount
Adyen's net cash profit, net of movements in Adyen's working capital and capital expenditure.

Rival Worldpay provides better disclosure of its cash position. Worldpay discloses two separate line
items, cash and cash equivalents and settlement assets and merchant float. This reflects Worldpay's
operational cash and cash held on behalf of merchants much more clearly than Adyen's disclosure.

EBay Business Comes at a Cost

EBay's 2018 announcement that Adyen will replace PayPal's Braintree as its main merchant payment
provider was what brought Adyen to the attention of the larger investor community. This is a ringing
endorsement of Adyen's product and service quality, especially if one considers that eBay previously
owned PayPal. The deal did come at a cost to Adyen. Provided that certain revenue targets are met we
estimate that Adyen will have to issue additional shares equal to around 6% of Adyen's current shares
outstanding to eBay over the next four years. We model the full dilution as we believe it is more than
likely that the deal will be concluded.
Page 27 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Valuation—Priced for Perfection

The market values Adyen's at a forward enterprise value/EBITDA multiple of 70. Adyen will have to
deliver exponential growth to justify such a high multiple. Our revenue growth estimates suggest that
the market is pricing in elevated growth for a longer period than what we believe is possible. We value
Adyen at EUR 425.

Exhibit 20 Adyen's Valuation Has Tripled Since Its IPO a Year Ago

800 Adyen Closing Price

700

600

500

400

300

200

100

0
jun 18 sep 18 dec 18 mrt 19 jun 19
Source: Morningstar equity data.

Sixty-Eight Percent of Our Adyen Valuation Driven by Cash Flows 10 Years and More in the Future
Under our valuation model the bulk of Adyen's value lies in cash flows that are 10 years and more into
the future. This is typical for high-growth firms. This does mean that our valuation of Adyen is highly
sensitive even to small changes in our near-term estimates for key drivers, as these trends are
extrapolated and magnified into the future.

We use a three-stage, free cash flow to firm, discounted cash flow model to value Adyen. We have an
explicit forecast period of 10 years, during which we attempt to arrive at a midcycle level of profitability.
In line with Morningstar's methodology we limit the explicit period of our forecast (stage I and stage II)
to 11 years, as we do not believe that Adyen qualifies for an economic moat rating yet.

Revenue Growth Drives Relative Valuations

Adyen and its closest peers trade at eye-wateringly high multiples. Comparing Adyen to the absolute
multiples of its peers is a rather meaningless exercise. If we contrast EV/EBITDA multiples to our
revenue growth expectations for Adyen and its peers it is evident that revenue growth prospects are a
key driver of valuations. We calculated an R2 value of 0.75 (this jumps to 0.94 if we exclude outlier
Wirecard), and this suggests there is a strong correlation between the growth prospects of merchant
Page 28 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

payment providers and the market's valuation of them. Strange as it may seem, Adyen seems fairly
valued, relative to its peer group, if one considers its superior growth prospects. A deterioration in
growth prospects would have a highly detrimental impact on valuations.

Exhibit 21 Adyen and Its Peer Group: Valuation Relative to Growth Prospects

90x

80x Square

Adyen
70x

60x
EV/EBITDA

50x

40x
Paypal
30x
Worldpay
20x Global Payments Wirecard

10x Ingenico

0x
0% 5% 10% 15% 20% 25% 30% 35% 40%
Revenue Three Year CAGR Expectations

Source: Morningstar, S&P Capital IQ Consensus Estimates. Price data as of July 26, 2019.
Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.

The peer group we selected is based on the key competitors Adyen itself identified in its pre-listing
prospectus. While the whole peer group consists of services to the merchant in the payment process,
not all members of the peer group perform full-stack acquiring.

Exhibit 22 Merchant Payment Providers' Comparative Valuation

Market EBITDA
Cap Revenue EV/EBITDA Margin Return on
(EUR bn) 3yr CAGR P/E +1yr +1yr +1yr Equity +1yr

Paypal 117.1 17% 36x 27x 27% 19%

Worldpay 38.3 9% 29x 23x 50% 23%
Square 30.3 36% 107x 81x 18% 24%
Global Payments 24.0 14% 28x 20x 36% 21%
Adyen 20.4 37% 107x 72x 55% 27%
Wirecard 18.2 28% 35x 22x 29% 20%
Ingenico 5.3 13% 17x 12x 18% 14%
Merchant Payment Providers Average 22% 51x 37x 33% 21%

Source: S&P Capital IQ Consensus Estimates. Morningstar. Price data as at July 26, 2019.
Estimates are for illustrative purposes only. The forecasts shown are not a reliable indication of future performance.
Page 29 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

EV/EBITDA is our preferred multiple by process of elimination. Enterprise value/sales or even price/sales
is the first multiple that springs to mind for many investors when looking at fast-growing companies. It
does suffer from some serious deficiencies. First, it does not distinguish between the margin that a
business generates on its sales, and second, there are inconsistencies in the way companies define
sales. Price/earnings multiples could be distorted by different funding decisions or tax jurisdictions.

We believe revenue is a better indicator of true underlying growth than EBITDA or net profit as the last
two metrics could also experience growth due to a change in sales mix to higher-margin products or due
to lowered costs, which we do not believe are indicative of underlying growth trends. K
Page 30 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Appendix A

Exhibit 23 Key Financial Statistics and Estimates

Morningstar Equity Research 30 July 2019

Adyen (ADYEN)
Last Price Fair Value Uncertainty Stewardship Economic Moat Moat Trend Morningstar Credit Rating
688 EUR 426 EUR Very High Standard None Positiv e N/A

Analy st Johann Scholtz Fiv e-Star Price 213.00 Estimated COE 9.0% Adjusted P / E 106.2 65.8
Phone & Email +31 20 797 0018 Fair Value Estimate 426.00 Pre-Tax Cost of Debt 6.0% EV / Adjusted EBITDA 74.6 44.5
[email protected] One-Star Price 745.50 Estimated WACC 9.0% EV / Sales 8.9 5.3
Sector Financial Serv ices Market Price 688.00 ROIC * 19.3% Price / Book 17.9 11.1
Industry Credit Serv ices P / FVE 1.62 Adjusted ROIC * 19.3% FCF Yield 0.9% 1.5%
* 5-Yr Projected Average Div idend Yield 0.0% 0.0%
(2019 Estimates) (Price) (Fair Value)

3-Yr Forecast 5-Yr

All values (except per share Historical Projected
amounts) in: EUR Millions
CAGR/AV 2018 2019 2020 2021 2022 2023 CAGR/AVG
Income Statement
Rev enue 1,653 2,305 2,985 3,779 4,731 5,880
Gross Profit 349 487 630 798 999 1,241
Operating Income 173 261 357 473 613 785
Net Income 131 204 278 369 478 612
Adjusted Income 131 204 278 369 478 612
Adjusted EPS 4.29 6.48 8.59 11.40 14.77 18.91
Adjusted EBITDA 182 274 372 489 633 810

Growth (% YoY)
Rev enue 70.9% 63.3% 39.4% 29.5% 26.6% 25.2% 24.3% 28.9%
Gross Profit 52.5% 59.8% 39.4% 29.5% 26.6% 25.2% 24.3% 28.9%
Operating Income 61.9% 85.3% 51.0% 36.4% 32.7% 29.5% 28.0% 35.3%
Net Income 57.4% 83.9% 55.5% 36.4% 32.7% 29.5% 28.0% 36.1%
Adjusted EPS 83.7% 51.2% 32.6% 32.7% 29.5% 28.0% 34.6%
Adjusted EBITDA 61.7% 83.0% 50.4% 35.9% 31.6% 29.4% 27.9% 34.8%

Profitability (%)
Gross Margin 22.2% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1% 21.1%
Operating Margin 9.8% 10.5% 11.3% 11.9% 12.5% 13.0% 13.3% 12.4%
Net Margin 9.9% 7.9% 8.8% 9.3% 9.8% 10.1% 10.4% 9.7%
Adjusted EBITDA Margin 10.3% 11.0% 11.9% 12.5% 13.0% 13.4% 13.8% 12.9%
Return on Equity 27.3% 27.0% 22.8% 20.6% 22.1% 24.2% 27.2% 23.4%
Adjusted ROIC 21.9% 25.6% 19.0% 17.6% 18.4% 19.8% 21.7% 19.3%
Adjusted RONIC 17.8% 27.9% 8.7% 21.0% 19.5% 30.3% 29.8% 21.8%

Leverage
Debt / Capital 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Debt / EBITDA 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
EBITDA / Interest Ex pense 175.6 115.1 #DIV/0!
FCFE / Total Debt #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

Cash Flow
Div idends per Share 0.00 0.00 0.00 0.00 7.39 9.45
Free Cash Flow to the Firm 368 194 266 352 457 586
FCFE (CFO-Capex ) 373 198 272 358 464 595
Div idend Franking 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Div idend Pay out Ratio 0.0% 0.0% 0.0% 0.0% 50.0% 50.0%

Source: Morningstar estimates, company data. Data as of July 30, 2019.

Page 31 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Appendix B: Payment Industry Refresher

The payment value chain is divvied up into a multitude of highly specialized service providers, offering
seemingly very similar services. It can be very confusing to outsiders.

The original payment network had two participants: a shopper and a merchant. The shopper physically
hands cash to the merchant in exchange for goods. Then credit cards were introduced, and things
became much more complicated. Three main new parties were added to the payment value chain, each
with specific roles:

× The issuer or issuing bank, nearly always a bank or financial institution. Think most retail banks. They:
× Give or issue cards to shoppers.
× Maintain shoppers' accounts and send out statements.
× Pay merchants.
× Authorize merchants to proceed with transactions.
× Underwrite the shopper should the shopper fail to pay.

× The card scheme or card network, of which Visa and Mastercard are the best-known. The card schemes
were developed by the banks as the central hub that allows acquirers and issuers to work together.
× Provides the technology that allows issuers and acquirers to communicate.
× Decides if new entrants will be allowed as issuers or acquirers.
× Regulates interchange fees (importantly not acquiring fees).

× Acquirer or merchant acquirer: in the past mostly banks but increasingly stand-alone firms. Worldpay,
GlobalPay, Chase Merchant Services (JPMorgan), and First Data are some examples.
× Sign up new merchants—think of the acquirer as a business that retails a bundled package
of payment services to the merchant.
× Obtains authorization to proceed with the transaction from the issuer via the card scheme.
× Settlement. When payment is received from the issuing bank the acquirer directs the money
to the merchant's bank account, less fees paid to issuers, card schemes, and any other
participants.
× Deals with chargebacks and other disputes
× Underwrites the merchant. If there is a chargeback on a transaction the acquirer is on the
hook if the merchant is unable to pay.
Page 32 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Exhibit 24 Adyen Reduces the Number of Merchant Payment Providers Merchants Need to Contract

Source: Adyen presentation. Capital market day April 14, 2019.

Over time further specialized service providers developed:

× Merchant payment providers: stand-alone businesses or in various combinations with or without

acquirers.
× Payment gateways. Before the start of e-commerce, a payment gateway was simply a point-
of-sale terminal that captured shoppers' card details and communicated with the acquiring
bank. With an e-commerce transaction, the principle remains the same. Shoppers fill their
online basket with goods and the payment gateway is the application that links the
merchant to its acquiring bank.
× Acquirer processor. Back-office functions for the acquirer such as recordkeeping,
communicating with the card network, and resolving merchant issues.
× Risk management.
× Other payment providers.
× Issuer processors. Back-office functions for the issuing bank, such as recordkeeping of credit
card accounts, communication with the card scheme, and resolving cardholder issues.
Page 33 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Research Methodology for Valuing Companies

Overview
At the heart of our valuation system is a detailed projection of a company's future cash flows, resulting from our analysts' research.
Analysts create custom industry and company assumptions to feed income statement, balance sheet, and capital investment
assumptions into our globally standardized, proprietary discounted cash flow, or DCF, modeling templates. We use scenario
analysis, in-depth competitive advantage analysis, and a variety of other analytical tools to augment this process. Moreover, we
think analyzing valuation through discounted cash flows presents a better lens for viewing cyclical companies, high-growth firms,
businesses with finite lives (for example, mines), or companies expected to generate negative earnings over the next few years.
That said, we don't dismiss multiples altogether but rather use them as supporting cross-checks for our DCF-based fair value
estimates. We also acknowledge that DCF models offer their own challenges (including a potential proliferation of estimated
inputs and the possibility that the method may miss short-term market-price movements), but we believe these negatives are
mitigated by deep analysis and our long-term approach.

Morningstar's equity research group ("we," "our") believes that a company's intrinsic worth results from the future cash flows it
can generate. The Morningstar Rating for stocks identifies stocks trading at a discount or premium to their intrinsic worth—or fair
value estimate, in Morningstar terminology. Five-star stocks sell for the biggest risk-adjusted discount to their fair values, whereas
1-star stocks trade at premiums to their intrinsic worth.

Morningstar Research Methodology

Source: Morningstar.

Four key components drive the Morningstar rating: 1) our assessment of the firm's economic moat, 2) our estimate of the stock's
fair value, 3) our uncertainty around that fair value estimate and 4) the current market price. This process ultimately culminates in
our single-point star rating.

Economic Moat
The concept of an economic moat plays a vital role not only in our qualitative assessment of a firm's long-term investment
potential, but also in the actual calculation of our fair value estimates. An economic moat is a structural feature that allows a firm
to sustain excess profits over a long period of time. We define economic profits as returns on invested capital (or ROIC) over and
above our estimate of a firm's cost of capital, or weighted average cost of capital (or WACC). Without a moat, profits are more
susceptible to competition. We have identified five sources of economic moats: intangible assets, switching costs, network effect,
cost advantage, and efficient scale.

Companies with a narrow moat are those we believe are more likely than not to achieve normalized excess returns for at least the
next 10 years. Wide-moat companies are those in which we have very high confidence that excess returns will remain for 10 years,
with excess returns more likely than not to remain for at least 20 years. The longer a firm generates economic profits, the higher its
intrinsic value. We believe low-quality, no-moat companies will see their normalized returns gravitate toward the firm's cost of
capital more quickly than companies with moats.

To assess the sustainability of excess profits, analysts perform ongoing assessments of the moat trend. A firm's moat trend is
positive in cases where we think its sources of competitive advantage are growing stronger; stable where we don't anticipate
changes to competitive advantages over the next several years; or negative when we see signs of deterioration.

Estimated Fair Value

Combining our analysts' financial forecasts with the firm's economic moat helps us assess how long returns on invested capital are
likely to exceed the firm's cost of capital. Returns of firms with a wide economic moat rating are assumed to fade to the perpetuity
Page 34 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

period over a longer period of time than the returns of narrow-moat firms, and both will fade slower than no-moat firms, increasing
our estimate of their intrinsic value.

Our model is divided into three distinct stages:

Stage I: Explicit Forecast

In this stage, which can last five to 10 years, analysts make full financial statement forecasts, including items such as revenue,
profit margins, tax rates, changes in working-capital accounts, and capital spending. Based on these projections, we calculate
earnings before interest, after taxes, or EBI, and the net new investment, or NNI, to derive our annual free cash flow forecast.

Stage II: Fade

The second stage of our model is the period it will take the company's return on new invested capital—the return on capital of the
next dollar invested, or RONIC—to decline (or rise) to its cost of capital. During the Stage II period, we use a formula to
approximate cash flows in lieu of explicitly modeling the income statement, balance sheet, and cash flow statement as we do in
Stage I. The length of the second stage depends on the strength of the company's economic moat. We forecast this period to last
anywhere from one year (for companies with no economic moat) to 10–15 years or more (for wide-moat companies). During this
period, cash flows are forecast using four assumptions: an average growth rate for EBI over the period, a normalized investment
rate, average return on new invested capital (RONIC), and the number of years until perpetuity, when excess returns cease. The
investment rate and return on new invested capital decline until a perpetuity value is calculated. In the case of firms that do not
earn their cost of capital, we assume marginal ROICs rise to the firm's cost of capital (usually attributable to less reinvestment),
and we may truncate the second stage.

Stage III: Perpetuity

Once a company's marginal ROIC hits its cost of capital, we calculate a continuing value, using a standard perpetuity formula. At
perpetuity, we assume that any growth or decline or investment in the business neither creates nor destroys value and that any
new investment provides a return in line with estimated WACC.

Because a dollar earned today is worth more than a dollar earned tomorrow, we discount our projections of cash flows in stages I,
II, and III to arrive at a total present value of expected future cash flows. Because we are modeling free cash flow to the firm—
representing cash available to provide a return to all capital providers—we discount future cash flows using the WACC, which is a
weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future
proportionate long-term market-value weights.

Uncertainty Around That Fair Value Estimate

Morningstar's Uncertainty Rating captures a range of likely potential intrinsic values for a company and uses it to assign the
margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating
represents the analysts' ability to bound the estimated value of the shares in a company around the Fair Value Estimate, based on
the characteristics of the business underlying the stock, including operating and financial leverage, sales sensitivity to the overall
economy, product concentration, pricing power, and other company-specific factors.

Analysts consider at least two scenarios in addition to their base case: a bull case and a bear case. Assumptions are chosen such
that the analyst believes there is a 25% probability that the company will perform better than the bull case, and a 25% probability
that the company will perform worse than the bear case. The distance between the bull and bear cases is an important indicator of
the uncertainty underlying the fair value estimate.

Our recommended margin of safety widens as our uncertainty of the estimated value of the equity increases. The more uncertain
we are about the estimated value of the equity, the greater the discount we require relative to our estimate of the value of the firm
before we would recommend the purchase of the shares. In addition, the uncertainty rating provides guidance in portfolio
construction based on risk tolerance.

Our uncertainty ratings for our qualitative analysis are low, medium, high, very high, and extreme.
× Low–margin of safety for 5-star rating is a 20% discount and for 1-star rating is 25% premium.
× Medium–margin of safety for 5-star rating is a 30% discount and for 1-star rating is 35% premium.
× High–margin of safety for 5-star rating is a 40% discount and for 1-star rating is 55% premium.
× Very High–margin of safety for 5-star rating is a 50% discount and for 1-star rating is 75% premium.
× Extreme– margin of safety for 5-star rating is a 75% discount and for 1-star rating is 300% premium.
Page 35 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

Morningstar Equity Research Star Rating Methodology

Market Price
The market prices used in this analysis and noted in the report come from exchange on which the stock is listed which we believe
is a reliable source.

For more details about our methodology, please go to https://shareholders.morningstar.com.

Morningstar Star Rating for Stocks

Once we determine the fair value estimate of a stock, we compare it with the stock's current market price on a daily basis, and the
star rating is automatically re-calculated at the market close on every day the market on which the stock is listed is open. Our
analysts keep close tabs on the companies they follow, and, based on thorough and ongoing analysis, raise or lower their fair
value estimates as warranted.

Please note, there is no predefined distribution of stars. That is, the percentage of stocks that earn 5 stars can fluctuate daily, so
the star ratings, in the aggregate, can serve as a gauge of the broader market's valuation. When there are many 5-star stocks, the
stock market as a whole is more undervalued, in our opinion, than when very few companies garner our highest rating.

We expect that if our base-case assumptions are true the market price will converge on our fair value estimate over time, generally
within three years (although it is impossible to predict the exact time frame in which market prices may adjust).

Our star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk
tolerance, tax situation, time horizon, income needs, and complete investment portfolio, among other factors.

The Morningstar Star Ratings for stocks are defined below:

QQQQQ We believe appreciation beyond a fair risk-adjusted return is highly likely over a multiyear time frame. Scenario
analysis developed by our analysts indicates that the current market price represents an excessively pessimistic outlook, limiting
downside risk and maximizing upside potential.

QQQQ We believe appreciation beyond a fair risk-adjusted return is likely.

Page 36 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

QQQ Indicates our belief that investors are likely to receive a fair risk-adjusted return (approximately cost of equity).

QQ We believe investors are likely to receive a less than fair risk-adjusted return.

Q Indicates a high probability of undesirable risk-adjusted returns from the current market price over a multiyear time frame,
based on our analysis. Scenario analysis by our analysts indicates that the market is pricing in an excessively optimistic outlook,
limiting upside potential and leaving the investor exposed to Capital loss.

Risk Warning
Please note that investments in securities are subject to market and other risks and there is no assurance or guarantee that the
intended investment objectives will be achieved. Past performance of a security may or may not be sustained in future and is no
indication of future performance. A security investment return and an investor's principal value will fluctuate so that, when
redeemed, an investor's shares may be worth more or less than their original cost. A security's current investment performance
may be lower or higher than the investment performance noted within the report. Morningstar's Uncertainty Rating serves as a
useful data point with respect to sensitivity analysis of the assumptions used in our determining a fair value price.

General Disclosure
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This report is for informational purposes only and has no regard to the specific investment objectives, financial situation, or
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and recommendations made herein may not be suitable for all investors; recipients must exercise their own independent judgment
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The information, data, analyses, and opinions presented herein are not warranted to be accurate, correct, complete, or timely.
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Page 37 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

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Page 39 of 39 Even the Sky Has a Limit | 13 August 2019 | See Important Disclosures at the end of this report.

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