Nuvei Corporation (NASDAQ:NVEI) gets a lot of flak for its roll-up strategy, but it remains one of the few fintech players able to combine growth with profitability through the cycles. Nuvei's reiterated short and mid-term targets confirmed the company is positioned for more growth ahead, driven by a broad spectrum of payment services as well as its expansion in non-traditional growth markets such as gaming and crypto.
Assuming management executes as planned, the company should have little trouble sustaining its >30% revenue growth in the coming years – well ahead of its high-growth payment peers. Yet, Nuvei's valuation lingers below its peers at ~15x fwd EV/EBITDA, creating a favorable risk/reward at current levels.
Nuvei reiterated its 2022 guidance and mid-term targets despite some conservative assumptions for existing and new customer growth, which should reinforce investor confidence in the achievability of its numbers. The updated disclosures around the underlying organic growth trends support this view, with the volume of transactions processed up ~53% and ~80% of growth in e-commerce coming from existing customers with a higher net revenue retention (NRR) rate of ~146% (a marked improvement from ~101% in 2020). The latter is key - it indicates existing customers are becoming more embedded in the Nuvei platform via the expansion of their footprints and by purchasing more services.
Meeting the 2022 guidance for 30–35%, YoY growth bodes well for the 30%/year mid-term growth target as well, given the tough YoY comparables. Plus, the 30% target isn't particularly aggressive – it assumes some normalization of its crypto business (i.e., Simplex) and embeds a 30%-35% organic growth scenario (approximately half the 61% growth in 2021). Assuming Nuvei hits its revenue targets, the ~50% adj EBITDA target should be well within reach given the attractive unit economics of payments and the operating leverage benefits (~53% of the expense base is fixed).
A major driver of Nuvei's industry-leading growth trajectory is its exposure to "non-traditional" markets, like gaming, where the company holds a competitive advantage given its early focus. By "non-traditional" vertical, regulated online gaming now contributes ~25% of revenue (growing at a 93% YoY clip), followed by digital assets/cryptocurrencies at ~11% (+1,626% YoY) and social gaming at ~7% (+504% YoY). The mid-term growth runway is particularly exciting in US gaming – while Nuvei's revenue in this sub-segment remains small at <$20m currently, management has outlined clear plans to leverage its gaming licenses in key states like Colorado and Indiana to power payments for leading players in the space (e.g., BetMGM (MGM) and SI Sportsbook (OTCPK:EIHDF)).
Nuvei could also outpace the market over the coming years, if it successfully differentiates itself via higher value services (i.e., Modular Technology). Thus far, progress has been good - Modular Technology has grown steadily as a proportion of overall revenue, reaching 38% in 2021 (up from ~31% in 2020). Plus, at 138% YoY, Modular is growing at nearly double the rate of its acquiring services. Beyond Modular, Nuvei's breadth of Alternative Payment Methods ((APMs)) has also been a critical advantage. At >530 APMs in aggregate, Nuvei represented ~26% of transactions in 2021 (up from 12% in 2020), growing at a 285% YoY pace. Expect more initiatives on this front, given the rich Nuvei pipeline and the potential to acquire new capabilities down the line – this includes global & instant payouts, open banking payments, as well as crypto on/off ramps, among others.
Given its ~$250m net cash position and strong FCF generation, Nuvei has ample balance sheet flexibility to balance reinvestments into the sales/platform, strategic M&A, as well as debt repayments, with the remainder allocated to share buybacks. The increase in spending is a stark contrast to the volatility in tech since November 2021, with the company pushing ahead with the expansion of its physical sales force across all regions. Of these, the key geography remains North America, where Nuvei has more than doubled its sales headcount growth to 29 YTD (up from 13 in 2021) - this mirrors the sales headcount growth in EMEA, which saw a similar scale of increase to 46 in 2021 (from 10 in the prior year).
A significant portion of Nuvei's investment dollars will also be allocated to marketing investments for brand awareness, likely entailing a near-term headwind to the >40% EBITDA margin in exchange for new customer additions. Having provided much of the foundation for growth thus far, acquisitions could play a relatively smaller role for now, as management focuses on integration. Still, progress on post-M&A integration has been positive so I expect more acquisitions down the line. Thus far, the acquisitions of Smart2Pay, Mazooma, Simplex, and Paymentez have already delivered strong growth rates in 2021 (49%, 90%, 226%, and 23% YoY, respectively), with ample upside left upon full integration and synergy realization.
On balance, Nuvei is in a prime position to capitalize on the transformation in the payments market post-COVID, as the global shift to electronic payments and digital services continues to accelerate. Supporting its growth outlook is the company's extensive addressable market opportunities, which extends beyond traditional markets like online retail and marketplaces into "non-traditional" areas such as gaming and crypto. Thus far, management has executed well on its inorganic growth strategy, and given its balance sheet flexibility, I see more reinvestments and M&A-driven growth on the horizon.
Despite its expected >30% revenue growth and strong profitability, Nuvei's stock trades below high-growth payment peers like Block (SQ) and Adyen (OTCPK:ADYYF). This allows investors to win both ways – from valuation multiple expansion alongside the increasing mix of digital revenue as well as continued earnings growth in the coming years.
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