Adyen Mania Whips Us Back to the Dotcom Bubble

Adyen Mania Whips Us Back to the Dotcom Bubble

Payment-processing companies are surfing a wave of cash. Not just the relentless credit card swipes from regular folk, but also the enthusiasm of investors who reckon they’re onto the next big thing.

The initial public offering of sector darling Adyen BV suggests that the understandable interest in good, profitable companies has morphed into a fervor bordering on dotcom mania. It’s a little unhealthy.

On the morning of Adyen’s first day of trading in Amsterdam, the stock popped 100 percent – doubling to 480 euros ($564). While usually that would be a screaming signal that the IPO bankers had seriously undervalued their client, in this case you could hardly argue that Adyen’s initial price was cheap. At 240 euros per share, it was already valued at about 100 times last year’s earnings. Now that multiple is closer to 190. It’s a nosebleed valuation worthy of Netflix Inc.

Obviously, the word “bubble” shouldn’t be thrown around recklessly. Unlike the internet startups being that were pumped up beyond all reason by bankers in the late 1990s, Adyen isn’t an untested business sketched on a napkin and sold to retail investors before breaking even. Quite the opposite. It’s a fast-growing, high-margin company with an easily understood business model. Its payments platform for the web world is taking market share. These are solid foundations.

The first-day mania is being exacerbated by technical factors too. Only a small slice of the company was up for sale: about 14 percent. The crush of investors trying to get exposure has jacked up the price. It’s more a squeeze than a pop. One assumes the owners knew that something like this might happen – but not to such an extreme degree. The sliver of stock being sold suggests most wisely chose to hold on rather than cash out.

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