Market Movers - 25 May 2024
Market Movers - 25 May 2024
Stocks covered: NU, ADYEN, EVO, MELI, SE
Welcome back to the Wolf of Harcourt Street Newsletter.
Market Movers is your time-saving guide to crucial stock news, cutting through the noise.
It's been a while since I shared this segment of the newsletter, but I am resurrecting it based on subscriber feedback. A lot of news happens, and this segment aims to capture it all in one place so that you don’t have to go looking for it.
With all that being said, let’s dive into today’s edition!
Todays Agenda
Nu to Enter Telecom Market
Adyen Keeps Adding Customers
Evolution Plans New U.S Headquarters
MercadoLibre Applies for Digital Banking Licence in Mexico
DSB Research on Sea Limited
1. Nu (Ticker: NU) to Enter Telecom Market
NU has received approval to operate as a mobile virtual network operator (MVNO) using Claro's infrastructure with the service expect to launch in Q3.
Traditional MVNOs face challenges due to the high costs of purchasing data capacity wholesale, limiting their ability to compete with established telcos. NU has subverted this model by securing a revenue-sharing agreement with Claro, rather than purchasing capacity wholesale. This will result in little to no Capex for NU and result in healthy profit margins.
NU’s low acquisition and serving costs should provide a competitive edge as they already hold a 22% share of the prepaid plan top-up market. Analysts estimate that NU could capture 11 million prepaid customers and 7.5 million postpaid customers within three years, equating to 7% of Brazil's mobile phone market.
The telecom sector in Brazil has become less competitive after Oi's exit from the mobile market. Companies have been able to increase prices and grow revenue above inflation due to reduced competition. The entry of Nubank as an MVNO could disrupt the market by introducing aggressive pricing and innovative service models.
Source: Brazil Journal
My Perspective: Unlike legacy banks, what is the one thing that users need to access NU? The answer is internet connectivity. That is why this move makes so much sense for NU.
2. Adyen (Ticker: ADYEN) Keeps Adding Customers
Adyen has been very busy this week, announcing two new partnerships, both on the same day!
Addmind
Adyen, has partnered with Addmind, a leading hospitality group, to enhance payment experiences at Addmind’s venues in the UAE and globally.
The collaboration includes integrating Adyen with SevenRooms, a hospitality marketing and operations platform, which addresses payment inefficiencies, reduces no-shows, and supports preferred payment methods like American Express.
Addmind has adopted Adyen's fully integrated POS solution, enabling pay-at-table functionality, easier bill splitting, and direct tipping from payment devices, leading to increased average tips and reduced staff admin load. The collaboration has resulted in noticeable improvements, including decreased no-shows and faster service delivery, which support Addmind's expansion goals.
As Addmind expands globally, including new venues in London and Ibiza, the partnership with Adyen will ensure streamlined payment processes and a superior guest experience across all locations.
Source: Adyen Press and Media
Vapiano
Adyen has partnered with Vapiano, an Italian restaurant group, to enhance customer experiences.
Adyen's technology allows customers to customize their checkout experiences and order food via their phones using digital wallet payments. A pilot in a London branch showed 80% of orders were made via mobile, indicating high demand for faster, seamless ordering and highlighting a need for more payment options.
Adyen's research indicates 54% of consumers abandon the checkout if their preferred payment method isn't available, and 27% no longer carry wallets. Vapiano expects increased loyalty and improved operational efficiency from Adyen's fast, reliable, and secure systems, leveraging customer data to analyze trends.
Source: Adyen Press and Media
My Perspective: Adyen has been announcing new partnerships on an almost weekly basis. Adyen’s land-and-expand business model means that 80% of its growth comes from existing customers. It will not be visible in the 1H 2024 earnings but future payment volumes are being onboarded.
3. Evolution (Ticker: EVO.ST) Plans New U.S Headquarters
Evolution’s plans for a $75 million, four-story, 130,000-square-foot building at Atlantic City have received support from the Casino Reinvestment Development Authority (CRDA). Evolution, already operating in Atlantic City, needs more space due to current constraints. The new building will address this need, allowing expansion from 850 to approximately 2,000 employees.
The proposed building will include studio, office space and data warehousing. The CRDA board's preliminary vote was mostly unanimous, with final approvals still needed. The building, projected to open in 2026, will serve as a flagship facility for Evolution in the U.S., adhering to online gaming laws that require multiple state locations.
Source: Press of Atlantic City
My Perspective: This is very welcome news and shows that management is taking proactive measures to increase capacity for US expansion.
4. MercadoLibre (Ticker: MELI) Applies for Digital Banking Licence in Mexico
Mercado Pago, the fintech arm of MELI, will apply for a banking license in Mexico to become the largest digital bank in the country, aiming to provide comprehensive banking services including savings and checking accounts, commercial loans, and mortgages. The license application process is expected to take 12 to 24 months, starting at the end of summer.
Mercado Pago already offers various digital financial services under an IFPE fintech license in Mexico, such as credit and debit cards, international transfers, interest on digital wallet funds, and loans. The Mexican market, with less than half the population having bank accounts, is a key focus for fintechs.
MELI plans significant investments in Mexico, including creating 8,200 jobs and allocating $2.5 billion to its operations, supported by lending agreements with major banks like Goldman Sachs, Citigroup, and JPMorgan Chase.
Source: Reuters
My Perspective: While this is a decision that should come as no surprise to anyone given the trajectory Mercado Pago has been on, it now positions it for a direct collision course with NU in the rapidly growing digital banking market in Mexico.
5. DSB Research on Sea Limited (Ticker: SE)
DSB released a note on SE after it reported Q1 earnings, maintaining a buy rating and raising the price target to $96. While price targets are generally not worth the paper they are written on, it is useful to understand the narrative driving it.
DBS noted that the Q1 adjusted EBITDA of $401 million significantly exceeded the consensus estimate of $240 million, with the improvement driven by narrower e-commerce losses. The e-commerce Gross Merchandise Volume (GMV) of $23.6 billion surpassed the consensus estimate of $22.5 billion by over $1 billion.
Overall, DBS raised its price target due to raising e-commerce revenue forecasts for FY24 and FY25 by 14% and 20%, resulting in overall revenue increases of 10% and 15%. They raised the valuation of e-commerce to 2.5 times 12-month forward EV/Revenue, aligning with global peers trading at an average of 3. They value the gaming and fintech business at 12 times EV/EBITDA.
Source: DBS
My Perspective: The commentary from DBS aligns with my own analysis of the SE Q1 earnings, where I anticipated that analysts would adjust estimates upward once they fully digest the Q1 results.
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Happy investing
Wolf of Harcourt Street
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Twitter: @wolfofharcourt
Email: wolfofharcourtstreet@gmail.com