Fintech: Taking the Long View (William Blair Equity Research, July 18, 2024)
Summary
Fintech: Taking the Long View is a William Blair equity research industry report dated July 18, 2024. The report introduces a multiyear thematic fintech outlook, with the fintech team covering 27 stocks in four subsegments: networks, merchant acquiring and processing, banktech and embedded finance, and cross-border payments and remittances. It names Visa, Mastercard, American Express, Fiserv, FIS and Block as its best large-cap ideas, upgrades Block to Outperform from Market Perform, and downgrades PayPal to Market Perform from Outperform. Exhibit 1 summarizes each covered company's rating, thesis, bull case and bear case with market capitalization. The report includes disclosures stating that the firm does and seeks to do business with covered companies and that it is not personal investment advice, and it closes with a directory of the firm's research analysts.
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“Fintech: Taking the Long View (William Blair Equity Research, July 18, 2024).”
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Equity Research
Financial Services and Technology | Fintech
July 18, 2024 Andrew W. Jeffrey, CFA +1 415 796 6896
Industry Report ajeffrey@williamblair.com
Cristopher Kennedy, CFA +1 312 364 8596
Fintech: Taking the Long View ckennedy@williamblair.com
Highlighting Our Best Ideas: V and MA, AXP, FI, FIS, SQ (Upgrading to Marc Feldman, CPA +1 312 364 8397
mfeldman@williamblair.com
Outperform From Market Perform), WEX, and RELY
Adib Choudhury +1 212 237 2758
In this report, we introduce a multiyear thematic fintech outlook, realign stock
This report is intended for adoherty@williamblair.com. Unauthorized distribution prohibited.
achoudhury@williamblair.com
coverage, and update two ratings. William Blair’s fintech team, including analysts
Andrew W. Jeffrey, CFA, and Cristopher D. Kennedy, CFA, and associates Marc Feld-
Joel Riechers +1 212 237 2726
man, CPA, Adib Choudhury, and Joel Riechers, will cover 27 stocks, divided into four
jriechers@williamblair.com
primary subsegments: networks, merchant acquiring and processing, banktech and
embedded finance, and cross-border payments and remittances. Overlap exists,
but within categories, Jeffrey will take primary responsibility for networks and
merchant processors, including co-coverage with Kennedy on Visa, Mastercard,
American Express, Fiserv, Euronet, and Flywire. Kennedy will focus on banktech
and embedded finance and cross-border payments and remittance. Refer to exhibit
3 on page 7 for coverage and ratings.
There is no way to sugarcoat it: many fintech stocks have underperformed the
market (exhibit 2 on page 6) since the end of 2019, and over the trailing 12 months.
With a few notable exceptions, our view is that the group has suffered from concerns
about relatively poor competitive differentiation, aging tech stacks, and lower-than-
appreciated entry barriers. We accordingly encourage investors to focus on
what we see as two key structural alpha drivers: 1) wide competitive moats,
augmented by above-industry organic revenue growth at scale; and 2) ongo-
ing share gains, powered by distinctive software and value-added services.
Our best large-cap ideas exemplifying these themes are Outperform-rated—Visa,
Mastercard, American Express, Fiserv, FIS, and Block (upgrading to Outperform).
Among smaller caps, we highlight WEX, Flywire, and Remitly, whose pullbacks may
create an attractive entry point for long-term investors. Further, as we review our
universe, we are downgrading PayPal to Market Perform from Outperform.
As an important aside, two Outperform-rated names, Global Payments and Corpay,
are not among our best ideas, but have what we consider company-specific catalysts.
We remain constructive on Global Payments, considering recent relative under-
performance, comparatively consistent financial results, a sharp relative valuation
discount, and value-creation options—e.g., the sale of its issuer solutions. We make
a similar observation about Corpay. While we see near-term EPS risk, our view is
that the stock is trading at a meaningful discount to its sum-of-the-parts (SOTP)
valuation, and we believe management will revisit strategic value-creation options.
Please refer to important disclosures on pages 61 and 62. Analyst certification is on page 61.
William Blair or an affiliate does and seeks to do business with companies covered in its research reports.
As a result, investors should be aware that the firm may have a conflict of interest that could affect the ob-
jectivity of this report. This report is not intended to provide personal investment advice. The opinions and
recommendations herein do not take into account individual client circumstances, objectives, or needs and
are not intended as recommendations of particular securities, financial instruments, or strategies to particular
clients. The recipient of this report must make its own independent decisions regarding any securities or
financial instruments mentioned herein.
William Blair
Contents
Our Big-Picture View.......................................................................................................... 5
Our Best Ideas: A Thumbnail Sketch—V, MA, AXP, SQ, FI, FIS, RELY, and WEX Lead the
Way............................................................................................................................... 8
Our Favorite Fintech Names in Greater Detail. ................................................................. 9
Visa and Mastercard: Industry Stalwarts, Long-Term Buy-and-Hold, Get Aggressive
on Pullbacks.............................................................................................................. 9
American Express: Hitting All the Right Notes............................................................... 12
Fiserv: Software-Integrated SMB POS Leader. .............................................................. 14
Block: Upgrading to Outperform From Market Perform on Likely Modest GPV Trend
Improvement and Powerful EBITDA Upside............................................................ 18
WEX: The Street Has Become Too Negative on This Well-Run Fintech’s Long-Term
FCF ROIC Potential .................................................................................................. 23
FIS: Streamlined Discipline Should Keep a Good Thing Going....................................... 26
Remitly: Unduly Punished, in Our Opinion, Despite Strong Fundamentals................... 27
Other Rating Change. ....................................................................................................... 29
PayPal: Downgrading to Market Perform on Limited TAM Upside, Growing
Competition, and Lack of UC Strategy. .................................................................... 29
Attractively Valued Outperform-Rated Fintechs That Have Pulled Back to Create
Compelling Risk/Reward or Are Dependent on Corporate Catalysts. ..................... 33
Flywire: Superior Business. Structural Questions Appear to Be Discounted in
Valuation ................................................................................................................ 33
Global Payments: Mr. Bready, Tear Down That Issuer Business.................................... 34
Corpay: Time to Get Serious About What’s Really Core.................................................. 37
Secular Trend: Networks and Merchant Processors—Global Card Volume, VAS, and
New Flows Growth Outlook Is Robust....................................................................... 40
Secular Trend: Merchant Acquiring and Processing—Competitively Differentiated
Software-Integrated POS. .......................................................................................... 43
Secular Trend: Banktech and Embedded Finance. ......................................................... 45
Banktech........................................................................................................................ 45
Embedded Finance......................................................................................................... 49
Secular Trend: Cross-Border Payments and Remittances.............................................. 53
Cross-Border Commerce................................................................................................ 54
Cross-Border B2B Payments.......................................................................................... 54
Global Remittances........................................................................................................ 54
Appendix. ......................................................................................................................... 56
2 Andrew W. Jeffrey, CFA +1 415 796 6896
Exhibit 1
Fintech Coverage Portfolio Manager Summary
($s in millions, except per share values)
Market
Company Analyst Rating Thesis Bull Case Bear Case
Cap ($M)
Networks
Effective acquisition and continued spending growth from premium and
American Express Strong differentiated franchise with large growth opportunities and strong financial
AJ+CK OP 180,233 millennial/Gen-Z consumers. Acceleration of SME spending growth and continued Managing credit cycle and macro economy, competition.
(AXP) performance (midteens EPS growth, >30% ROE) at an attractive valuation.
wallet share gains. Success in driving international merchant acceptance.
Effective cross-selling of AP solutions into fleet customer base. Better 2H24 Protracted period of management or board inaction. Ongoing vehicle segment
Corpay (CPAY) AJ OP 21,580 Corporate restructuring unlocks shareholder value as fundamentals stabilize.
lodging results. Cost takeouts. Accelerated buybacks. demand softness. Sluggish lodging recovery.
Leading network w/superior VAS offerings and organic rev growth. Premium P/E Robust summer travel season and cross-border demand, augmented by above- Regulatory and competitive concerns. A sharp travel slowdown and/or U.S.
Mastercard (MA) AJ+CK OP 414,701
to V maintained by relatively faster top-line expansion. corp-avg VAS rev growth, operating leverage, and buybacks. recession, to which Mastercard has greater exposure than Visa.
Key beneficiary of global secular transition to e-payments. Core holding. Buy any Strong VAS rev growth catch-up, new flows monetization, superior merchant Regulatory pressure. Stock could continue to lag MA's valuation in a robust
Visa (V) AJ+CK OP 549,001
sharp pullbacks. location growth, and relative recession resistance due to leading debit share. economy, due to less discretionary spend leverage.
Street has become too negative on travel segment competitive risk, fleet demand
Long-term FCF-ROIC compounder w/competitively advantaged tech offerings. Protracted soft fleet demand, a sharp travel slowdown and/or yield compression,
WEX (WEX) AJ OP 8,049 softness, and disappointing benefits top-line. Worst case is priced in, as C25
Risks materially priced in. continued HSA account growth softness. Complexity pressures valuation.
organic rev growth seems poised to rebound.
Merchant Acquiring and Processing
2H24 Square GPV acceleration. Strong EBITDA upside as company targets C26 Square share gains, accelerating gross profit growth, and improving Cash App Ongoing elevated merchant churn and execution lapses that sustain SMB share
Block (SQ) AJ OP 45,935
Rule of 40. inflows and monetization. loss. Cash App regulatory scrutiny or inability to drive inflows.
Software/payments platform focused on fragmented, unattended market, with Sustained EBITDA growth through the acceleration of high-margin subscription
Subscription revenue growth decelerates, margin expansion stalls, and
Cantaloupe (CTLP) CK OP 541 improving margins. Targets imply ~$75M of EBITDA by FY26 (versus ~$35M in revenue growth and transaction margin expansion. Cross-selling VAS and success
competitive pressures on device/customer expansion.
FY24). with SMBs, micro-markets, and international should drive subscription growth.
Leading diversified global merchant processor taking SMB share, owing to Merchant segment organic rev growth 2x+ the market, driven by Clover, e-
Software-integrated SMB POS lead eroded by improving competitor execution.
Fiserv (FI) AJ+CK OP 93,467 leading Clover platform. Valuation supported by 38 consecutive years of double- commerce, and rest of world. Powerful cross-sell/platform capabilities, op leverage,
Argentina inflation and revenue anticipation loan tailwinds lapse.
digit EPS growth. and FCF ROIC.
Merchant business grows faster than anticipated on power of 60% tech-enabled Protracted period of management or board inaction on strategic initiatives.
Global Payments Corporate restructuring to "pure-play" merchant processor unlocks shareholder
AJ OP 26,560 solutions. Better investor appreciation of assets (upcoming analyst day) and/or Merchant segment top-line growth remains around industry average. Likely better
(GPN) value and capital to reinvest for faster organic rev growth.
value unlock prompts positive re-rating. analyst day disclosure doesn't drive multiple expansion.
Cristopher Kennedy, CFA +1 312 364 8596
Nuvei (NVEI) CK MP 4,551 Being acquired by Advent for $34.00 per share. Deal successfully closes. Acquirer backs out or renegotiates takeout valuation lower.
Acquisition of SMB and enterprise customers internationally in traditional verticals
Software/payments platform focused on fragmented, unattended market, with Dual-listed on the TASE, but investors' ability to accumulate shares is hindered
and emerging verticals (e.g., EV charging). Retention and growth with existing
Nayax (NYAX) CK MP 775 improving margins. Targets imply $1B of revenue and $300M of adj. EBITDA by by low average daily trading volume on the Nasdaq. Competitive pressures on
customers. Sourcing and integration of acquisitions. Transaction margin
2027-28 (vs. $327M of revenue and ~$32M of EBITDA in 2024). device/customer expansion. Failure to source/integrate acquisitions.
expansion.
Focus on better Braintree conversion drives faster branded TPV and branded Continued mix shift toward unbranded volume pressures transaction $ growth and
Limited U.S. e-commerce TAM and growing competition pressure branded TPV
PayPal (PYPL) AJ MP 66,260 margin $ growth. Robust FCF and shareholder return fuels EPS upside as EBIT margin. Growing competitive concerns and lack of UC strategy create
growth, hence transaction $ expansion and EBIT margin.
competitive concerns ease. protracted valuation pressure.
Unique business that is focused on reducing payments fraud while helping Improving cohort performance, and increased mix of new products/services (Policy
Managing risks associated with core chargeback guarantee solution, and the
Riskified (RSKD) CK OP 1,154 customers grow. Debt-free balance sheet ($422M of cash/equivalents), targeting Protect, Dispute Resolve, Account Secure, Policy Decisions) should drive
ability to diversify into new solutions.
15%-20% EBITDA margins by 2026 (vs. -3% in 2023). improving gross margins.
William Blair
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William Blair
Andrew W. Jeffrey, CFA +1 415 796 6896
Exhibit 1 (cont.)
Fintech Coverage Portfolio Manager Summary
($s in millions, except per share values)
Market
Company Analyst Rating Thesis Bull Case Bear Case
Cap ($M)
Banktech and Embedded Finance
Leading provider of digital banking solutions with strong revenue visibility Continued traction in the bank channel supported to recent implementations.
Competition, customer implementations, continued success in the bank channel,
Alkami (ALKT) CK OP 3,215 operating in large and fragmented market. Targets imply about $500M of revenue Successful cross-selling and platform capability expansion. Margin expansion
and progress to reaching financial targets.
and $100M adj EBITDA in 2026 (vs. estimated $331M / $23M in 2024). through renewals and operating expense leverage.
Strong competitive position in Puerto Rico, expanding its presence in Latin Improving economic environment in core Puerto Rico market coupled with strong Integration of Sinqia, expected to be neutral to EPS in year-1 (vs. initially neutral
Evertec (EVTC) CK OP 2,269 America (now 40% of revenues vs 11% in 2016 and 21% before Sinqia) via organic growth trends within Latin America. Successful completion and integration to slightly positive); new management at Sinqia. Increasingly competitive LatAm
$591M acquisition of Sinqia. of acquisitions should augment Latin America growth. market. Geographic concentration and customer concentration risk.
FIS has a diverse set of assets, maintains a strong distribution platform that is Near-term results should be driven by internal initiatives and capital deployment 45% stake of Worldpay complicates modeling/valuation; financial targets appear
FIS (FIS) CK OP 44,454
highly embedded into the financial system. ($4B share buybacks); 2025-26 financial targets may prove conservative. reasonable, but requires strong internal execution.
Growth of its largest BaaS customer has contributed to ~700bp of EBITDA margin After years of focusing on internal operations, management appears to be focused Two largest customers represent ~59% of revenue in 2023, gross profit
Green Dot (GDOT) CK MP 532
pressure since 2022; Federal Reserve consent order lingers. on growth; Green Dot is unique play on embedded finance. contribution is much more diversified; core metrics are challenged, regulations.
Ongoing sales momentum augments recurring revenue (90%+ of total) growth with
Leading provider of core and complementary solutions to banks and credit existing clients. Continued adoption (and selling outside the core) of modern cloud- Financial institution consolidation expected to continue. Financial institutions may
Jack Henry (JKHY) CK OP 12,396
unions; revenue/EPS at a 7%/12% CAGR since 2011, >20% ROIC. native complementary solutions. Cloud-core initiative could drive improved shift from best of suite to best of breed solutions.
economics and TAM expansion over LT.
MeridianLink MeridianLink is a leading provider of consumer loan origination systems (LOSs) Growth should accelerate following technology upgrades, go-to-market strategies, Growth is tied to consumer lending volumes (e.g., auto, mortgage); competition,
CK OP 1,750
(MLNK) to banks and credit unions; ~200,000 active users and nearly 2,000 customers. and as the macro environment normalizes (recovery in mortgage/auto loans). and revenue growth has slowed to +5% in 2023 with 2%-5% expected in 2024.
Faster-than-anticipated booking-to-revenue conversion of newer customer.
Marqeta has evolved into a full-scale platform to enable embedded finance. With
Retention and successful cross-sell with existing customers. Sales momentum in Key customer risk as ~45% of gross profit is driven by Block (Cash Card contract
Marqeta (MQ) CK OP 2,875 SQ renewal addressed, 2025/26 targets call for mid-20s revenue growth and
embedded finance. Operating leverage on margins. Cleaner comparison beginning expires June 30, 2028); regulatory overhangs.
MSD-LDD EBITDA margins; GAAP NI positive by 4Q26.
2H24.
Leading provider of commercial loan origination systems for enterprise financial Success in adding new customers, cross-selling into existing customers, and
Progress in noncommercial business has been slower than expected; revenue
nCino (NCNO) CK OP 3,807 institutions; initiatives to expand into new services (i.e., retail LOS, mortgage). MT international expansion. New product introductions coupled with normalizing churn
churn was elevated in FY24-FY25.
targets call for a Rule-of-40, Rule-of-50 LT (vs. Rule-of-32 in FY24). should help drive accelerating subscription revenue growth in fiscal 2026.
Continued sales momentum driving new customer wins and existing customer
Q2 is a diversified provider of bank-technology solutions with an expanding suite
Q2 Holdings cross-sells. BaaS platform diversifies business, enabling Q2 to capture share of Continued macro-driven volatility in subscription revenue growth and new sales
CK OP 4,189 of products. CY24-26 targets call for avg. subscription growth of 14%, annual
(QTWO) massive embedded finance TAM. Margin expansion through mix benefits and activity. $191M of debt due November 2025.
EBITDA margin expansion of 300-400bp, and over 70% FCF conversion in 2026.
scale.
Cross-Border Payments and Remittances
Leading EU and emerging market ATM franchise continues taking share, Robust C24 travel season provides ATM network revenue upside while Travel demand sags and money transfer segment organic rev growth is
Euronet (EEFT) AJ+CK OP 5,055 complemented by above-market money transfer revenue growth and greater underperforming machines are taken offline, boosting margin. Money transfer rev pressured by geopolitical unrest. Investors unwilling to pay a premium for cash-
contribution from REN-centric software offerings. growth accelerates along w/agent growth and corridor share gains. based business w/cyclical demand exposure.
Proprietary payment network, software, and platform w/long runway of organic rev Upside driven by uptake in domestic healthcare and education payment products.
Flywire (FLYW) AJ+CK OP 2,329 growth compounding, driven by share gains in multibillion $ early stage vertical Education-related regulatory overhangs dissipate as travel segment remains Slower-than-expected student visa growth. Local payment methods embraced.
market TAMs. strong.
Payoneer provides services that provide SMB customers access to global Accelerating non-float revenue should be a key catalyst; guidance calls for +10% Lower interest rates represent a headwind to float revenue; cross-selling
Payoneer (PAYO) CK OP 2,094
markets; it has a strong brand, with large cross-selling opportunities. in 2024 (vs. +22% in 2022 and +5% in 2023). strategies may prove more difficult.
Continued resilience in existing customer behavior (e.g., 95% transaction profit
Digital money remittance company that is disrupting a large, highly fragmented retention after year 1) and efficiency in new customer acquisition (<12 mo. avg. Geographic concentration, ability to navigate the regulatory environment, internal
Remitly (RELY) CK OP 2,559
market. Unit economics remain robust and growth opportunities are significant. payback and >6x LTV/CAC). Successful send market expansion. Margin execution, competition, pricing, and unit economics.
expansion through transaction profit improvements and operating leverage.
Western Union has been losing market share in the massive money remittance
Financial and KPI targets set low bar and appear achievable. Results may continue
Western Union industry; and has printed relatively stable retail transactions and sluggish yet Revenue benefit from regulatory change in Iraq may normalize; market share
CK MP 4,356 to benefit from regulatory benefit in Iraq. Leverage of WU brand name and image
(WU) improving digital revenue growth. FCF remains stable and attractive dividend losses may continue; digital growth is lagging peers.
globally.
yield.
Sources: FactSet and William Blair Equity Research
William Blair
Our Big-Picture View
Having covered the fintech industry for nearly 25 years, we are struck by the extent to which the
group has suffered significant post-COVID multiple compression, as illustrated by exhibits 36-42,
contained in the appendix of this report. These exhibits depict the next-12-month (NTM) estimat-
ed P/Es for many names, both pre- and post-COVID. Our view is that significant multiple compres-
sion reflects fears of heightened competition, lower-than-appreciated entry barriers, aging tech
stacks, and concerns about the long-term scale potential of fast-growing smaller fintechs.
Considering recent performance, we recognize that investors’ alpha-generation requirements
make the group less attractive. We perceive the market as sending fintechs a clear message that the
old model of M&A-driven revenue and EPS growth and adding new independent software vendor
(ISV) distribution channels, which fueled share-price outperformance between the global financial
crisis (GFC) and pandemic, no longer works. We believe this shift reflects the adverse effects of
higher interest rates, questionable strategic rationale for some M&A, growing competition from
vertically integrated POS software, and in some cases inconsistent financial performance.
Fintech has structurally changed by becoming more commoditized and increasingly dominated by
a few providers capable of serving all but the most specialized merchant and issuer needs. While
the prospect of lower interest rates should aid industry multiples, we believe investors must be
more selective than ever, focusing on a handful of leaders with differentiated technology and ac-
companying above-average organic revenue growth at scale, financial consistency, and strong or
improving free cash flow return on invested capital (FCF ROIC).
As an example, we highlight Visa and Mastercard’s aggressive value-added services (VAS) push.
Many of the companies’ capabilities encroach on what have historically been services provided
by merchant processors and other fintechs, including: risk/tokenization, data analytics, issuer
processing, buy now pay later (BNPL), core processing, virtual card (vCard), business-to-business
(B2B), and open banking. This has pressured legacy fintechs to push more aggressively into
vertical market software and innovative merchant-facing solutions. Few have succeeded, in
our opinion. We view Fiserv, Block, and Shift4 as the best examples of this evolve-or-die approach.
Companies like Global Payments and Corpay exemplify those struggling to adapt. We believe there
is significant value in the hybrid network and credit models (e.g., Discover, American Express), and
believe American Express’s focus on premium consumers and SMBs remains key points of differ-
entiation. While still lagging Visa and Mastercard, American Express continues to make progress
expanding its global acceptance, evidenced by nearly 89 million global acceptance locations (ver-
sus 27 million in 2017). We contend it has a long runway of growth and maintains strong competi-
tive advantages relative to its peers.
So, what turns the group? We acknowledge that a sharp valuation reset alone is not enough to
attract new flows. We see two catalysts that can establish a durable bottom for fintechs: 1) signifi-
cant industry consolidation and 2) business restructurings. On the former, we have seen a slew of
M&A by both strategics and private equity over the past 12-18 months. We believe that the combi-
nation of large markets, secular tailwinds, and lower valuations suggests continued consolidation,
with higher potential for some smaller- or midcap names such as Payoneer, Flywire, Riskified,
and Marqeta. While the acquirer would benefit from innovative technologies and synergies, the
acquiree could benefit from being part of a larger company with broader distribution. For example,
Marqeta could be highly complementary to a network’s vCard issuing and processing offerings,
while Flywire could augment cross-border solutions at a company like Corpay. In past cycles, we
note that valuation bottoms have been put in by sustained M&A. We believe the same could be true
today. Notably, while some significant M&A has taken place in the last 12 months, we would have
anticipated more by now. Our view is that industry consolidation will likely accelerate meaning-
fully over the next 12-18, especially if interest rates trend lower.
Cristopher Kennedy, CFA +1 312 364 8596 5
William Blair
Regarding potential corporate restructurings, we argue that the era of the fintech conglomerate
is over. The idea of using inexpensive debt or expensive stock to acquire marginally complemen-
tary businesses and extracting synergies is no longer a formula for multiple expansion. Rather, we
believe investors are put off by the complexity and financial inconsistency of models like Global
Payments, Corpay, and WEX. We accordingly anticipate these management teams will be forced,
either by ongoing stock price underperformance or activists, to sell assets, streamline business
units and go-to-market, and reinvest in their most competitively advantaged assets. Absent either
of these relatively dramatic developments, we anticipate ongoing underperformance for most fin-
techs, with just a handful of well-positioned standouts generating consistent alpha.
Exhibit 2
It Has Been a Rough Ride; We Think Significant Consolidation and/or Restructuring Will Put in a Durable Bottom
Fintech Group Performance Versus S&P 500 (12/31/2019 to 6/30/2024)
180
160
140
120
100
80
60
Fintech Group S&P 500 S&P 500 (ex Mag-7) Index (Base = 100)
Note: Prices indexed to 100
Sources: FactSet and William Blair Equity Research
6 Andrew W. Jeffrey, CFA +1 415 796 6896
Exhibit 3
Fintech Coverage List
($s in millions, except per share values)
Price 52-Week Market FCF ROIC Revenue EBITDA EPS EV/Revenue EV/EBITDA P/E Levered FCF %
Company Analyst Rating
07/16/24 Range Cap 2025E 2023A 2024E 2025E 2023A 2024E 2025E 2023A 2024E 2025E 2023A 2024E 2025E 2023A 2024E 2025E 2023A 2024E 2025E 2023A 2024E 2025E
Networks
American Express (AXP) AJ+CK OP $249.63 $141 - $250 180,233 NA 60,515 66,591 72,993 NA NA NA $11.21 $12.95 $14.88 NA NA NA NA NA NA 22.3x 19.3x 16.8x NA NA NA
BILL Holdings (BILL) JR MP $55.73 $46 - $140 6,412 11.3% 857 1,192 1,525 41 168 258 $0.34 $1.84 $2.20 6.5x 4.7x 3.7x 136.5x 33.3x 21.7x 165.2x 30.2x 25.4x 0.3% 2.5% 6.2%
Corpay (CPAY) AJ OP $293.61 $220 - $320 21,580 15.3% 3,758 3,936 4,357 1,993 2,115 2,371 $13.20 $18.82 $21.42 7.2x 6.9x 6.2x 13.6x 12.8x 11.4x 22.2x 15.6x 13.7x 5.3% 5.7% 6.7%
Mastercard (MA) AJ+CK OP $443.53 $360 - $490 414,701 73.0% 25,098 27,788 31,414 15,346 17,060 19,490 $12.26 $14.35 $16.81 16.8x 15.2x 13.5x 27.5x 24.8x 21.7x 36.2x 30.9x 26.4x 2.8% 3.1% 3.5%
Visa (V) AJ+CK OP $269.25 $228 - $291 549,001 42.7% 33,351 36,920 40,359 23,653 26,085 29,086 $9.00 $10.28 $11.64 16.5x 14.9x 13.7x 23.3x 21.2x 19.0x 29.9x 26.2x 23.1x 3.4% 3.6% 4.0%
WEX (WEX) AJ OP $189.84 $162 - $244 8,049 10.0% 2,548 2,736 2,923 1,108 1,256 1,387 $14.81 $16.22 $18.56 4.7x 4.4x 4.1x 10.9x 9.6x 8.7x 12.8x 11.7x 10.2x 6.4% 8.2% 9.3%
Merchant Acquiring and Processing -14.35%
Block (SQ) AJ OP $72.07 $39 - $88 45,935 11.7% 8,920 10,806 13,504 1,792 2,845 3,600 $1.80 $3.48 $4.44 5.0x 4.1x 3.3x 24.7x 15.6x 12.3x 40.1x 20.7x 16.2x 1.1% 3.3% 4.5%
Cantaloupe (CTLP) CK OP $7.30 $6 - $8 541 NA 253 295 344 36 39 52 $0.20 $0.22 $0.32 2.1x 1.8x 1.6x 15.0x 13.6x 10.4x 36.5x 33.2x 22.8x 4.0% NA NA
Fiserv (FI) AJ+CK OP $157.14 $109 - $160 93,467 8.6% 17,865 19,233 20,883 8,208 9,180 10,208 $7.52 $8.79 $10.17 6.5x 6.1x 5.6x 14.2x 12.7x 11.4x 20.9x 17.9x 15.5x 4.3% 4.8% 5.3%
Global Payments (GPN) AJ OP $103.11 $92 - $142 26,560 7.6% 8,671 9,223 9,853 4,326 4,650 4,997 $10.42 $11.58 $13.18 4.8x 4.5x 4.2x 9.6x 8.9x 8.3x 9.9x 8.9x 7.8x 9.6% 10.9% 11.6%
Nuvei (NVEI) CK MP $32.59 $13 - $37 4,551 14.2% 1,190 1,377 1,596 437 495 605 $1.69 $1.98 $2.69 4.8x 4.1x 3.6x 13.0x 11.5x 9.4x 19.3x 16.5x 12.1x 6.5% 8.0% 10.4%
Nayax (NYAX) CK MP $23.00 $17 - $31 775 22.4% 236 327 414 8 32 52 ($0.48) ($0.11) $0.40 3.2x 2.3x 1.8x 91.2x 23.2x 14.5x NA NA 57.5x NA 1.4% 4.0%
PayPal (PYPL) AJ MP $61.81 $50 - $77 66,260 35.4% 29,771 32,051 34,644 6,100 6,152 6,685 $5.10 $4.21 $4.39 2.0x 1.8x 1.7x 9.5x 9.5x 8.7x 12.1x 14.7x 14.1x 6.9% 7.6% 8.4%
Riskified (RSKD) CK OP $6.52 $3 - $7 1,154 60.1% 298 329 368 (8) 15 29 $0.05 $0.21 $0.29 2.5x 2.2x 2.0x NA 48.2x 25.2x 130.4x 31.0x 22.5x 0.6% 3.1% 4.4%
Toast (TOST) SS OP $27.30 $14 - $28 17,308 185.3% 1,362 1,754 2,168 61 270 424 $0.00 $0.33 $0.74 11.9x 9.2x 7.5x 265.5x 60.0x 38.2x NA 82.7x 36.9x 0.3% 1.5% 2.4%
Banktech and Embedded Finance
Alkami (ALKT) CK OP $33.16 $15 - $33 3,215 22.6% 265 331 411 (2) 23 57 ($0.04) $0.21 $0.50 11.8x 9.5x 7.6x NA 138.2x 54.7x NA 160.7x 65.8x NA 0.6% 1.9%
Evertec (EVTC) CK OP $34.21 $29 - $42 2,269 15.3% 695 851 926 292 332 366 $2.82 $2.90 $3.23 4.3x 3.6x 3.3x 10.3x 9.1x 8.2x 12.1x 11.8x 10.6x 6.6% 7.2% 9.8%
FIS (FIS) CK OP $76.91 $47 - $79 44,454 9.6% 9,820 10,129 10,541 3,972 4,125 4,337 $3.38 $4.93 $5.46 5.3x 5.2x 5.0x 13.2x 12.7x 12.1x 22.8x 15.6x 14.1x 4.3% 5.8% 6.1%
Green Dot (GDOT) CK MP $9.99 $7 - $21 532 16.2% 1,484 1,601 1,690 171 171 202 $1.63 $1.56 $1.75 0.4x 0.3x 0.3x 3.1x 3.1x 2.6x 6.1x 6.4x 5.7x 18.8% 22.8% 25.2%
Jack Henry (JKHY) CK OP $169.74 $137 - $178 12,396 18.4% 2,160 2,302 2,479 676 715 820 $5.11 $5.42 $6.22 5.8x 5.5x 5.1x 18.7x 17.7x 15.4x 33.2x 31.3x 27.3x 3.1% 3.0% 3.5%
MeridianLink (MLNK) CK OP $22.63 $15 - $26 1,750 NA 304 317 345 113 127 144 ($0.14) $0.33 $0.45 7.0x 6.7x 6.1x 18.7x 16.7x 14.7x NA 68.6x 50.3x 2.3% NA NA
Marqeta (MQ) CK OP $5.55 $5 - $7 2,875 NA 676 505 628 (2) 10 47 ($0.42) $0.03 ($0.17) 2.8x 3.8x 3.0x NA 183.1x 40.2x NA 185.0x NA NA NA NA
nCino (NCNO) CK OP $32.66 $27 - $37 3,807 10.1% 477 543 624 70 92 124 $0.51 $0.64 $0.89 8.0x 7.0x 6.1x 54.6x 41.4x 30.8x 64.0x 51.0x 36.7x 1.6% 2.0% 2.7%
Q2 Holdings (QTWO) CK OP $70.47 $29 - $71 4,189 NA 625 687 764 77 112 144 ($1.12) ($0.74) ($0.24) 7.0x 6.4x 5.8x 57.3x 39.3x 30.5x NA NA NA 1.1% NA NA
Cross-Border Payments and Remittances
Euronet (EEFT) AJ+CK OP $108.63 $74 - $120 5,055 29.6% 3,688 4,016 4,352 619 681 759 $7.46 $8.60 $9.45 1.4x 1.3x 1.2x 8.3x 7.6x 6.8x 14.6x 12.6x 11.5x 7.5% 8.3% 9.2%
Cristopher Kennedy, CFA +1 312 364 8596
Flywire (FLYW) AJ+CK OP $18.91 $15 - $36 2,329 69.5% 382 488 620 42 70 111 ($0.07) $0.10 $0.53 4.5x 3.5x 2.8x 40.6x 24.6x 15.4x NA 189.1x 35.7x 1.9% 3.8% 5.9%
Payoneer (PAYO) CK OP $5.53 $4 - $6 2,094 151.5% 831 905 973 205 207 217 $0.24 $0.28 $0.39 1.8x 1.7x 1.6x 7.4x 7.3x 7.0x 23.0x 19.8x 14.2x 6.2% 8.6% 10.7%
Remitly (RELY) CK OP $13.48 $12 - $28 2,559 28.2% 944 1,205 1,551 44 90 140 ($0.65) ($0.38) ($0.12) 2.6x 2.0x 1.6x 54.6x 26.9x 17.3x NA NA NA 1.3% 2.8% 4.7%
Western Union (WU) CK MP $12.60 $11 - $14 4,356 NA 4,470 4,179 4,238 1,030 990 1,005 $1.74 $1.74 $1.83 1.3x 1.4x 1.4x 5.6x 5.9x 5.8x 7.2x 7.2x 6.9x 15.6% NA NA
S&P 500 $5,667.20 $4,104 - $5,670 $226 $246 $274 25.0x 23.0x 20.6x
Note: Stephen Sheldon (SS); Jake Roberge (JR)
Sources: FactSet and William Blair Equity Research
William Blair
7
William Blair
Our Best Ideas: A Thumbnail Sketch—V, MA, AXP, SQ, FI, FIS,
RELY, and WEX Lead the Way
As detailed in our company write-ups that follow, we view Visa and Mastercard as long-term
above-average organic revenue and FCF compounders and believe the stocks will keep pace in a di-
rectional bull market while delivering superior through-the-cycle risk-adjusted returns. Although
MA and V stocks have been relative year-to-date market laggards, we recommend them today for
long-term investors and would become more aggressive during market drawdowns or periods of
company-specific uncertainty (for example, due to regulatory or competitive fears).
Regarding American Express, we see ongoing demographic and SMB share gains and merchant
location growth as underpinning above-average organic revenue growth and returns (versus the
market), hence multiple expansion. We see accelerating second half 2024 Square GPV, gross profit,
and EBITDA growth as driving a significant positive re-rating for Block. We also contend the Street
fundamentally undervalues the company’s cash app segment, hence our upgrade. Fiserv should
continue posting superior top-line and EPS expansion, in our opinion, as Clover takes market
share, its international merchant business thrives, and the company monetizes platform business
beyond Clover. As for FIS, we see the company poised for more consistent financial performance,
EPS upside, and aggressive shareholder capital return. This should at least support further multi-
ple expansion. Lastly, we contend Remitly has been unduly punished by competitive concerns and
what we consider investor confusion around KPIs, such as new active customers vs. new customer
adds and revenue yield vs. profit yield. We also believe competitive concerns have been overblown,
creating an attractive entry point for aggressive growth investors.
We view WEX and Corpay as more alike than different but favor WEX in a head-to-head match-up,
owing to what we consider a better-defined product suite. Although we have historically harbored
reservations about travel customer concentration, we contend the recently negotiated long-term
Booking.com contract and growing non-travel corporate volume mitigate this risk. We are also en-
amored with the company’s strong healthtech competitive position, as evidenced by 20% of HSA
accounts on its platform. We also like that associated custodial balances on which the company
earns interest offer a hedge on corporate debt costs. Lastly, we believe the 2023 Payzer acquisition
offers material cross-selling upside not contemplated in Street estimates.
While not a best idea, given our multiyear thematic outlook, we are downgrading PayPal to Mar-
ket Perform from Outperform. Although the stock appears attractively valued at just 14.1 times
estimated 2025 EPS, 8.7 times EBITDA, and an 8.4% FCF yield, we increasingly view PayPal
as at best a balanced risk/reward, given growing competition, associated challenges improving
transaction margin, a limited e-commerce TAM given a lack of card-present or unified commerce
strategy, structural challenges monetizing Venmo, and apparent unwillingness to make a strate-
gically accretive acquisition.
8 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Our Favorite Fintech Names in Greater Detail
Visa and Mastercard: Industry Stalwarts, Long-Term Buy-and-Hold, Get Aggres-
sive on Pullbacks
We believe the two pure-play networks will generate through-the-cycle alpha, even if they do not
necessarily attract incremental capital in a technology- and AI-led bull market. These companies
have the key characteristics of superior investments, in our opinion, including: 1) above-average
durable organic revenue growth; 2) consistent above-average FCF ROIC; 3) superior financial con-
sistency; and 4) disciplined, shareholder-friendly capital allocation.
As previously discussed, we anticipate the companies’ roughly $20 trillion core global carded TAM
will deliver consistent high-single-digit percent-plus durable volume growth, and unlike other eco-
system participants, we believe Mastercard and Visa possess significant pricing power. As a result,
we expect organic revenue growth will at least track market volume expansion with potentially
more relative upside at Mastercard given its smaller size and our view toward incremental share
gain. This consideration, combined with modest operating leverage and ongoing share buybacks,
suggests both companies can deliver near-20% long-term EPS compounding. Although this outlook
is materially consistent with consensus and likely reflected in current valuation, history suggests
bouts of fear around competition or regulatory risk can create attractive entry points for opportu-
nistic investors. Regardless, we recommend both stocks for long-term growth investors today.
In addition to Visa and Mastercard’s leading share of the carded market, we believe they are diver-
sifying their businesses and becoming more deeply embedded in their customers’ payments infra-
structures. One of our multiyear secular growth theses is embedded finance. Embedded finance
describes the process of nonfinancial companies offering financial services, such as earned wage
access (EWA), vCards, or BNPL. The two leading networks have created new VAS revenue streams
by offering these solutions to issuing and non-issuing customers. They have also built and acquired
assets that support bill-pay, which is driving card attach, and open banking, which we think will
gain share, particularly outside the U.S. Open banking solutions are important, in our view, as ac-
count-funded wallets are a competitive threat to cards. We are encouraged that the networks have
cut open banking deals around the world, with perhaps the most notable being Mastercard’s rela-
tionship with JP Morgan Chase. While we believe Mastercard’s VAS offering is more sophisticated
and diversified than Visa’s, representing almost 40% of revenue versus Visa’s roughly 25%, both
companies are well positioned to grow VAS organic revenue at above-corporate-average rates. This
increases confidence in our multiyear organic revenue, EBITDA, FCF, and EPS growth algorithm.
Longer term, we anticipate that new flows will play a larger role supporting the networks’ organic
revenue growth. Visa estimates that the new flow TAM, including solutions like B2B and money
movement, is roughly $200 trillion, or about 10 times the carded TAM. Although the companies
do not explicitly quantify new flows revenue contribution, Visa has offered some key performance
indicators (KPIs) suggesting that it has good traction. For example, on its second quarter fiscal
2024 call, management mentioned that new flow revenue growth was 14%, underpinned by 31%
growth in Visa Direct transactions, which reached 2.3 billion, and 8% B2B volume expansion. Sim-
ilarly, on its first quarter 2024 call, Mastercard highlighted new flows, citing an expanded B2B
relationship with Wells Fargo and 40% remittance and disbursements transaction growth. We
are enthusiastic about potential future new flow revenue contribution and anticipate the
networks will provide more disclosure, just as they have as their VAS revenue has scaled.
Lastly, as we touched on earlier, credentials, tokenization, and merchant acceptance location
growth bolster confidence in our roughly 10% long-term sustainable organic revenue growth out-
look. The ability to support new credentials for issuers and tokenize transactions across different
Cristopher Kennedy, CFA +1 312 364 8596 9
William Blair
payment modalities is unique to Visa and Mastercard. As further data points, Mastercard high-
lighted on its first quarter 2024 call that it saw 50% tokenized transaction growth, with tokens
representing just 25% of Mastercard processed transactions. In addition to creating a more secure
payment environment where credentials are shared between issuer and merchant, improving ap-
proval rates and transaction flow, we view tokens as an important inroad to selling more VAS.
Visa and Mastercard already boast robust EBITDA margin, but we believe there remains upside as
the companies enjoy natural operating leverage and bring more transactions onto their networks.
Mastercard recently disclosed that it has increased its share of processed transactions to roughly
66%, from just 55% in 2018. We believe this reflects European Maestro conversions, share gains,
and flips of previously closed-loop networks to Mastercard. We estimate that Visa’s calendar 2025
EBITDA margin will be 72%, and we put Mastercard’s calendar 2025 margin at 62%. Over time,
we anticipate both companies can take profitability toward 80%, even as they invest for sustained
above-average organic revenue growth. We believe such strong profitability and ample FCF can
generate 3-plus percentage points of annual EPS growth via share buybacks. We project that Visa
will generate above $22 billion of calendar 2025 FCF, while Mastercard should produce almost $15
billion in calendar 2025. The networks have historically been acquisitive, although given their size,
we do not anticipate material FCF devoted to M&A. Rather, we believe they will continue doing im-
portant tuck-in deals that provide capabilities, such as bill-pay, fraud and analytics, B2B payments,
open banking solutions, disbursements, and remittances.
Valuation
We believe Visa and Mastercard are the best-positioned fintechs to drive EPS growth, robust FCF
ROIC, shareholder capital return, and accretive M&A. This supports our view toward sustained
premium valuations. Specifically, we note that Mastercard and Visa currently trade at 26.4 times
and 23.1 times estimated 2025 EPS, respectively. We see both multiples as at least sustainable,
supporting high-teens percent annual price gains, driven by EPS growth. That said, we view Visa’s
roughly 12% relative discount as modestly too wide. We appreciate Mastercard’s faster relative
VAS revenue growth and greater long-term margin expansion potential, but we believe Visa’s lead-
ing merchant acceptance footprint and lower exposure to discretionary credit and cross-border
spending will allow the stock to close this gap, through the economic cycle.
10 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Exhibit 4
Visa Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $33,351 $37,004 $36,920 ($83) $40,727 $40,359 ($368)
Y/Y % 10.5% 11.0% 10.7% 10.1% 9.3%
EBITDA 23,653 26,062 26,085 $23 28,973 29,086 $113
Y/Y % 10.7% 10.2% 10.3% 11.1% 11.5%
Margin % 70.9% 70.4% 70.7% 71.1% 72.1%
Adj. EPS $9.00 $10.25 $10.28 $0.03 $11.51 $11.64 $0.13
Y/Y % 0.14255 13.8% 14.1% 13.3%
FCF 19,121 19,496 22,295
Y/Y % 7.8% 2.0% 14.4%
Conversion % 102.6% 93.9% 97.5%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $36,833 $40,546
Y/Y % 10.4% 10.1%
EBITDA 26,083 29,049
Y/Y % 10.3% 11.4%
Margin % 70.8% 71.6%
Adj. EPS $10.24 $11.56
Y/Y % 13.7% 12.9%
Note: Reflects calendar year metrics. Fiscal year ended September.
Sources: Company reports, FactSet, and William Blair Equity Research
Exhibit 5
Mastercard Incorporated Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $25,098 $27,801 $27,788 ($13) $31,499 $31,414 ($85)
Y/Y % 12.9% 10.8% 10.7% 13.3% 13.0%
EBITDA 15,346 17,146 17,060 ($86) 19,770 19,490 ($281)
Y/Y % 14.5% 11.7% 11.2% 15.3% 14.2%
Margin % 61.1% 61.7% 61.4% 62.8% 62.0%
Adj. EPS $12.26 $14.27 $14.35 $0.07 $16.50 $16.81 $0.31
Y/Y % 16.4% 17.0% 15.6% 17.1%
FCF 11,513 12,976 14,695
Y/Y % 14.1% 12.7% 13.3%
Conversion % 99.2% 97.9% 97.7%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $27,831 $31,275
Y/Y % 10.9% 12.4%
EBITDA 17,137 19,555
Y/Y % 11.7% 14.1%
Margin % 61.6% 62.5%
Adj. EPS $14.29 $16.59
Y/Y % 16.6% 16.1%
Sources: Company reports, FactSet, and William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 11
William Blair
Risks
Aside from macro exposure (the potential adverse EPS effects of which the networks can at least
partly offset through lower marketing spend and the built-in stabilizer of rebates and incentives),
we view the biggest risks to our bullish thesis as regulatory overreach and the proliferation of
open banking. On the former, there have been myriad efforts over the years to lower interchange,
and despite the recent U.S. interchange lawsuit settlement, which now needs to be revisited given
it was rejected by a judge on June 25, large merchants continue to complain about high card ac-
ceptance costs. We encourage investors to note that lower interchange has no direct effect
on Visa and Mastercard as it is a cost borne by merchants, not a network revenue stream.
History has demonstrated, in our opinion, that issuers have responded to lower interchange by
cutting consumer cardholder rewards, rather than pressuring the networks for lower fees. While
we are hard-pressed to envision a situation in which interchange falls enough to impact consumer
rewards such that card use would materially suffer, we cannot rule out this scenario.
As discussed above, open banking, which allows consumers to fund cards with bank accounts,
potentially circumvents the networks. Although we anticipate open banking will gain global popu-
larity—see Pix’s success in Brazil—both companies are actively supporting these capabilities. In
addition, we note that fraud prevention and customer service can suffer when transactions lose
the protection of Visa and Mastercard issuer services.
American Express: Hitting All the Right Notes
Over the years, Amex has narrowed its focus to premium consumers and SMBs, and it has expand-
ed its network, remaining keenly focused on improving its value proposition and driving customer
engagement. This narrower focus has driven accelerating organic revenue growth, and we are bull-
ish on its aspirational double-digit revenue growth target (versus prior target of mid- to upper-
single-digit growth), and midteens EPS growth (versus prior target of double digits).
American Express has a small share in a massive, growing market, boasting revenue of $60.5 bil-
lion in what we estimate is a $700 billion payments market opportunity. The industry is expected
to grow revenue at a 7% clip, while industry billings are growing at a 9% rate through 2026. Amer-
ican Express’s core 16 markets represent about 81% of the revenue pool, and within its top five
countries it has just about 6% share of total spending.
While difficult to quantify, we believe American Express’s growing presence with millennial and
Gen Z customers represents a nice tailwind to growth. We estimate that billed business from the
youngest cohorts has grown at a 24% compound annual clip and now represents 32% of U.S. con-
sumer volume exiting 2023 (versus 20% exiting 2019). The data suggests that Amex’s share of
wallet with younger demographics is 10%-30% above that of older cohorts. Volume for millennial
and Gen Z customers was about 17% below all other age cohorts, and as these customers grow
their income, American Express should at least gain its fair share, in our opinion. We note that peak
earnings years in the U.S. typically occur at 45-54 years old (includes Gen X) with an average pre-
tax income of nearly $130,000 per year. This compares to about $52,000 for Gen Z and $100,000
for millennials.
We believe expanding merchant acceptance is a key driver of increasing American Express’s
share of spending wallet. The number of global locations accepting Amex exceeds 89 million, up
35% from 66 million in 2021, versus less than 10 million in 2016 and 25 million in 2017. Exclud-
ing merchants from China, global locations in force rose 27%, to about 62 million in 2023, versus
49 million in 2021. Notably, management has increased international locations in force by almost
4 times since 2017, and expanded coverage has led to greater spend with international merchants,
12 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
which generated $518 billion in network spend in 2023 on an FX-adjusted basis, versus $304 bil-
lion in 2017. American Express also introduced a target of 90 million international locations in
force by 2026, representing an increase of about 25% from 2023.
We believe the dramatic growth in merchant acceptance to date has been primarily driven by
American Express’s hybrid acquiring strategy, which employs third-party partners for SMB accep-
tance. For example, in 2014, American Express launched OptBlue, which allowed third parties to
contract directly with smaller merchants to accept American Express cards and negotiate pricing.
These third-party acquirers include Fiserv, FIS, Elavon, TransFirst, Heartland, Wells Fargo, Chase
Global Payments, and Bank of America, among others. American Express also partners with pay-
ment facilitators like Stripe, Adyen, and Block, along with licensed acquirers including Samsung
Card, Isracard, and Garanti BBVA, to efficiently reach the long tail of merchants.
Improving SMB Business
American Express has a built a significant leadership position in the SMB market, in our opinion,
and it has gained market share since the pandemic despite volatile industry trends. The company
has 3.9 million U.S. small-business customers, which had $427 billion of billings in 2023, represent-
ing 25% of billed volume, and about 47% market share. Prior to the pandemic, U.S. small-business
card spend had been a relatively stable industry, growing at about a 9% compound annual rate
between 2010 and 2019, though the pandemic skewed trends and more recently organic industry
pressure has kept organic growth subdued.
As outlined below, contribution from attrition and new accounts have been relatively stable, sug-
gesting this segment of the company’s business is positioned for a rebound.
Exhibit 6
AXP U.S. SME Billed Business Growth by Contribution
Organic Impact from New Acct. Total
Period
Growth Attrition Growth Growth
2019 3% -3% 6% 6%
2020 -14% -3% 5% -12%
2021 19% -2% 7% 24%
2022 13% -2% 8% 19%
2023 -2% -2% 7% 3%
4Q23 -4% -2% 6% 1%
1Q24 -3% -2% 6% 1%
Note: New account spend defined as ≤13 months of tenure
Source: Company reports
American Express is not immune to credit risk, but we think a focus on premium consumers has
driven industry-leading credit quality, which should help mitigate cyclical volatility in the credit
cycles. Consider the improving average credit score across its customer base as 70% of U.S. con-
sumer and small business card member loans and receivables are from customers with FICO scores
over 720, versus 55% in 2007, and the average FICO for newly acquired U.S. consumer accounts
was 759, which is 53 points ahead of the industry. Given the premium customer base, American
Express’s net charge-off and delinquency rates have consistently been below its top-5 credit card
issuing peers.
Cristopher Kennedy, CFA +1 312 364 8596 13
William Blair
Exhibit 7
American Express Credit Quality vs Peers
Net Charge-Off Rate Delinquency Rate
14.0% 7.0%
12.0% 14.0% 6.0%
12.0%
10.0%
8.0%
10.0% 6.0% 5.0%
4.0%
2.0%
8.0% 0.0% 4Q07
3Q08 4.0%
2Q09
1Q10
4Q10
3Q11
2Q12
1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
6.0% 3.0%
1Q19
4Q19
3Q20
2Q21
1Q22
4Q22
3Q23
4.0% 2.0%
2.0% 1.0%
0.0% 4Q07
3Q08 0.0% 4Q07
3Q08
2Q09
1Q10
4Q10
3Q11
2Q12 2Q09
1Q10
4Q10
3Q11
2Q12
1Q13
4Q13
3Q14
2Q15
1Q16 1Q13
4Q13
3Q14
2Q15
1Q16
4Q16
3Q17
2Q18
1Q19
4Q19 4Q16
3Q17
2Q18
1Q19
4Q19
3Q20
2Q21
1Q22
4Q22
3Q23 3Q20
2Q21
1Q22
4Q22
3Q23
Peer Range AXP Peer Avg.
Notes: Peers include BAC, C, JPM, DFS, and COF; peer avg. between 4Q07 and 2Q10 excludes BAC due to resegmentation
Sources: Company reports and William Blair Equity Research
Valuation and Risks
We anticipate AXP shares will appreciate at least in line with earnings growth, yet we believe the
opportunity for continued multiple expansion is warranted given the evolution of the business, its
faster growth profile, and the fundamental performance relative to the market.
Relative to the market, AXP shares trade at a 16% discount to the S&P 500, which compares to the
10-year average discount of 18%, even though American Express’s revenue and earnings growth
has outperformed the overall market over the last 5- and 10-year periods. Further, American Ex-
press’s revenue and earnings growth generally outperforms similarly valued constituents of the
S&P 500; thus, we believe a valuation premium to the S&P 500 is warranted. We encourage inves-
tors to recall that AXP shares traded at 1.1-times premium prior to 2014. Applying an S&P 500 mul-
tiple of 23 times to our 2024 estimates suggests 19% upside from current levels, while applying
a 25-times multiple (10% premium to the S&P 500) suggests 31% upside. The data suggests that
the “Magnificent 7” adds about 3.5 points to the market multiple, thus implying that AXP shares
trade about in line with the “ex-Magnificent 7” market multiple of 19.7 times, while applying a
21.7-times multiple (10% premium, ex-Magnificent 7) suggests 12.6% upside.
Key risks include higher-than-expected credit costs, a slowdown in card spending, increased regu-
latory scrutiny of the credit card industry, compression of interchange fees prompted by regula-
tory intervention, and economic cyclicality.
Fiserv: Software-Integrated SMB POS Leader
FI has been one of the best-performing fintech stocks in our universe, having nearly kept up with
the S&P 500 (+23% vs. +26%) over the trailing 12 months. We attribute this relatively strong per-
formance to sustained above-average merchant organic revenue growth, which has consistently
been well above peer performance, primarily Global Payments and Worldpay (private). Merchant
top-line expansion has also significantly exceeded our estimates of midsingle-digit percent U.S.
industry revenue growth and closer to 10% rest of world. Specifically, in the first quarter of 2024,
Fiserv’s merchant segment delivered 21% organic revenue growth, excluding the benefit of Argen-
tina inflation. We believe this is an impressive result measured against Global’s 8% first-quarter
14 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
merchant organic revenue growth and what we believe was low-single-digit percent growth at
Worldpay. We do not anticipate such robust performance to continue, considering outsized first-
quarter SMB growth, but we believe Fiserv will grow significantly faster than peers for the near
term. We think this relatively faster growth, fueled by Clover’s leading software-integrated POS
position, along with steady operating leverage, strong FCF conversion, and shareholder capital
return, will at least sustain Fiserv’s valuation.
It is our opinion that Clover is Fiserv’s key distinction, and the primary reason FI shares
have outperformed most of its fintech peers over at least the last 12 months. To wit, Clo-
ver delivered 30% first quarter 2024 organic revenue growth, or nearly 10 points of merchant
segment top-line expansion. Whereas we had previously expected non-Clover offerings, including
enterprise, to be a drag on the segment’s top line, this has not been the case, as evidenced by first
quarter’s 29% enterprise organic revenue growth. We now think Clover can support 8-10 percent-
age points of segment organic revenue growth, while the rest of merchant, or the remaining ap-
proximately 70% of revenue, can add 3-5 percentage points of expansion. This would be markedly
slower than the first-quarter performance, even as we expect full year 2024 merchant organic rev-
enue growth to be in the high teens, excluding Argentina inflation, slowing to roughly 16% in 2025.
Regardless, this merchant organic revenue growth outlook is well above peers, and we contend it
is difficult to overstate Clover’s contribution to merchant retention, market share, pricing power,
and long-term ROIC. At this point, we would go so far as to say that the software-integrated SMB
POS market is a two-horse race, between Square and Clover. Some smaller, vertical-specific provid-
ers, like Toast, and innovative next-generation technology offerings, such as those from Shift4, can
eat around the edges, but we do not anticipate any providers rivaling the leaders for significant
market share. We also like Clover’s horizontal market approach. Whereas we see it concentrating
on restaurant growth, given the importance of this vertical, we believe its multi-industry offering,
and Square’s similar market orientation, are competitive advantages.
We focus on Fiserv’s U.S. merchant segment success but would be remiss not to discuss impressive
international organic revenue growth. We estimate that nearly 30% of Fiserv’s merchant revenue
is generated outside the U.S., with outsized contributions from Europe and Latin America. We have
been impressed by roughly midteens percent international organic revenue growth, excluding
Argentina inflation, and see opportunities for it to take share in important markets like Brazil
where Fiserv provides infrastructure support for Pix, the nation’s leading open banking offering.
We expect to hear more about a growing Pix revenue contribution in second half 2024 and into
next year, particularly as the network becomes more merchant facing and adds services, rather
than being peer-to-peer (P2P) centric. We also think Clover’s international expansion efforts add
confidence to the company’s goal of reaching $4.5 billion of Clover revenue by 2026. For example,
Fiserv recently launched Clover in Germany via a partnership with Deutsche Bank. Importantly, we
think SMB software-integrated POS is much less mature outside the U.S., offering Clover a potential
first-mover advantage.
In addition to what we view as Clover’s explicit financial contributions to our bullish Fiserv outlook,
there are some investor-perception benefits from the way Fiserv talks about its overall business,
particularly the increasing importance of VAS to its long-term organic revenue growth, profitabil-
ity, and ROIC. We also like the simplicity of Fiserv’s two-segment reporting, which we think helps
investors understand the business, particularly as the company seems to be enjoying cross-selling
success, which we discuss below. In some ways, we contend Fiserv has taken a page from the
networks’ playbook as it highlights VAS as an important organic revenue growth driver. Spe-
cifically, the company is making what we see as a credible argument that its above-average long-
term organic revenue growth is not solely dependent on card volume. Rather, Fiserv can introduce
new services that augment yield. This is most easily seen in Clover, in our view, considering first
quarter 2024’s 10-basis-point year-over-year yield improvement.
Cristopher Kennedy, CFA +1 312 364 8596 15
William Blair
The company has become increasingly focused on capturing the B2B opportunity and has sized
the revenue opportunity at about $2 billion with its existing customers. Fiserv recently announced
a partnership with Melio, a B2B payments platform, which will combine Melio’s AP/AR workflows
with Fiserv’s biller, merchant, and payments network and capabilities. The new offering, Cash-
Flow Central, is a suite of solutions that help enable B2B payments and is primarily targeted to
small businesses. The offering joins Fiserv’s existing portfolio of B2B payments offerings, includ-
ing SnapPay, which is a cloud-based B2B solution (AP/AR) that integrates into SAP ERP systems
that largely targets large/midmarket firms.
We believe Fiserv’s merchant business is key to the stock’s prospective outperformance, but the
company’s financial solutions segment also appears poised to deliver relatively strong, at least
midsingle-digit, organic revenue growth, despite concerns about the health of the U.S. financial in-
stitution market. Although the company’s core banking solutions, which are about 25% of segment
revenue, may remain a laggard (2% normalized first quarter 2024 organic revenue growth), we
think the rest of the segment can power 5%-8% top-line expansion, driven by ongoing issuer pro-
cessing and digital payments wins. We see Fiserv continuing to benefit from P2P volume growth at
Zelle (45% first quarter 2024 transaction expansion), new card issuing verticals like government,
digital core wins at its Finxact subsidiary, and more accounts payable (AP)/accounts receivable
(AR) automation wins with its CashFlow Central offering at partner banks. Notably, the company
announced a CashFlow Central win at US Bank earlier this year, indicative of how Fiserv is compet-
ing with Visa and Mastercard for new flows. This is another factor that sets Fiserv apart com-
petitively from other fintechs, in our opinion.
Fiserv has done a good job delivering steady operating leverage, in our opinion, and we put 2025
consolidated adjusted EBIT margin at 39.6%, up from 33.9% in 2021. Margin expansion is a func-
tion of scale and more software revenue flowing across its Clover platform, in our opinion. We ex-
pect Fiserv will deliver 50-100 basis points of annual margin expansion over the next three to five
years. This should support at least $4.9 billion of 2025 FCF, which we anticipate will compound at
an 8%-10% annual rate. Share buybacks will probably be Fiserv’s chief use of capital, as the com-
pany has not done significant M&A. This could change, however, and we would not be surprised
to see Fiserv do a significant acquisition. This is another reason we argue that Global Payments
should be pursuing strategic M&A: if Fiserv does a deal that bolsters its competitive position, it
could further pressure Global Payments’ multiple.
Valuation
We expect robust organic revenue, EBITDA, EPS, and FCF growth will at least support Fiserv’s cur-
rent valuation, which at 15.5 times estimated 2025 EPS and 11.4 times estimated 2025 EBITDA
represents just a modest premium to stocks of less well-differentiated and slower growing fin-
techs, like Corpay. We also note that FI shares trade at an estimated 38% P/E and 44% EBITDA
multiple discount to the estimated 2025 average for V and MA. We anticipate that Fiserv’s rela-
tive valuation gap will close as the company delivers consistently above-consensus financial
results. A move to its post-COVID NTM P/E implies a $180-plus stock.
16 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Exhibit 8
Fiserv, Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $17,865 $19,119 $19,233 $114 $20,896 $20,883 ($13)
Y/Y % 7.5% 7.0% 7.7% 9.3% 8.6%
Adj. EBIT 6,729 7,444 7,484 $41 8,339 8,278 ($61)
Y/Y % 14.4% 10.6% 11.2% 12.0% 10.6%
Margin % 37.7% 38.9% 38.9% 39.9% 39.6%
EBITDA 8,208 9,048 9,180 $133 9,987 10,208 $221
Y/Y % 13.8% 10.2% 11.8% 10.4% 11.2%
Margin % 45.9% 47.3% 47.7% 47.8% 48.9%
Adj. EPS $7.52 $8.69 $8.79 $0.11 $9.93 $10.17 $0.23
Y/Y % 15.5% 16.9% 14.3% 15.6%
FCF 4,016 4,503 4,911
Y/Y % 14.3% 12.1% 9.1%
Conversion % 86.7% 87.3% 84.6%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $19,254 $20,939
Y/Y % 7.8% 8.8%
Adj. EBIT 7,479 8,315
Y/Y % 11.1% 11.2%
Margin % 38.8% 39.7%
EBITDA 9,054 9,934
Y/Y % 10.3% 9.7%
Margin % 47.0% 47.4%
Adj. EPS $8.71 $10.13
Y/Y % 15.8% 16.3%
Sources: Company reports, FactSet, and William Blair Equity Research
Risks to Our Outperform Rating
Perhaps the biggest near-term risk to our bullish Fiserv outlook is likely meaningful second half
2024 and first half 2025 merchant segment organic revenue growth deceleration as the company
grows over Clover SaaS attach gains, pricing actions, and the tailwinds of Argentinian inflation.
We also expect Square to be more competitive in second half 2024, particularly in the hospital-
ity vertical. This is a not a thesis-changing observation. Rather, it could create some near-term
headwinds after a strong run. Otherwise, Fiserv could face increased competition from other soft-
ware-integrated POS providers, like Square, Global Payments, Toast, and Shift4. It could also face
competitive threats from emerging UC offerings from Adyen, Stripe, and Shopify. Any change in
Argentinian merchant settlement practices could also hurt the company’s revenue loan anticipa-
tion business, which is part of this market’s tailwind. In financial solutions, we see risk from a po-
tentially soft financial institution spending environment amid deposit outflows and consolidation.
There are also new digital native competitors in this market, and we think the company’s Finxact
offering remains relatively small, despite some impressive recent wins.
Cristopher Kennedy, CFA +1 312 364 8596 17
William Blair
Block: Upgrading to Outperform From Market Perform on Likely Modest GPV
Trend Improvement and Powerful EBITDA Upside
We recognize that SQ stock performance has disappointed over the last 12 months, with shares
down 4.5% versus the SPX up 25.8%. Our view is that much of this relative underperformance
reflects concerns about Square’s ecosystem (40% of gross profit dollar) share losses. These con-
cerns have been justified, in our view, evidenced by Square’s 8% first quarter 2024 gross payment
volume (GPV) growth, which meaningfully lagged Clover’s (backed by Fiserv) 19% and was just in
line with Visa. However, we believe this spread is currently maximized, set to close measur-
ably in second half 2024 and beyond. This outlook, consistently above-consensus EBITDA,
what we consider a clear path to Rule of 40 by 2026, and Square’s compelling valuation
prompt us to upgrade our rating to Outperform from Market Perform.
Our bullish view reflects the following: First, we contend Square’s execution is steadily improv-
ing, marked by simpler merchant onboarding and new vertical solutions, such as in hospitality.
Second, CEO Jack Dorsey is injecting new energy into a business that had become complacent,
despite technology leadership. In addition to streamlined merchant onboarding, Square has con-
solidated apps, and made it easier for merchants to accept payments through the introduction
of capabilities like Tap-to-Pay on iPhone. Third, Cash App continues emerging as an important
neobank leader, and the company is adding new monetization levers such as short-term loans.
Fourth, expense discipline drove first quarter 2024 EBITDA margin to 33.7% of gross profit, up
from 21.5% last year, and we believe this strong operating leverage will continue. Fifth, we see
optionality in potential Square distribution deals, although details of such an arrangement remain
unclear. Lastly, the stock should rerate higher, in our opinion, as the Street gains comfort with the
company’s ability to achieve its Rule-of-40 goal.
It’s all about Square, in our view, as software-integrated vertical market payment solutions
rapidly displace legacy POS. We see Square and Clover as the clear leaders in this market, with a
combined $600 billion GPV, or perhaps around 20% of the SMB TAM. Exhibits 9 and 10 illustrate
our view of the software-integrated point-of-sale (POS) evolution, and we contend the democra-
tization of SMB POS software is the most important secular merchant trend, followed closely by
unified commerce (UC), which we will delve into at a later date. We believe software-integrated
POS is such an important trend because it creates a system of record for smaller merchants, which
historically have been forced to manually bridge the gap between POS card acceptance and general
ledger, accounting, inventory, payroll, time, attendance, and other systems. The integration of these
solutions, and others, has created an accelerating disintermediation of legacy POS, in our opinion,
while simultaneously raising switching costs and creating incremental monetization opportuni-
ties. Given this backdrop, we contend it is easy to understand why Fiserv has outperformed nearly
every other name in the fintech space: Clover has emerged as the SMB software-integrated POS
leader, and our thesis is that Square is poised to play catch-up. This is a non-consensus view that
we contend is not currently reflected in the stock.
18 Andrew W. Jeffrey, CFA +1 415 796 6896
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Exhibit 9
Software-Integrated POS Democratizes SMB Payments
Merchant Category Economic Benefits
Mega Merchants: $500+ annual vol
ERP System
Cost
Cost Functionality
Functionality Flexibility
Flexibility Switching Costs/
Switching
Migration PathPath
Costs/Migration
Enterprise Merchants: $50m-$500m annual vol
Cost
Cost Functionality
Functionality Flexibility
Flexibility Switching Costs/
Switching
Migration PathPath
Costs/Migration
SMB: $500k-$50m annual vol
Cost
Cost Functionality
Functionality Flexibility
Flexibility Switching Costs/
Switching
Migration PathPath
Costs/Migration
Micro Merchants: <$500k annual vol
Cost
Cost Functionality
Functionality Flexibility
Flexibility Switching Costs/
Switching
Migration PathPath
Costs/Migration
Sources: Company reports and William Blair Equity Research
Exhibit 10
POS Software Evolution Shifts Long-Term Economic Opportunity
Payment Flow Has Remained Relatively Consistent but Ecosystem Participant Economics Have Shifted
Processor Processor Processor Processor
Merchant of Record Merchant of Record Merchant of Record Merchant of Record
ISOs
ISOs
POS Hardware/Software POS Hardware/Software POS Hardware/Software POS Hardware/Software
Economics Economics Economics Economics
- Processor - Processor + Processor - Processor
+ POS Hardware - POS Hardware - POS Hardware - POS Hardware
+ Merchant of Record + POS Software + POS Software + POS Software
- Merchant of Record + Merchant of Record + Merchant of Record
Late-1990s/Early 2000s 2010-2015 2017-2020 2020-Present
Sources: Company reports and William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 19
William Blair
As illustrated in exhibit 11, we model a steady improvement in Square’s second half 2024 GPV,
closing the gap with Clover. Management has expressed confidence in this view, and we are encour-
aged by a few anecdotal observations, including apparent merchant satisfaction with the company’s
new restaurant solution and a meaningful improvement in merchant onboarding flow. For example,
management highlighted on the first quarter 2024 call that it has cut the number of onboarding
steps to 2 from 15, reducing the time it takes a merchant to get live to just two minutes. The com-
pany plans to convert to a single Square app by year-end, further streamlining its offering, and we
believe leading monetization will benefit further from the integration of BNPL on Cash App Card.
Exhibit 11
Square GPV Growth Has Lagged, but We Think the Bottom Is In
35% 120
115
30%
110
25%
Transaction Yield (bps)
105
GPV Growth %
100
20%
95
15%
90
10% 85
80
5%
75
0% 70
1Q22A 2Q22A 3Q22A 4Q22A 1Q23A 2Q23A 3Q23A 4Q23A 1Q24A 2Q24E 3Q24E 4Q24E 1Q25E 2Q25E 3Q25E 4Q25E
GPV Y/Y Growth % Transaction Yield (bps)
Sources: Square company reports and William Blair Equity Research
Exhibit 12
Clover's Growing SaaS Attach and Price Initiatives Drive Strong Yield Expansion
45% 105
40%
100
35%
95
Transaction Yield (bps)
30%
GPV Growth %
25% 90
20% 85
15%
80
10%
75
5%
0% 70
1Q22A 2Q22A 3Q22A 4Q22A 1Q23A 2Q23A 3Q23A 4Q23A 1Q24A 2Q24E 3Q24E 4Q24E 1Q25E 2Q25E 3Q25E 4Q25E
GPV Y/Y Growth % Transaction Yield (bps)
Sources: Fiserv company reports and William Blair Equity Research
20 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Perhaps as important, our view is that Clover’s strong recent relative performance is more reflec-
tive of its distribution advantage and significantly lower software attach than of superior technol-
ogy. We acknowledge that Fiserv tends to serve relatively larger SMBs, and we suspect elevated
churn along the “long tail” of Square’s merchant base has contributed to slower GPV expansion.
Regarding distribution, we think Fiserv boasts the most diverse and effective internal sales and
third-party distribution in the merchant market, a fact reflected in the company’s roughly 30%
U.S. market share. In addition, the ramp-up to 20% first quarter 2024 Clover software attach, from
just about 10% two years ago, has created a powerful pricing tailwind, reflected in the yield per-
formance illustrated in exhibit 12 Although impressive, we highlight that Square’s software attach,
hence the stickiness of its offering, is materially higher. Including sidecar merchants, which do
not use software-integrated solutions, Square boasts 59% software attach, and this figure rises
to almost 80% when considering those merchants using the company’s more sophisticated POS.
Although higher software attach likely leaves less room for pricing improvement, it illustrates the
extent to which Square merchants use its solutions to run their day-to-day businesses, which to us
is the most accurate depiction of Square’s competitive advantage.
In addition to our view toward improving Square GPV growth, we anticipate ongoing high-teens
percent Cash App ecosystem gross profit dollar growth, driven by steady inflows and modest mon-
etization improvements. We believe investors will applaud a rising contribution from interchange
revenue, versus instant deposit, as it is more sustainable and a good proxy for daily consumer
Cash App Card use. We anticipate rising Cash App Card attach, which at more than 40% today is
strong, but has material upside. We encourage investors to recognize that Cash App Card custom-
ers generate roughly 5 times more gross profit than Cash App customers, making Cash App Card
attach a critical KPI, in our opinion (see exhibit 13). To the extent Cash App Card accounts are the
key inflow driver, we are encouraged by management’s first-quarter call commentary about focus
on direct deposit growth, and the mention that paycheck volume growth exceeds total inflows.
While we continue to expect interchange to be the key gross profit driver, Block is introducing new
Cash App solutions, including financial goal guidance, BNPL, and Cash App Borrow. We think Cash
App Borrow could be an upside driver as it has a network effect across the ecosystem, encouraging
higher spending, and correspondingly more interchange revenue. We are bullish on the future
of neobanks, or nontraditional banks, where we anticipate strong demographic demand for
more digital, user friendly, and fully integrated financial experiences. We view Cash App as
a category leader, a key consideration underpinning our more bullish stock outlook.
Exhibit 13
Cash App KPIs Demonstrate Strong Customer Engagement and Monetization
$1,600 60%
$1,400
50%
$1,200
40%
$1,000
$800 30%
$600
20%
$400
10%
$200
$0 0%
1Q23A 2Q23A 3Q23A 4Q23A 1Q24A 2Q24E 3Q24E 4Q24E 1Q25E 2Q25E 3Q25E 4Q25E
Inflows per MAU ($) Cash App Card Attach % Cash App Gross Profit Y/Y %
Sources: Block, Inc. company reports and William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 21
William Blair
We introduce our SOTP valuation in exhibit 14. While we view shares of SQ as significantly under-
valued, based on this analysis, we acknowledge that valuing Cash App is challenging, given a lack of
comparable companies. However, our view is that a tighter integration of Block’s two ecosystems,
of which BNPL on Cash App Card is an example, can drive a flywheel effect by which consolidated
gross profit and EBITDA growth accelerate. We further contend that as Cash App Card demon-
strates its relevance as a daily consumer spend vehicle, investors will ascribe a higher multiple,
likely reflecting growing EBITDA contribution.
Exhibit 14
Block, Inc. Sum-of-the-Parts Analysis Illustrates Upside Potential
Dollars in millions, except share price Square Cash App Block
2025 segment gross profit (excl. corporate) $4,216.9 $6,081.6 $10,298.5
Unallocated corporate $66.8 $66.8 $66.8
Allocation by segment 40.0% 60.0% 100.0%
Allocated corporate $26.7 $40.1 $66.8
2025 gross profit (incl. corporate) $4,243.6 $6,121.7 $10,365.3
Estimated EBITDA margin (% gross profit) 45.0% 27.6% 34.7%
2025 segment EBITDA estimate $1,909.6 $1,690.6 $3,600.2
Sources: Company data and William Blair Equity Research
From a consolidated financial standpoint, we anticipate above-consensus EBITDA performance,
supported by low- to midteens percent ecosystem gross profit growth and strong corporate spend
discipline. As mentioned, Block drove EBITDA margin to 33.7% in first quarter 2024, from a low
of 12.7% in the second quarter of 2022. Our view is that strong operating leverage will continue
as the company holds headcount relatively steady and maintains a commitment to a four- to six-
quarter cash payback period in both of its core businesses. We accordingly model Rule of 35 in
2024, rising to Rule of 36 in 2025. Block has a stated goal of achieving Rule of 40 in 2026, and we
think it could reach that important milestone at least one to two quarters earlier. The combination
of all these drivers should result in strong multiple expansion, in our opinion, particularly as we
believe the market does not currently discount strong second-half Square GPV growth improve-
ment and likely underestimates EBITDA upside.
Valuation
In addition to our SOTP approach, we think Block is an attractive risk/reward based on its mod-
est 7% EBITDA multiple premium versus Fiserv, despite our outlook for faster EBITDA growth at
Block as the company strives for its 2026 Rule-of-40 goal. We estimate about 27% EBITDA growth
22 Andrew W. Jeffrey, CFA +1 415 796 6896
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for Block in 2025, significantly higher than our 11% growth estimate for Fiserv. In addition, we
anticipate that accelerating second half 2024 and 2025 Square GPV growth will ally investors’
share-loss fears, prompting modest multiple expansion. Our SOTP valuation, which approaches
$85, implies that Block will trade at nearly 15 times our 2025 EBITDA estimate.
Exhibit 15
Block, Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Gross Profit $7,504 $8,809 $8,975 $166 $10,094 $10,365 $272
Y/Y % 25.2% 17.4% 19.6% 14.6% 15.5%
EBITDA 1,792 2,795 2,845 $50 3,558 3,600 $42
Y/Y % 80.8% 56.0% 58.8% 27.3% 26.5%
Margin % 23.9% 31.7% 31.7% 35.3% 34.7%
Adj. EPS $1.80 $3.36 $3.48 $0.11 $4.22 $4.44 $0.21
Y/Y % 87.1% 93.3% 25.5% 27.6%
FCF 515 1,533 2,073
Y/Y % 197.8% 35.2%
Conversion % 6.9% 17.1% 20.0%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Gross Profit $8,819 $10,217
Y/Y % 17.5% 15.9%
EBITDA 2,782 3,518
Y/Y % 55.2% 26.5%
Margin % 31.5% 34.4%
Adj. EPS $3.35 $4.32
Y/Y % 86.2% 29.0%
Note: EBITDA margin and FCF conversion are as a percentage of gross profit
Sources: Company reports, FactSet, and William Blair Equity Research
Risks to Our Outperform Rating
We see several risks to our Outperform thesis. These include: 1) persistently slower Square GPV
volume growth, compared with Clover, which we consider a key investor focus; 2) inability to
evolve vertical market software and technology to remain competitive with new entrants; 3) el-
evated SMB churn, owing to share loss or adverse cyclical events; 4) inability to drive steadily
higher Cash App inflows given intense neobank competition; 5) consumer reluctance to embrace
Cash App Card as a daily spend vehicle; 6) adverse Cash App regulation, e.g., elimination of instant
deposit; 7) faster payments pressuring instant deposit yield; and 8) an inability to achieve Rule of
40 by 2026, which we think is an important multiple driver.
WEX: The Street Has Become Too Negative on This Well-Run Fintech’s Long-Term
FCF ROIC Potential
WEX has emerged as one of our favorite fintech “conglomerates” in an era when we see historically
acquisitive companies as generally out of favor. Like its closest comparable, Corpay, WEX was built
through a series of acquisitions, some of which appear thematically or functionally incongruous in
retrospect. While the company’s revenue still skews more toward its mobility segment compared
with Corpay (fleet company spend management and associated cards are estimated to be roughly
50% of 2024 revenue, versus a bit less than 40% for Corpay), our view is that the company’s
Cristopher Kennedy, CFA +1 312 364 8596 23
William Blair
non-fleet spend management businesses can sustain at least comparable through-the-cycle or-
ganic revenue growth with less volatility. Further, we assert the stock’s recent substantial relative
underperformance (-22% since its recent April 4, 2024, peak versus +8% for the SPX) and attrac-
tive FCF multiple make it a compelling risk/reward.
Although we will likely hear investor pushback around the long-term risk that WEX could lose
Booking.com, its largest corporate payments customer, we think the recently signed long-term
contract and the company’s leading vCard issuing capabilities argue against the worst-case out-
come. Specifically, in conjunction with the new contract, Booking.com took some of its European
disbursement business in-house as it owns money movement licenses. Although this is a hit to cus-
tomer revenue, it is reflected in current guidance. In addition, we do not anticipate further Book-
ing.com revenue losses, owing to the value delivered by WEX’s vCard solutions (discussed below).
We also encourage investors to note that WEX currently processes just around 50% of Booking’s
business, suggesting the company can gain long-term wallet share. Our view is that the Booking.
com risk to WEX’s travel subsegment has been the biggest overhang on the stock, but it is now well
understood and adequately reflected in current valuation. Lastly, we note that CPAY stock is down
almost as much as WEX since it reported first quarter 2024 results, suggesting weakness reflects
broad risk-off sentiment as much as company-specific concerns.
Drilling down a little deeper, we believe WEX has been weak owing to three concerns that we now
consider at least reflected in valuation. The first is the risk of lower fuel prices. The second is on-
going concern about yield pressure in the company’s corporate payments segment. And third is
investors’ broad fears that there is limited fintech competitive differentiation, hence the focus on
clear innovation leaders such as Fiserv.
On the first point, we believe WEX stock has overreacted to uncertainty around fuel prices. As a
rule of thumb, a $0.10/gallon decline in U.S. fuel would be a $0.30 (roughly 2%) EPS headwind.
So, even if fuel were to fall $0.50, or nearly 15% below management guidance, this would be an
approximate 10% annualized EPS headwind, yet the stock has fallen nearly 14% since the com-
pany reported first quarter 2024 results. On the second point, we think earnings power of the
corporate payments segment (about 20% of estimated calendar 2024 revenue) has been materi-
ally de-risked by the recent multiyear contract renewals with Booking.com and HBX, which should
increase WEX’s wallet share and alleviate concerns about yield compression. These new contracts
are reflected in 2024 guidance. As mentioned, fears about potential future insourcing of the
Booking.com business probably are not going away soon, as this customer brought in-house
some European disbursement functionality when it negotiated the new deal. That said, we
contend that vertically integrating payments, especially vCard issuing, could be a challenge for
Booking.com as it would incur more fraud risk and must build infrastructure that requires high
volume to scale. We understand that Booking’s merchant business is a drag on its EBIT margin,
and this could influence an ultimate decision to insource, but this would be several years away
and we expect WEX will work hard to sustain more favorable revenue-sharing terms to keep this
important piece of volume.
It is admittedly more difficult to gauge travel demand (travel vCard volume is about 70% of seg-
ment total), but we believe the company is gaining share of overall travel spend given its relation-
ships with 8 of the top 10 global online travel agencies and the ongoing shift to a direct, or mer-
chant, spend model. Lastly, we like the long-term upside of the company’s benefits segment, which
now processes for about 20% of U.S. HSA accounts and should continue gaining share, in our view.
Regarding competitive differentiation, or lack thereof, we think this narrative has materially run
its course, evidenced by significant group multiple compression. We are not calling a bottom,
but it is our opinion that the 12- to 18-month risk/reward skews to the upside perhaps as
much as it has in recent memory. We see WEX as a long-term winner, and we think it has the
24 Andrew W. Jeffrey, CFA +1 415 796 6896
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management and portfolio of businesses to deliver at least industry average through-the-cycle
organic revenue growth with superior EPS expansion. The fintech conglomerate era may be over,
in our view, but we believe WEX is probably the best remaining company among these historically
M&A-driven models.
Fuel price and travel demand are center stage, in our opinion, but we also note that macro con-
cerns are likely taking their toll. WEX over-samples to large, over-the-road (OTR), fleet customers
in comparison to Corpay, which should generally insulate the company from a trucking recession. In
first quarter 2024, purchased fuel gallons increased 1%, sequentially, the first quarter-on-quarter
growth in five periods, even though same-store sales fell low-single-digit percent. In addition, the
company continues adding new vehicles, expanding its customers by 4% in the first quarter. It also
launched its new Mastercard-partnered open-loop solution, which could boost 2025 wallet share
and is in early days. Although cross-selling in the mobility business has historically been challeng-
ing, owing to embedded customer behavior and credit risk management, we think WEX is well po-
sitioned to improve its segment revenue yield, an upside driver not reflected in current estimates.
We also like the recent Payzer acquisition and contend there is ample cross-sell potential into this
leading field services management SaaS customer base. We do not see upside from this cross-sell
materializing until 2025 but still view it as another potential EPS driver.
As a note on electric vehicle (EV) risk and opportunity, we think the market is less worried about
fleet EV transition than it was a year-plus ago. WEX and Corpay have both launched offerings aimed
at helping their customers as they grow hybrid fleets, including home-charging reimbursement
software, public charging access solutions, and integrated reporting. The precise economics of EV
versus internal combustion engine (ICE) versus hybrid fleets remains to be seen, although WEX
and Corpay each contend there is upside to unit economics from newer offerings. Regardless, we
think the market’s concerns about structural disintermediation have fallen significantly,
and any lingering risk is well reflected in WEX’s relative valuation discount.
Valuation
Given the foregoing, we think it is fair for investors to ask: “what gets WEX’s valuation going higher?”
In a space that generally boasts predictable, high recurring revenue; strong margin; steady, consis-
tent EPS; and shareholder friendly capital allocation, catalysts can often be difficult to identify. We
do not view WEX as an exception. Despite the ongoing compression of NTM estimated P/Es across
the group, WEX remains a relative outlier, given an estimated 8.7-times 2025 EBITDA multiple and
a 9.3% FCF yield. These multiples compare with Corpay, its closest peer, at 11.4 times estimated
2025 EBITDA and a 6.7% FCF yield, respectively. We expect WEX will materially close this gap as
investors appreciate that they may have overreacted to travel segment organic revenue and profit
growth disruption risk.
We also project that long-term free cash flow return on invested capital (FCF ROIC) will head high-
er as the company integrates the Payzer acquisition and is unlikely to do more large-scale M&A.
We submit that FCF ROIC is the best predictor of long-term valuation gains and equity re-
turns, a subject we will explore in greater depth at a later date. Specifically, we estimate that
WEX’s 2025 FCF ROIC will reach 10%, up from just 6.9% in 2023. This improvement will be driven
by strong FCF conversion, which we put at about 100% of adjusted net income (ANI), and low-
single-digit percent invested capital declines, resulting from efficient working capital utilization
and intangibles amortization.
Cristopher Kennedy, CFA +1 312 364 8596 25
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Exhibit 16
WEX Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $2,548 $2,743 $2,736 ($6) $2,985 $2,923 ($62)
Y/Y % 8.4% 7.6% 7.4% 8.8% 6.8%
EBITDA 1,108 1,208 1,256 $48 1,320 1,387 $67
Y/Y % 7.7% 9.1% 13.4% 9.2% 10.4%
Margin % 43.5% 44.1% 45.9% 44.2% 47.4%
Adj. EPS $14.81 $16.37 $16.22 ($0.14) $18.38 $18.56 $0.19
Y/Y % 10.5% 9.6% 12.3% 14.4%
FCF 517 660 751
Y/Y % -33.9% 27.8% 13.7%
Conversion % 80.1% 95.8% 97.6%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $2,745 $2,950
Y/Y % 7.7% 7.5%
EBITDA 1,236 1,352
Y/Y % 11.6% 9.4%
Margin % 45.0% 45.8%
Adj. EPS $16.28 $18.59
Y/Y % 10.0% 14.2%
Sources: Company reports, FactSet, and William Blair Equity Research
Risks to Our Outperform Rating
We see the risk of lower fuel prices as well reflected in WEX’s valuation; however, this could remain
an overhang. The company’s new Booking.com contract involves insourcing of some functionality,
which could cause investors to reassess the corporate payments segment’s competitive position-
ing. An ongoing or worsening freight slump has the potential to pressure vehicle adds and/or fuel
gallons processed. Competitive challenges and/or the ability to monetize a wider array for mobil-
ity customer payments could weigh on segment organic revenue growth. In WEX Health, we view
any changes to HSA adoption or demand as a potential risk factor, particularly given WEX’s high
market share. An inability to cross-sell mobility solutions into Payzer’s base could limit the mo-
bility segment’s organic revenue growth acceleration. Lastly, capital allocation, particularly M&A,
could raise execution and EPS power risks.
FIS: Streamlined Discipline Should Keep a Good Thing Going
After years of choppy financial results, FIS has taken several initiatives since late 2022 to improve
business performance, including: largely refreshing its senior leadership (including CEO/CFO),
completing a board-led strategic review (selling a majority stake of Worldpay), lowering long-term
growth targets, and executing strongly against the Future Forward initiative. While early, manage-
ment is focused on profitable growth and disciplined capital allocation while meeting its financial
targets, which it has for five consecutive quarters.
Over the near term, we believe internal initiatives (i.e., cost, tax rate) and redeployment of capi-
tal should buoy adjusted EPS; consider we expect $4 billion of share repurchases, and 2024 free
cash flow conversion is estimated at 85%-90%. While M&A is included, management’s 2025-
2026 financial targets call for 4.5%-5.5% adjusted revenue growth, 40-60 basis points of adjusted
26 Andrew W. Jeffrey, CFA +1 415 796 6896
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EBITDA margin expansion, and 9%-12% adjusted EPS growth. We believe these targets are rea-
sonable, considering that the banking segment accounts for about 70% of total revenue (83% is
recurring) and targets call for 3.5%-4.5% revenue growth (versus 4% TAM growth), while 72% of
capital markets segment revenue is recurring and targets call for 7.5%-8.5% growth (versus 6%
TAM growth).
FIS has developed a global distribution platform that is highly embedded into the financial sys-
tem. It has over 14,000 clients, including a presence among 95% of the world’s leading banks that
have over $16 trillion of assets, and it processes over 60 billion transactions per year. About 20%
of revenue is from outside the United States, as it has a presence in 150 countries. About 80% of
total revenue is recurring, and management estimates that it has about 5% share of an estimated
$193 billion total addressable market.
We believe cross-selling with existing customers and expanding beyond traditional verticals remain
large opportunities for FIS. Key initiatives include selling more solutions (i.e., payments) into the
existing banking customers, and selling banking solutions to capital markets customers (and vice
versa). Seventy percent of large U.S. banking clients use solutions from both segments. Further, sell-
ing outside its core markets (e.g., insurance companies, auto/equipment, corporations) represents
a large opportunity as 20% of banking solutions revenue comes from customers residing outside
the financial services sector, while 30% of capital markets revenues is outside its core sector.
While Atelio is unlikely to move the needle in the near term, we look forward to tracking its prog-
ress following its launch in May 2024 as a fintech platform that helps power embedded finance.
Atelio has modern tech infrastructure that will enable developers, corporate customers, and third
parties to access FIS’s infrastructure to power embedded finance initiatives. The revenue model
will be a combination of SaaS/transaction fees and will likely take time to ramp up but represents
upside relative to the 2025-2026 financial targets. FIS expects the BaaS market (TAM) to be greater
than $25 billion by 2026 and embedded finance TAM to be about $230 billion of revenue by 2025.
Valuation and Risks
FIS shares trade at 14.1 times 2025 adjusted EPS, which compares to the 10-year average multiple
of 17 times. We believe the sale of Worldpay will help drive multiple expansion due to more focus
and note that FIS’s multiple compressed following the Worldpay acquisition. Key risks include
competition, bank-IT spending budgets, customer consolidation, foreign-exchange volatility, rising
interest rates, and internal execution.
Remitly: Unduly Punished, in Our Opinion, Despite Strong Fundamentals
We continue to believe that Remitly is in the early innings of a long-term, high-growth story,
currently capturing just a small share (about 2%) of the $1.8 trillion global remittance mar-
ket; in our view, the recent pullback in shares creates an attractive entry point for investors.
RELY shares are down 31% year-to-date, which we attribute to: 1) market confusion over the key
drivers and seasonality trends of the business (e.g., the change in active customers versus new
customer adds, revenue take-rate versus transaction profit take-rate), 2) questions about the ef-
fectiveness and implications to unit economics of incremental marketing expense, 3) fears over
increased competition, and 4) the lack of a March-quarter raise in revenue guidance, although
adjusted EBITDA guidance was raised by 9% at the midpoint.
Despite market concerns and confusion, Remitly’s KPIs and unit economics have remained
strong, and financial results have outperformed expectations since its IPO. We acknowledge
that increasing the frequency of disclosures could bring added clarity for investors, but manage-
ment’s commentary suggests that KPIs and unit economics are robust. In each of the last eight
quarters, management has cited record new customer adds, and recent disclosures over unit
Cristopher Kennedy, CFA +1 312 364 8596 27
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economics include: 1) an average payback period of less than 12 months (first quarter 2024);
2) transaction profit retention of 95% following the first full year of acquisition (fourth quarter
2023); and 3) LTV-to-CAC exceeding the 6-times ratio cited at the IPO (second quarter 2023). Rela-
tive to our estimates when we initiated coverage in October 2021, 2023 revenue was 24% higher,
while adjusted EBITDA were $76.5 million better.
Opportunities exist to increase market share within existing send markets and geographic
expansion is a clear growth opportunity, in our opinion. Remitly operates in 31 send mar-
kets, which represent just 31% of total formal channel remittance volumes. Based on the
World Bank’s estimate of formal channel volumes by send market, we estimate Remitly has 15%
share across its 31 send markets, but we believe its actual share is much smaller due to the infor-
mal channel. Further, recent entries, such as the UAE, are yet to materially contribute to financial
results as new send markets typically take time to ramp consistently. While management takes a
judicious approach to all investment decisions, we see opportunities for geographic expansion.
Remitly has a presence in only 5 of the top 10 remittance send markets and we note the top 10
markets account for about 58% of global remittance volumes based on data from the World Bank.
It remains early, but we think leveraging Remitly’s global network for use-cases aside from
remittances represents an incremental growth opportunity for the company. Management
has a variety of ongoing initiatives to expand its consumer offering beyond just remittances, which
at the core should help drive new user growth and engagement. In addition, while details are lim-
ited, recent commentary suggests that Remitly plans to leverage its existing global platform for
use-cases outside remittances and related complementary services; based on the company’s most
recent annual report, opportunities exist within cross-border C2B, B2C, and SMB payments.
Transaction and adjusted EBITDA margins have increased substantially over time and sig-
nificant opportunity remains for further margin expansion. Benefiting from lower fraud costs
(driven by investments and innovation in developing fraud and compliance systems), scale benefits
(enabling more attractive partner terms), and direct partner integrations, transactions expense as
a percentage of revenue has declined from 44% in 2019 to 35% in 2023. While management antici-
pates variability by quarter, the company broadly expects this trend to continue as it invests in fraud
systems, while also increasing scale. Adjusted EBITDA margin was 5% in 2023 (versus -3% in 2022)
and our estimates call for 7% margin in 2024, benefiting from scale and technology investments. We
anticipate further EBITDA margin expansion as Remitly continues to gain scale, especially within
marketing. Remitly’s advertising expense was 19.2% of 2023 revenue, which compares to Western
Union at 4.2%. That said, on an absolute dollar basis, spending is comparable.
Valuation and Risks
Shares trade at approximately 1.6 times estimated 2025 revenue and at 17.3 times estimat-
ed 2025 EBITDA, which in our view represents an attractive valuation given future growth
prospects and margin expansion opportunity. As we outline above, Remitly has captured just a
small share of the global remittance market and we believe growth and margin opportunities are
clear. Management’s disciplined investment approach and sustained focus on delivering strong
unit economics should support continued above-average organic revenue growth, in our opinion.
The balance sheet is strong with $286 million of cash, which we think gives Remitly ample resourc-
es to aggressively invest in growth. Recent takeouts of fintech peers with similar growth charac-
teristics have taken place at about 7-9 times revenue. On an EV/GP basis, shares trade at 2.3 times,
while digital money transfer peer Wise trades at 5.5 times. Key risks include geographic concentra-
tion, ability to navigate the regulatory environment, internal execution, competition, and pricing.
28 Andrew W. Jeffrey, CFA +1 415 796 6896
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Other Rating Change
PayPal: Downgrading to Market Perform on Limited TAM Upside, Growing Compe-
tition, and Lack of UC Strategy
We consider PayPal one of the most perplexing names in our coverage universe. The company
boasts an impressive roughly 220 million monthly active accounts, 30 million-plus accepting mer-
chants, and first-mover status in the relatively fast-growing e-commerce category. The stock is also
attractively valued, in our view, having traded down 10% (SPX up 6%) since 10 days before Apple
announced new fintech initiatives in its latest iOS release, and as the fintech group remains pres-
sured. PYPL shares trade at just 8.7 times our 2025 EBITDA estimate and at 11.9 times estimated
2025 FCF, both steep discounts to traditional networks and Fiserv.
Despite these considerations, our decision to lower the rating on the stock to Market Perform re-
flects our overall view toward increasing competition on multiple fronts and a paucity of levers to
accelerate organic revenue growth and/or transaction dollar margin. We are fans of new CEO Alex
Chriss and think new initiatives are incremental positives. These include: 1) PayPal Complete Pay-
ments (PPCP); 2) Fastlane, which aims to improve enterprise authorization rates and monetiza-
tion; 3) an effort to roll out new SMB tech integrations, allowing the company to sell more branded
solutions; 4) renewed focus on Venmo monetization; 5) new VAS, such as fraud, payouts, and pro-
cessing orchestration; 6) rigorous expense controls; and 7) accelerated shareholder capital return.
However, as we survey the fintech landscape, we view more challenges than upside drivers.
There are several fintech names where we are incrementally more bullish, particularly Block, on
which we raised our rating to Outperform, as discussed above.
Competitive Risks Inform Our Downgrade
We think the market understands many of our competitive concerns, and recent Street down-
grades have balanced sentiment on the stock. Just 50% of analysts rate PYPL Outperform, versus
75% at the beginning of 2023. However, we do not view these risks abating sufficiently to be more
bullish on the stock. In fact, while we believe PayPal has begun, and should continue, stabilizing
transaction processing volume (TPV) growth and driving less transaction margin dollar degrada-
tion through recent initiatives, we struggle to imagine a path to meaningful TPV growth accelera-
tion and/or transaction margin dollar acceleration, which would be key valuation catalysts.
We are similarly guarded on PayPal’s ability to monetize Venmo for B2C payments, considering
significant unified commerce competition and a laggard value proposition. We also do not believe
greater Xoom investment will meaningfully bolster the company’s standing in the highly competi-
tive and commoditized global remittance market. Instead, we see rising competition from a variety
of e-commerce and UC processors, perhaps the most meaningful of which is Apple Pay, mitigating
improving unit economics and weighing on PayPal’s valuation. Although some investors may cheer
an aggressive buyback, which we expect to exceed $5 billion in 2024, good operating leverage, and
robust FCF, rising competitive risk outweighs these tailwinds, in our opinion.
We see three primary competitive forces we do not expect will abate and could intensify,
over the next few years: First and foremost, our view is that Apple’s ongoing consumer-facing
fintech investments, primarily Apple Pay, create intractable competitive challenges. Apple Pay’s
native app status on the company’s iPhone creates an intrinsic competitive advantage, in our opin-
ion, particularly as U.S. contactless payment adoption rises. Visa mentioned on its fiscal second
quarter 2024 earnings call that U.S. contactless adoption reached 50%, and we think it will ulti-
mately converge on global adoption, which is nearly 80%, excluding the U.S. We think this is impor-
tant because consumers will be inclined to use top-of-wallet cards for card-present payments, and
this behavior will translate into e-commerce. Even if PayPal succeeds in moving up the enterprise
Cristopher Kennedy, CFA +1 312 364 8596 29
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checkout stack with its Fastlane product, the proliferation of e-commerce tender choices and con-
sumers’ growing comfort with contactless payments will pressure PayPal usage, in our view. In
addition, Apple announced phone-to-phone payments with its new iOS release, and this, while not
particularly novel, could further pressure PayPal’s ability to monetize Venmo—an important pil-
lar of the PayPal bull argument. Lastly, we note that Visa’s recently announced “One Card to Rule
Them All” solution could further pressure PayPal’s tender share. This product allows consum-
ers to choose transaction funding on the fly, switching between debit, credit, prepaid, and loyalty.
Although such an offering might not work well for all issuers, we think the largest banks, like JP
Morgan Chase, which have leading demand deposit account (DDA) share and significant installed
credit customer bases, could see changing consumer behavior that keeps more payments on their
products. We think this is another impediment to broader PayPal tender share.
We see PayPal’s e-commerce TAM as inherently limited, a key factor that we think hinders TPV
growth acceleration. At least in the U.S., PayPal’s TAM is effectively off-Amazon e-commerce, as
PayPal is not an accepted tender type at Amazon. According to Nilson, 2024 U.S. carded spend will
reach approximately $12 trillion, of which the St. Louis Fed (FRED) puts e-commerce at roughly
16%, or $1.9 trillion. Street estimates put Amazon’s 2024 North America non-AWS sales at roughly
$400 billion, or more than 20% of the market. This leaves PayPal an approximate $1.5 trillion 2024
U.S. TAM, and we put the company’s non-Venmo/P2P TPV at more than $700 billion, or almost
50% of the U.S. off-Amazon e-commerce market, including payment service providers (PSPs) like
Adyen and Shopify (see exhibit 17). This significant share of U.S. e-commerce volume suggests
that PayPal will be pressured to grow faster than the market, in our opinion. To wit, the
company posted 12% first quarter 2024 U.S. TPV growth, in line with Amazon and our estimate of
the overall e-commerce market. Compounding this likely growth challenge, and transaction dollar
margin compression associated with mix and pricing competition, we highlight that more than
80% of U.S. carded spend is at physical retail, a market to which PayPal has de minimis exposure.
This is a key reason we believe PayPal should buy a physical world acquirer—to gain exposure to
the large card-present market and to compete better with emerging UC providers. We do not see
this as a likely near-term use of capital, however.
Exhibit 17
PayPal's Nearly 50% U.S. TAM Share Limits TPV Growth Upside
U.S. card
payment
volume: ~$12T
U.S. e-
commerce
payment
volume: ~$1.9T
Off-Amazon
e-commerce
volume:
~$1.5T
PayPal U.S.
payment
volume:
~$700B
Note: PayPal payment volume excludes P2P contribution
Sources: St. Louis Federal Reserve, Nilson, FactSet, and William Blair Equity Research
30 Andrew W. Jeffrey, CFA +1 415 796 6896
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Other competition, aside from Apple Pay and Amazon, could continue pressuring PayPal’s TPV
growth and unit economics—the primary U.S. challengers being Stripe (private) and Adyen, in our
opinion. Both these companies have modern e-commerce tech stacks, with Stripe competing more
with PayPal’s SMB business, although we think it is moving upmarket, and the latter going up against
Braintree, PayPal’s mostly unbranded enterprise merchant offering. Although Stripe and Adyen
acquire PayPal volume, which we think ameliorates some of the referenced e-commerce growth
challenges, considering both companies are growing relatively faster, they have well-articulated UC
strategies, meaning they are moving aggressively into physical POS, where we see PayPal’s share
as effectively nonexistent. We also highlight Shopify, which supports PayPal as a tender type and is
similarly aggressively pursuing a UC strategy. Our view is that PayPal will participate less in these
companies’ strong TPV growth as more of their business becomes card-present. This potential
competitive challenge may not be as well understand by some PayPal investors who have not fully in-
ternalized the opportunity cost we see the company facing, absent a better-articulated UC approach.
In addition to competitive considerations, we think PayPal will struggle with shifting mix and its
adverse effect on transaction dollars and transaction margin. This may limit operating margin ex-
pansion, in our opinion. Even as we think the company has done a good job of taking out nontrans-
action expenses, there is a limit to these reductions. Specifically, we believe continued relatively
fast unbranded volume growth—a combination of Braintree and powered by PayPal offerings—
will pressure transaction dollars and transaction margin, as these solutions carry higher funding
costs than PayPal’s branded volume. As illustrated in exhibit 18, we think that branded volume
growth will remain in the midsingle-digit percent while branded volume will expand at a 20%-plus
annual rate. As a result, we model 2025 transaction margin slipping to 41.3% from 50% in 2022.
Transaction margin is effectively PayPal’s gross margin, and we contend declining gross
margin is inconsistent with multiple expansion. To wit, we estimate that adjusted operating
margin will peak at around 18% in late 2024 (17.1% for the full year), before declining roughly 40
basis points in 2025. Such a decline would be notable, in our opinion, particularly considering we
estimate just 1.3% nontransaction expense growth on 8.1% net revenue expansion.
Exhibit 18
We See Falling Transaction Margin Pressuring Consolidated Profitability
55%
50.9% 51.0%
48.7% 49.7%
50% 47.1%
45.9% 45.4% 45.8% 45.0%
43.2% 44.1% 43.0%
45% 42.0% 41.2% 41.6%
39.6%
40%
35%
30%
25% 22.4% 22.9% 23.3%
20.7% 21.4% 22.2%
19.1% 18.2% 17.3% 18.3% 18.3%
20% 17.3% 17.5%
15.5% 16.6%
14.6%
15%
10%
5%
0%
1Q22A 2Q22A 3Q22A 4Q22A 1Q23A 2Q23A 3Q23A 4Q23A 1Q24A 2Q24E 3Q24E 4Q24E 1Q25E 2Q25E 3Q25E 4Q25E
Transaction margin % EBIT margin % Unbranded volume growth % Branded volume growth %
Sources: PayPal Holdings Inc. company reports, William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 31
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We have spoken with the company about its branded strategy, and we recognize that our outlook
could be conservative. Even so, our observations about relatively limited TAM and lack of a UC
strategy suggest that accelerating branded volume growth could be an uphill battle. Regardless,
we do not think even modestly better branded volume growth will forestall the eventual pressure
higher-cost unbranded volume will place on consolidated profitability. That said, we think PayPal
will see some success as it tries to convince Braintree customers to migrate to branded solutions
by delivering improving authorization rates and VAS, such as fraud, disbursements, and FX solu-
tions. We also expect the company will upgrade legacy merchant integrations, which we think it
has neglected for several years. Our understanding is that a super-majority of SMB customers cur-
rently run on integrations that do not support updated branded functionality or PCCP. Even PCCP
will struggle to gain traction, in our opinion, as it is late to the market, versus PSP competitors like
Stripe and Adyen.
Valuation
As mentioned, we see potential upside to 2024 and 2025 EPS estimates as PayPal continues reduc-
ing nontransaction expenses and buys back stock with robust FCF. However, we do not anticipate
that the stock’s P/E will appreciably rise in the absence of accelerating TPV growth or expanding
transaction dollar margin. To be clear on this point, we previously believed slower transaction dol-
lar margin contraction could encourage long-term GARP-oriented investors, but given apparently
rising competitive concerns, we are increasingly convinced that PayPal will have to reverse the
decline in what is effectively its gross margin, and most important unit economic KPI, for the stock
to re-rate higher. We do not see this as a high-probability outcome in 2024 or 2025, hence
our lower rating.
Exhibit 19
PayPal Holdings Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $29,771 $31,812 $32,051 $238 $34,145 $34,644 $499
Y/Y % 8.2% 6.9% 7.7% 7.3% 8.1%
EBITDA 6,100 5,921 6,152 230 6,631 6,685 54
Y/Y % 18.4% -2.9% 0.8% 12.0% 8.7%
Margin % 20.5% 18.6% 19.2% 19.4% 19.3%
Adj. EPS $5.10 $4.13 $4.21 $0.08 $4.58 $4.39 ($0.19)
Y/Y % -19.1% -17.4% 11.0% 4.2%
FCF 4,554 5,036 5,582
Y/Y % -10.8% 10.6% 10.8%
Conversion % 80.7% 113.7% 124.1%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $32,036 $34,705
Y/Y % 7.6% 8.3%
EBITDA 5,913 6,468
Y/Y % -3.1% 9.4%
Margin % 18.5% 18.6%
Adj. EPS $4.15 $4.58
Y/Y % -18.6% 10.4%
Sources: Company reports, FactSet, and William Blair Equity Research
32 Andrew W. Jeffrey, CFA +1 415 796 6896
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Where We Could Be Wrong/Risks to Our Market Perform Rating
We recognize that PayPal’s apparently undemanding estimated 2025 valuation means that a little
good news could go a long way, particularly given the stock’s recent 19% retrenchment from April
2024 highs. We are constructive on some of the company’s notable turnaround initiatives, including
Fastlane, PPCP, VAS, and new SMB technology integrations. Although our more cautious stance re-
flects skepticism regarding theses offerings’ ability to move the needle, PayPal’s large U.S. TAM lim-
iting TPV growth and unit economic improvement, and likely insurmountable competitive pressure
from myriad recent market entrants, we acknowledge that PayPal is a self-help story. In addition,
we anticipate that the company will generate hearty 2024 FCF of roughly $5 billion and $6 billion
in 2025. As a result, even modestly better TPV growth and/or transaction dollar margin, combined
with likely buyback-driven EPS accretion, could generate modest multiple expansion. Regardless,
we see a decidedly clearer path to alpha generation among our top Outperform-rated names.
Attractively Valued Outperform-Rated Fintechs That Have
Pulled Back to Create Compelling Risk/Reward or Are Depen-
dent on Corporate Catalysts
As previously mentioned, we recognize the perils of becoming too negative following a long period
of group relative underperformance and sour investor sentiment. We have laid out two primary pre-
conditions for a durable bottom, namely industry consolidation and/or corporate restructuring to
unlock SOTP value. We cannot offer a good sense of timing, but we have growing conviction that
Global Payments and Corpay will be compelled by ongoing share underperformance or activ-
ist involvement to revisit the idea of breaking apart the companies. We also remain confident in
a major M&A wave, with several logical targets in mind, but timing of such an event is difficult, in our
opinion. Flywire is a name that we view as a potentially attractive acquisition candidate and a stock
whose recent pullback creates an attractive entry point for risk-tolerant long-term growth investors.
Flywire: Superior Business. Structural Questions Appear to Be Discounted in
Valuation
FLYW shares are down 18% year-to-date over investor concerns about the potential impact of
various regulatory changes within the education business and the ability to meet guidance, which
implies 25% first half 2024 revenue growth, accelerating to 30% in the second half. Flywire has
navigated regulatory changes over the years, has a developed a track record of expanding into new
verticals, and has a history of strong financial performance. Further, we remain encouraged by six
years of at least 120% NRR with improving profitability; adjusted EBITDA margin was 5.6% in
2022, 11.0% in 2023, and 2024 guidance calls for 14% at the midpoint. FLYW shares trade at 3.5
times 2024 revenue, which compares to consolidation in the fintech sector at 7-9 times. We ac-
cordingly reiterate our Outperform rating on what we see as compelling risk/reward and potential
to be acquired.
We believe Flywire is a high-quality, above-average organic revenue growth play on the modern-
ization of account receivable processes in the education, healthcare, travel, and B2B verticals. We
view these vertical market TAMs as underserved and ripe for disruption. The company has suc-
cessfully diversified beyond education into new verticals through both internal investment and
M&A, and we believe there are more opportunities for expansion—it recently entered the ocean
experiences market that has a $16 billion TAM. Flywire’s solutions are differentiated by its mod-
ern, cloud-based technology platform; a proprietary global payments network; and its vertical-
specific software expertise.
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We believe Flywire’s payments network represents a unique, competitive advantage and an under-
appreciated asset. The network enables Flywire to have visibility and control the flow of funds, is
scalable across geographies, and continues to evolve, including adding new alternative payment
methods in relevant markets. We believe other key advantages of the network include “plug-and-
play” configuration (with little customer impact), faster settlement for payers/clients, cost savings
via smart payment routing, and faster issue resolution driven by its direct partner relationships
with banks, acquirers, and networks. The network can process high-value, complex payment flows
in a seamless and fully compliant manner across 240-plus countries and territories, 140-plus
global currencies, 1,500 currency pairs, and 4,000 geographic corridors. In many senses, this
positions Flywire as a unique fintech asset as it generally operates as the system of record and
enables the connectivity between partners in the ecosystem—we see such a rare combination as
ultimately creating significant shareholder value. Although it differs from other closed-loop net-
works, like American Express, Corpay, and WEX in that it is not carded, we think its proprietary
bank connections and direct account payouts are distinctive.
Balance Sheet, Valuation, and Risks
Flywire exited the March quarter with $619 million in cash and equivalents and no debt. We encour-
age investors to recall that in August 2023, Flywire raised $260 million of net proceeds (8.5 million
shares at $32.00 per share). We expect Flywire to continue investing capital primarily in organic
revenue growth while also pursuing strategic M&A focused on adding 1) presence in existing verti-
cals, 2) new capabilities to cross-sell, and 3) new verticals. Shares trade at 3.5 times 2024 revenue
or 2.8 times 2025, which compares to recent consolidation within the fintech sector ranging from 5
to 9 times revenue. Risks include execution, competition, economic cyclicality, and regulation.
Global Payments: Mr. Bready, Tear Down That Issuer Business
Our view is that the market will ultimately force Global’s board of directors’ hand, and the com-
pany will move to restructure its business into a pure-play merchant processor. Although the com-
pany will probably resist major corporate action until after its fall analyst day, we have difficulty
imagining a scenario in which management will alter investor sentiment solely via better disclo-
sure. That said, we contend Global Payments would be afforded a higher multiple as a pure-
play merchant processor. It would be the only publicly traded pure-play merchant company, its
stand-alone organic revenue growth would be higher than it is today, and divestiture of the issuer
business would eliminate what we view as a significant competitive overhang. Proceeds from a
sale could be used to pay down debt, and a smaller company would be a more attractive acquisi-
tion candidate, in our opinion. A clean balance sheet could also be used for strategically accretive
M&A, which we see as more difficult given the current capital structure.
We do not believe the upcoming analyst day will be a material positive catalyst. While we
see Global as a reasonably well-positioned, geographically diversified, tech-enabled merchant pro-
cessor with enviable, if ungainly assets, we do not think a better description of the company’s
software offerings, for example, will magically alter investors’ views and cause a positive rerat-
ing toward Fiserv’s valuation. Rather, the market has stated its view clearly, in our opinion:
actions speak louder than words, and only a concrete move toward explicit value creation
will change investors’ minds. In this regard, we see time running short. It is possible that man-
agement and the board will lose the ability to shape Global’s narrative if the company stubbornly
pursues its current course. Further, we think the competitive threat to Global’s issuer business
grows daily, increasing the imperative that the company breaks itself up before the stock’s valua-
tion becomes permanently impaired.
We see the case for selling or spinning off the issuer business as simple: it is a competitively laggard
offering in an increasingly crowded market that is unlikely to see organic revenue growth acceler-
ate meaningfully above 5%. While these attributes make it relatively unattractive to public market
34 Andrew W. Jeffrey, CFA +1 415 796 6896
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investors, in our opinion, the segment’s robust profitability and customer embeddedness, even in the
face of competitive threats, and strong FCF should make it attractive to private equity. Although the
world has changed since Francisco Partners acquired Verifone for roughly 17 times estimated for-
ward EBITDA in 2018, we believe Global’s issuer business is superior to Verifone’s hardware offering.
As a result, we see a strong SOTP argument favoring disposition (see exhibit 20).
Exhibit 20
Global Payments, Inc. Sum-of-the-Parts Analysis Supports Corporate Restructuring Outcome
Dollars in millions, except share price Merchant Segment Issuer Segment Global Payments
2025 segment income $3,742.4 $1,056.8 $4,799.2
Unallocated corporate overhead expense $334.1 $334.1 $334.1
Allocation by segment 75% 25% 100%
Allocated corporate overhead expense $250.54 $83.51 $334.1
D&A $532.0 $532.0 $532.0
Allocation by segment 75% 25% 100%
Allocated D&A $399.0 $133.0 $532.0
2025 segment adjusted EBITDA estimate $3,890.9 $1,106.2 $4,997.1
Sources: Company data and William Blair Equity Research
Although we do not see the upcoming analyst day as a clear catalyst, neither do we believe it will
be bereft of value. We expect management to do a better job describing and quantifying its tech-
nology-enabled offerings, which compose roughly 60% of merchant segment revenue. Specifically,
greater disclosure around revenue and profit contribution could ease valuation of the company’s
subsegments, such as vertical market software (roughly $1 billion, or 15% of segment revenue),
software-integrated POS (about 6% of segment revenue), ISV (approximately 18% of segment rev-
enue), Xenial (enterprise restaurant software), and K-12 education, which account for most of the
incremental 20% of tech-enabled revenue.
We believe the Street understands these businesses well, and as we illustrate in our SOTP, the stock
probably trades at a substantial discount. The question for us is not what these businesses
are theoretically worth. Rather, our question is: will management monetize any of these
segments via sale? We think this is a critical point because Global has been unable to acceler-
ate merchant organic revenue growth, which remains around the market average despite strong
contribution from tech-enabled solutions and its EVO business, which is growing above corporate
Cristopher Kennedy, CFA +1 312 364 8596 35
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average in many cash-centric emerging markets. We argue that the Street is fairly valuing Global’s
technology-enabled merchant assets as a whole. In other words, absent the sale of one of its verti-
cal software solutions that validates a higher multiple, or accelerating segment organic revenue
growth, additional disclosure is unlikely to boost Global’s multiple. Further, we believe investors
would simply rather own Fiserv for Clover exposure or Block for Square exposure. As a result,
Global must shift the narrative, in our view, by either selling some merchant assets to manifest a
SOTP valuation or by divesting its issuer segment.
We do not view the issuer segment entirely with a jaundiced eye. Global has a blue-chip finan-
cial institution customer base, in our opinion, and the company has done a good job selling in
VAS, which we see as critical for the segment to maintain midsingle-digit percent organic revenue
growth. We also think the issuer segment is a nicely profitable business, boasting an estimated
low-50% EBITDA margin. We believe the challenge for investors, however, is concern about lack of
competitive differentiation, and perhaps the long-term health of bank-customers’ debit and credit
card businesses amid rising neobank competition. By management’s own admission on the first
quarter 2024 call, its legacy issuer offerings, like card embossing and statements, are struggling.
This has heightened the focus on selling digital customer-facing solutions and VAS, such as fraud.
While we have not seen material competitive encroachment, our sense is that investors are eyeing
new digital entrants, like Marqeta, and even the networks outside the U.S., as potential competi-
tion. This has created a terminal value headwind for Global Payments, in our view.
Lastly, we see little upside potential to organic revenue, EPS (save share buybacks), and EBITDA
growth. Global has delivered consistent financial results, but it grows revenue at roughly industry
average and its FCF ROIC has been stuck at 6%-7% for several years. Our view is that long-term
FCF ROIC potential is higher and has been weighed down by intangibles from several acquisitions.
Nonetheless, we think Global checks only two out of four boxes necessary for a premium
valuation (financial consistency and shareholder friendly capital allocation).
Valuation
The foregoing probably sounds less bullish than our rating suggests, and we have regularly advo-
cated for corporate action to drive shareholder value for several years. We would not rate Global
Payments Outperform if we felt management would keep its head buried in the sand into perpetu-
ity, or if we sensed that the company’s businesses were structurally impaired; we do not. That said,
we contend time is growing short for Global’s current management and board of directors to con-
trol their own destiny, and we think aggressive restructuring or activist involvement is imminent.
This is why we maintain an Outperform rating. There is simply too much intrinsic value for us to
become more cautious with GPN shares trading at just 8.3 times our estimated 2025 EBITDA and
at a 11.6% estimated 2025 FCF yield.
36 Andrew W. Jeffrey, CFA +1 415 796 6896
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Exhibit 21
Global Payments, Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $8,671 $9,233 $9,223 ($10) $9,913 $9,853 ($60)
Y/Y % 7.2% 6.5% 6.4% 7.4% 6.8%
EBITDA 4,326 4,656 4,650 ($5) 5,034 4,997 ($37)
Y/Y % 10.0% 7.6% 7.5% 8.1% 7.5%
Margin % 49.9% 50.4% 50.4% 50.8% 50.7%
Adj. EPS $10.42 $11.61 $11.58 ($0.03) $13.21 $13.18 ($0.03)
Y/Y % 11.4% 11.1% 13.8% 13.8%
FCF 2,548 2,907 3,071
Y/Y % 11.9% 14.1% 5.6%
Conversion % 93.4% 99.6% 96.4%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $9,227 $9,906
Y/Y % 6.4% 7.4%
EBITDA 4,640 4,992
Y/Y % 7.3% 7.6%
Margin % 50.3% 50.4%
Adj. EPS $11.64 $13.19
Y/Y % 11.7% 13.3%
Sources: Company reports, FactSet, and William Blair Equity Research
Risks to Our Outperform Rating
Risks include a protracted period of management and/or board inaction. We define this period as
12 months, after which we might conclude management will no longer control the range of cor-
porate outcomes, and a third party will likely be involved. In addition, we see a risk of rising U.S.
software-integrated POS competition; questions about the durability of vertical market software
organic revenue growth; the need to invest more in updating its tech stack, either organically or
via M&A; and potential issuer share loss or decelerating legacy segment organic revenue growth.
Corpay: Time to Get Serious About What’s Really Core
We see parallels between Global and Corpay: each has apparently good businesses and gener-
ates respectable organic revenue growth and robust profitability. We think each company has
a broadly respected management team and strong track records of shareholder capital return.
Despite this, both companies’ stocks have underperformed the SPX since the March 2020 COVID
low (GPN -2%/CPAY +74%, SPX +159%) and have suffered material NTM estimated P/E multiple
contraction (see exhibits 36 and 38 in the appendix).
Although Corpay has a very different business than Global’s, focused on managing B2B spend and
increasingly shifting into vehicle-based consumer spend, they share complexity—in our opinion,
Corpay more than Global. Further, whereas we think Corpay boasts significantly higher entry bar-
riers, as reflected in the stock’s roughly 31% estimated 2025 relative EBITDA premium to WEX,
the company’s financial results have been less consistent. In fact, we cut our 2024 and 2025 EPS
estimates to $18.82 and $21.42, from $18.93 and $21.67, respectively, as the company strives to
reinvigorate its vehicle segment and its lodging business, which missed first quarter 2024 Street
estimates. Our relatively low confidence in Corpay’s ability to hit estimated 2024 EPS, absent more
aggressive share repurchases, is a likely valuation headwind.
Cristopher Kennedy, CFA +1 312 364 8596 37
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Our Outperform rating reflects a view that management and the board will revive a strategic re-
view process, the last iteration of which failed to alter the corporate structure. Absent such a re-
view and a subsequent breakup of Corpay’s business within the next 12 months, we would be less
inclined to be bullish.
We think Corpay faces several organic revenue, EBITDA, and EPS headwinds, some of which are cy-
clical and others that threaten to create ongoing business inconsistency. The first is a persistently
sluggish freight market, which while showing some signs of bottoming (rising rejection rates and
WEX’s comments that OTR revenue rose sequentially in the first quarter of 2024 for the first time
in five periods) continues to suffer from small fleet failures and stagnant large fleet spending. Cor-
pay oversamples to smaller fleets, and while credit among these customers has apparently stabi-
lized, the company’s late fee revenue has suffered. Given credit uncertainty, however, we do not
anticipate management loosening underwriting to accelerate top-line growth soon. The second is
an unproven ability to sell corporate payments services, such as full-stack AP automation and bill
payment, into its fleet customer base. We are constructive on the company’s relatively new Corpay
One Mastercard, which integrates spend and AP automation, but we do not think better sales ex-
ecution will benefit organic revenue growth until next year. Third is that Corpay’s lodging segment
is a question mark, in our opinion, even as management is confident that it has addressed systems
issues that caused first quarter 2024 organic revenue to decline 9%. Whereas systems disruptions
may be in the past, we contend recent segment results highlight the cyclicality of a business the
company has previously indicated should not be volatile. We think this raises quarterly results
risk. Fourth, we believe ongoing M&A, however modest, will not instill confidence in shaky inves-
tors. These factors compel us to recommend WEX more strongly for purely fundamental
investors, even as we see Corpay as attractively valued on a SOTP basis (see exhibit 22).
Exhibit 22
Corpay, Inc. Sum-of-the-Parts Analysis Supports Our Outperform Rating
Dollars in millions, except share price
Segment 2025E EBITDA
Vehicle Payments (59% margin) $1,255 Implied EV $12,549 $13,804 $15,059 $16,314 $17,568
Segment Multiple 10x 11x 12x 13x 14x
Corporate Payments (50% margin) $679 Implied EV $8,824 $9,503 $10,182 $10,861 $11,539
Segment Multiple 13x 14x 15x 16x 17x
Lodging (59% margin) $340 Implied EV $3,056 $3,395 $3,735 $4,074 $4,414
Segment Multiple 9x 10x 11x 12x 13x
Other (36% margin) $98 Implied EV $490 $588 $687 $785 $883
Segment Multiple 5x 6x 7x 8x 9x
Total $2,371 $24,919 $27,290 $29,662 $32,033 $34,404
Net Debt (as of 1Q24) $5,452 $5,452 $5,452 $5,452 $5,452
Implied Equity Value $15,841 $21,838 $24,210 $26,581 $28,952
Diluted Shares (as of 1Q24) 73.5 73.5 73.5 73.5 73.5
Implied Share Price $215.39 $296.94 $329.18 $361.42 $393.66
Note: Excludes potential impact from the acquisition of GPS (expected close 1/1/2025), which is estimated to generate $100 million in revenue with mid-40%
EBITDA margins in 2024
Sources: Company data and William Blair Equity Research
38 Andrew W. Jeffrey, CFA +1 415 796 6896
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We anticipate that some investors will be skeptical that Corpay will pursue a breakup to create
shareholder value after eschewing an opportunity to do so last year. That said, we are more op-
timistic given that CEO Ron Clarke is likely nearing retirement age, a factor that could underpin
greater urgency, and CPAY has lagged the SPX since COVID. We understand the logic purportedly
behind last year’s decision to keep Corpay intact, namely that there are no good comparables for
the company’s disparate businesses, and therefore the board was not convinced it could maximize
value. On its face, this argument makes sense, but between the stock’s roughly 8% pullback from
its 52-week high and what we see as a wide gap between market value and intrinsic value, we think
this logic no longer applies.
As illustrated in exhibit 22, CPAY is worth 23%-34% more than its current value, based on our con-
servative SOTP assumptions. As importantly, we note the stock traded at roughly our SOTP target
just three months ago, a point at which management probably felt pretty good about the decision
to keep the company intact. Further, we believe a sale of the lodging segment, for example, con-
summated at an estimated 2025 EBITDA multiple even close to our estimate would suffice to drive
the stock back toward its 52-week high, based solely on third-party confirmation of the segment’s
value and management’s willingness to be proactive.
To be clear, we have a difficult time justifying our Outperform rating based solely on fundamentals.
We see Corpay posting roughly industry-average organic revenue growth, even as its corporate
payments segment (roughly 30% of revenue) appears poised to generate mid- to high-teens per-
cent long-term top-line expansion. We believe recent lodging softness, growing model complexity,
the need to cross-sell corporate payment solutions into the vehicle segment to drive faster revenue
growth, uncertainty around the company’s long-term consumer vehicle payment ambitions, and
the poor fit of the company’s other segment will constrain valuation.
Valuation
Our bullish view rests on a conviction that management and the board will feel pressure to gen-
erate better shareholder returns, and in short order. Corpay has reached an agreement with one
activist since the beginning of 2023, and we would not be shocked if another comes along to force
action. Like Global Payments, our view is that downgrading Corpay at this juncture, trading at just
about 11.4-times estimated 2025 EBITDA and an 6.7% FCF yield, would effectively be leaving al-
pha on the table. However, our time horizon is 12 months, beyond which we think it would be safe
to conclude that management is not serious about addressing the referenced structural challenges,
and we would likely consider the risk/reward more balanced.
Cristopher Kennedy, CFA +1 312 364 8596 39
William Blair
Exhibit 23
Corpay, Inc. Estimate Changes
William Blair Estimates
2023 2024 2025
(In $M, except EPS) Actual Prior New ∆$ Prior New ∆$
Revenue $3,758 $4,001 $3,936 ($65) $4,420 $4,357 ($63)
Y/Y % 9.6% 6.5% 4.7% 10.5% 10.7%
EBITDA 1,993 2,151 2,115 ($36) 2,401 2,371 ($30)
Y/Y % 12.7% 7.9% 6.1% 11.6% 12.1%
Margin % 53.0% 53.8% 53.7% 54.3% 54.4%
Adj. EPS $16.92 $18.93 $18.82 ($0.11) $21.67 $21.42 ($0.24)
Y/Y % 11.9% 11.2% 14.5% 13.8%
FCF 1,148 1,240 1,452
Y/Y % 1.4% 8.1% 17.1%
Conversion % 91.2% 92.6% 95.6%
Consensus Estimates
2024 2025
(In $M, except EPS) Estimate Estimate
Revenue $4,009 $4,422
Y/Y % 6.7% 10.3%
EBITDA 2,156 2,395
Y/Y % 8.2% 11.1%
Margin % 53.8% 54.2%
Adj. EPS $19.03 $22.23
Y/Y % 12.5% 16.8%
Sources: Company reports, FactSet, and William Blair Equity Research
Risks to Our Outperform Rating
Risks include ongoing sluggish fleet demand, owing to cyclical softness and/or Corpay’s inability
to cross-sell AP solutions into its installed base; volatile Brazil tolls results and lower yield as the
company shifts to an interchange model; uncertain foreign exchange volatility, which could ad-
versely affect the cross-border portion of the company’s corporate payments segment; shifts in
lodging demand from cyclical and seasonal industries, like airlines; inconsistent other segment
organic revenue growth performance; and uncertainty around any potential corporate restructur-
ing actions, which we see as key to multiple expansion.
Secular Trend: Networks and Merchant Processors—Global
Card Volume, VAS, and New Flows Growth Outlook Is Robust
We believe the long-term TAM runway remains lengthy, suggesting that many large merchant eco-
system participants, even those we view as competitively challenged, like PayPal and to a lesser
degree Global, can regain their footing. We nonetheless believe that time is running short, and we
are approaching a tipping point at which fintech investors will have few alpha-generation options,
absent major industry consolidation. As important, in our view, sturdy global card volume growth
means consistent above-average organic revenue growth for leading networks such as Visa, Mas-
tercard, and American Express.
We highlight four key drivers of likely durable low-double-digit percent global card volume
growth, which should translate into 10%-12% network organic revenue growth compounding, a
6%-8% legacy merchant organic revenue CAGR (pricing pressure), and low- to midteens percent
40 Andrew W. Jeffrey, CFA +1 415 796 6896
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software-integrated merchant organic revenue growth compounding. These secular drivers are:
1) global card adoption, with the U.S. running at 6%-plus annual growth (see exhibit 24), and we
estimate the rest of the world at 10%-plus; 2) proliferation of credentials/tokens, e.g., contactless
card, e-commerce credentials, and digital wallets; 3) developing VAS portfolios, which diversify net-
work revenue streams and make them less dependent on card volume alone; and 4) ongoing strong
merchant location growth, particularly outside the U.S. We also highlight the roles open banking
and faster payments can play as emerging markets adopt nontraditional business-to-consumer
(B2C) payments solutions. As we discuss in our detailed company write-ups, we believe Visa and
Mastercard are well positioned to participate in these non-card-specific market growth drivers.
Exhibit 24
U.S. Carded Payments 6%+ CAGR Outlook Supports Bullish Ecosystem Secular View
18,000
1,933
16,000 1,603
1,591
14,000
1,508
12,000
1,469
$ Volume in Billions
10,000 1,447
1,464
14,752
8,000 13,909
12,571
10,801
6,000 9,617
6,445 7,790
4,000
2,000
2,433
1,477 1,329 1,469 1,188 1,163 1,094
0
2017A 2020A 2021A 2022A 2025E 2026E 2027E
Cash Cards Electronic
Note 1) 2017A-2027E CAGRs: Cash -7.7%, Cards +8.6%, Electronic +2.8%, Total Tender +7.8%
Note 2) 2022A-2027E CAGRs: Cash -5.7%, Cards +6.4%, Electronic +5.1%, Total Tender +6.3%
Source: Nilson
We assert this bullish secular outlook is particularly pertinent for our Visa and Mastercard theses,
and it also underpins our enthusiasm for Fiserv’s and Square’s long-term organic revenue growth
prospects. These are the fintechs best positioned to capitalize on global secular growth
while monetizing VAS and software solutions, in our opinion. We field many investor ques-
tions about the durability of network organic revenue growth, considering that several developed
markets, including the U.S., Australia, Canada, and the U.K., boast 70%-plus card attach. However,
exhibit 25 highlights that several large economies remain where card adoption lags materially,
including Brazil, France, Japan, Italy, and Germany. Therefore, as card adoption increases in these
markets, rivaling the U.S. and Canada, we expect global developed market card volume (exclud-
ing rest of world, Russia, China, and India) to be at least 2%-4% faster than Nilson’s nearly 7%
U.S. growth outlook. Whereas we acknowledge that Visa and Mastercard may struggle to replicate
developed-world economics in markets like India, let alone Russia and China, card adoption will
remain an important tailwind, in our opinion.
Cristopher Kennedy, CFA +1 312 364 8596 41
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Exhibit 25
Relatively Low Card Adoption in Big Markets Supports Long Secular Runway
100% 96%
90%
80% 78% 78%
73% 72% 72%
70%
59%
60%
53%
50% 45%
42%
40% 38%
30% 27%
20%
13%
10%
0%
South Australia China Canada United United Brazil Russia France Japan Italy Germany India
Korea States Kingdom
Card Adoption (2023)
Source: Euromonitor
Payment volume growth is only one important secular ecosystem driver. We view token and cre-
dential growth as key volume and monetization vehicles as well. A credential refers to an entity,
usually an individual, who has authorization to make an electronic payment. A token represents a
secure, encrypted version of a card’s 16-digit primary account number (PAN), enabling a card to be
presented for authorization without revealing specific information about the credential holder. In
this sense, credentials are a proxy for card growth. We think tokenization expansion should accel-
erate, given improving commerce velocity driven by trends like contactless payments and e-com-
merce, which should run several percentage points faster than card-present volume expansion.
Tokens are a particularly important network volume driver, in our opinion, as they reduce
fraud, especially in card-not-present (CNP) transactions. Visa boasts roughly 9.5 billion global
tokens, more than twice as many Visa cards in circulation, and growing 50%-plus (exhibit 26).
We believe this highlights the key role tokenization is playing in driving network volume growth.
The company also noted on its fiscal second quarter 2024 conference call that it sees measurable
e-commerce authorization uplift and lower fraud as tokens proliferate. For additional information
on payments fraud, see our report.
We anticipate material economic benefits accruing from higher authorization rates and lower
fraud. Lastly, we note Mastercard’s recent announcement that it is committed to 100% European
e-commerce tokenization by 2030. This is a worthy goal, in our opinion, as elimination of manually
keyed e-commerce transactions promises to make online commerce as seamless and ubiquitous
as contactless card-present payments have become. For additional information on the growth of
contactless payments, see our report.
42 Andrew W. Jeffrey, CFA +1 415 796 6896
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Exhibit 26
Strong Token Growth Augments Card-Driven Top-Line Expansion
9.5 2
9.0
8.5 1.8
8.0
7.5 1.6
7.0
6.5 1.4
6.0
Token-to-Card Ratio
Visa Tokens (B)
1.2
5.5
5.0
1
4.5
4.0
0.8
3.5
3.0 0.6
2.5
2.0 0.4
1.5
1.0 0.2
0.5
0.0 0
C3Q20A C4Q20A C1Q21A C2Q21A C3Q21A C4Q21A C1Q22A C2Q22A C3Q22A C4Q22A C1Q23A C2Q23A C3Q23A C4Q23A
Network Tokens Cards Token-to-Card Ratio
Source: Visa Inc. company reports
As a last observation, despite the relatively mature nature of the global card market, we view mer-
chant acceptance growth as a key long-term electronic payment volume driver. Over the years,
American Express and Mastercard have expanded the acceptance footprint; more recently Visa
reported 17% acceptance growth in fiscal first quarter 2024, versus just 7% reported payment
volume expansion. Although some of Visa’s growth is coming in relatively immature markets, like
Brazil, and through share gains, such as its new Caixa Bank relationship, we note contributions
from new tender types, like bill payment and B2B, as important drivers—we discuss new flow
and VAS TAM in the company-specific sections of this note. We anticipate growing merchant ac-
ceptance will be the third leg on the global card volume growth stool, benefiting Visa, Mastercard,
and American Express.
Secular Trend: Merchant Acquiring and Processing—Competi-
tively Differentiated Software-Integrated POS
We recognize the risk of becoming too conservative following a period of broad relative underper-
formance, particularly considering the historical forward 12-month estimated P/E reset. Accord-
ingly, we would not be surprised to see rallies in beaten-down names. Although we appreciate
that some value investors will be tempted by laggards’ strong balance sheets and FCF, our
view is that terminal value risk outweighs these constructive attributes. We maintain that
potential M&A remains an important caveat to this point. Despite modest recent industry con-
solidation, we are disappointed that Global Payments, for example, has not pursued a strategically
transformative acquisition to better compete with Clover. Alternatively, we continue to believe
the company could unlock significant shareholder value by selling its relatively commoditized is-
suer business that it acquired in 2019. Further, while we appreciate PayPal’s self-help strategy
under new management, we similarly believe the company needs to improve its unified commerce
(UC) position to maintain long-term competitive relevance and reaccelerate organic revenue and
Cristopher Kennedy, CFA +1 312 364 8596 43
William Blair
transaction margin growth. We would accordingly review our rating in the event of strategically
compelling M&A, and we argue that PayPal must pursue a UC acquisition to alter its long-term
growth and return trajectory.
Beyond meaningfully accelerating industry consolidation, we recommend that investors focus on
clearly defensible fintech leaders. We put the U.S. e-payment volume TAM at roughly $12 trillion,
growing midsingle digits plus. Revenue growth should lag volume expansion by 2-3 percentage
points, as we see pricing pressure at enterprise merchants and ample capital capping small and me-
dium business (SMB) pricing power. The exception to this yield compression outlook resides in
software and VAS, in our opinion—offerings that virtually every merchant participant boasts
at some level but not equally. For example, Global Payments generates about 60% of its merchant
segment revenue from tech-enabled solutions, yet the company has been unable to accelerate mer-
chant segment organic revenue growth (see exhibit 27). We anticipate that in the absence of a signifi-
cant strategically accretive acquisition, the company will continue posting roughly industry-average
organic revenue growth. By contrast, Fiserv is posting 12%-14% merchant segment organic revenue
growth, excluding its Argentina business, led by mid-20%-plus Clover top-line expansion. As much
as we like the durability of Global’s merchant organic revenue growth, we question the company’s
ability to accelerate top-line expansion, likely capping longer-term valuation.
Exhibit 27
Clover Powering Fiserv to Superior Merchant Organic Revenue Growth
40%
35%
30%
25%
20%
15%
10%
5%
0%
1Q22A 2Q22A 3Q22A 4Q22A 1Q23A 2Q23A 3Q23A 4Q23A 1Q24A
Fiserv Global Payments
Note: GPN organic growth reflects management disclosure around constant-currency growth rates excl.
the acquisition of EVO Payments and dispositions. FI 1Q24 growth includes 15-point benefit from Argentina.
Sources: Company reports and William Blair Equity Research
We argue it is difficult to overstate the importance of SMB software-integrated POS solutions. As
we discuss in more detail in our Fiserv and Block write-ups, we think plug-and-play, or self-service,
SMB software has truly democratized business. We are aware that some industry observers and
participants decry the notionally high cost of SMB card acceptance, which in some cases can ap-
proach 400 basis points of volume. We think this is a red herring, however. Whereas historically
low-tech merchant POS solutions, like standalone terminals, had to be manually integrated into
basic business management solutions, like Excel spreadsheets and QuickBooks, next-generation
SMB POS software offers powerful enterprise resource and planning (ERP) capabilities heretofore
only available to much larger merchants. In this regard, we contend the value created by powerful
new software at least justifies the relatively high price SMBs pay to accept cards. Our view is that
yield expansion, especially at Clover, and to a lesser extent Square, supports this point. Rather than
overcharging small merchants, we think leading software-integrated POS providers are pricing to
value, much as the networks have done for years.
44 Andrew W. Jeffrey, CFA +1 415 796 6896
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We argue the foregoing explains why Global and Fiserv can experience meaningfully diver-
gent organic revenue growth, despite each boasting strong tech-enabled solutions at scale.
We think Fiserv has three important advantages. First, we believe Clover taps into SMBs’ growing
desire for plug-and-play solutions, while Global’s software offerings are more likely to be integrated
into legacy hardware. We assert this distinction is one reason Clover’s U.S. gross payment volume
(GPV) is growing faster than Square’s—simplicity matters. We like Global’s POS software busi-
ness, which is putting up about 20% organic revenue growth, but it is only about 6% of merchant
revenue. Second, after many years of scale distribution taking a backseat to ISV relationships, we
believe U.S.-based bank distribution partnerships and large internal salesforces are increasingly
important. Fiserv boasts the industry’s best distribution, in our opinion, even after dissolving its JP
Morgan and Bank of America JVs. We view Wells Fargo as an important partner and think Fiserv’s
fintech segment is becoming an increasingly efficient cross-sell channel. Third is pricing power.
Clover’s yield has increased roughly 11 basis points since fourth quarter 2022 (to 88 basis points
from 77 basis points), while Global’s revenue growth has roughly tracked volume. We assert this is
a critical observation as Clover has increased software attach from near zero to 20%. Clover now
accounts for nearly 30% of Fiserv’s merchant business, and we believe the company has also taken
advantage of Square’s go-to-market challenges to raise price. We accordingly anticipate that Fiserv
will continue posting roughly 2 times U.S. merchant organic revenue growth. Although some of
this is likely reflected in the stock’s significant nearly 100% estimated relative 2025 P/E premium
to Global, we believe investors will continue focusing on fintech’s best companies, namely Fiserv.
Although Square, Block’s merchant business, has struggled in the last couple of years, losing share
to Clover, we believe new vertical market software and simplified go-to-market initiatives under co-
founder Jack Dorsey’s day-to-day supervision should allow Square to recapture past glory. Despite
Clover’s success, we contend Square is the best software-integrated POS in the market, evidenced
by almost 60% of gross profit generated by SaaS, and nearly 80% excluding merchants that do not
use the company’s software solutions (known as sidecar merchants). We believe this above-average
software attach will aid retention and monetization. We also anticipate optionality in potential new
distribution deals. Although the company has experimented in the past with bank distribution, and
this may not be the most efficient channel, we expect it will move to integrate some type of third-
party distribution, which we believe could materially accelerate organic revenue growth. Acquiring
a company like Shift4, with its strong installed enterprise customer base and diversified distribu-
tion, would be a positive, in our opinion, and this asset will be accretive to whichever company
ultimately acquires it, which we see as a highly likely eventual outcome. We dig deeper into our
company-specific upgrade for Block in the preceding discussion of the company.
Secular Trend: Banktech and Embedded Finance
Banktech
We continue to believe that the banktech industry represents an attractive market for long-
term investors. Our work suggests that IT spending is largely a nondiscretionary item for regional
and community financial institutions as they face increasing competition from megabanks, fin-
techs, challenger banks, and big tech. Through the emergence of ATMs in the 1960s, debit cards
in the early 1990s, online banking/bill-pay in the 2000s, and the current move to mobile/digital
banking, we believe that financial institutions rely on banktech providers to navigate the evolving
environment, meet changes in consumer demands, and ultimately help financial institutions grow
revenues and become more efficient. We outline trends that we are seeing within the space below,
but we take a deeper dive in our recent industry note: Digital Banking, Business Banking, Embed-
ded Finance/BaaS, Cloud Cores, and More: A Review of Opportunities Within BankTech.
Cristopher Kennedy, CFA +1 312 364 8596 45
William Blair
Strong digital banking solutions are more than just teller replacements, and in our view,
represent new channels for customer engagement and create new revenue opportunities
for banks. Essentially all financial institutions had to adopt digital banking solutions due to the
pandemic, but consumers are increasingly seeking out more advanced features, while financial
institutions are in search of ways to increase customer engagement and monetization. In our view,
the frequency of digital “visits,” which can exceed 300 times per year (versus about 10 branch
visits per year), highlights the importance of a strong digital experience for retention and creates
a clear opportunity for banks to leverage these platforms to drive further engagement and sales.
Given these dynamics, we believe that modern offerings with broader capabilities, either native or
through fintech integrations, should see increased win rates.
While there are likely dozens of digital banking solution providers, we believe the sheer number
of financial institutions, coupled with the growing demand for modern solutions, creates a large
market that should support multiple winners. Across our coverage, there are multiple examples
of modern digital platforms from both core and digital banking focused providers, including Ex-
perience Digital (Fiserv), Banno (Jack Henry), Digital One (FIS), Alkami, and Q2. For perspective,
Alkami estimates that there are 250 million digital accounts (up from 185 million in 2021) in its
target market, which is sized at $11 billion. Q2 sizes its opportunity at $15 billion.
Exhibit 28
Digital Banking Platform Comparison
900 25
800
700 20
600
15
500
400
10
300
200 5
100
0 0
Alkami Q2 Banno (JKHY)*
Estimated Clients (L-Axis) Estimated Users in Millions (R-Axis)
Note: Data as of March 2024. *Does not include NetTeller/GoDough users/clients
Sources: Company documents and William Blair Equity Research
Amongst digital banking providers, we are particularly attracted to the high level of visibility and
significant growth opportunities of Alkami. Alkami operates under long-term contracts (70 months
on average), with over 95% mix of subscription revenue, which drives strong revenue visibility.
While Alkami has historically had an outsized presence with credit unions, the company is gaining
traction in the banking channel and newly implemented customers should have a compounding af-
fect, serving as a case study in future bids. Alkami’s guidance calls for 25% revenue growth (driven
by midsingle-digit ARPU growth and midteens user growth), and at least 20% adjusted EBITDA
margin by 2026 (versus -0.6% in 2023).
In our view, to capture the incremental revenue opportunity of SMB banking, community
and regional financial institutions must adopt modern dedicated solution. The $370 billion to
$400 billion SMB banking market has typically been underserved by traditional financial institu-
tions, but given the size of the opportunity, institutions are focused on capturing the market by
introducing new services and offerings. Given these trends, we have seen increased investment
and product innovation from banktech providers around the SMB opportunity, including SMB ded-
icated digital banking platforms, digital account opening solutions, and loan origination systems.
46 Andrew W. Jeffrey, CFA +1 415 796 6896
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Further, we believe institutions have an opportunity to drive further engagement and monetiza-
tion by integrating various functionalities directly into their digital experience through fintech in-
tegration, such as B2B AP/AR automation software.
Financial institutions have the option to choose “best-of-breed” versus “best-of-suite” solu-
tions as they modernize tech stacks, but we believe a large addressable market and interoper-
ability allows room for multiple winners. The banktech market comprises core providers (e.g.,
FIS, Fiserv, Jack Henry), which aim to provide a one-stop shop for financial institutions, and com-
panies that aim to provide best-of-breed solutions offering a narrower set of use-cases (e.g., Q2,
Alkami, nCino, MeridianLink). Over the years the lines have blurred as core providers have devel-
oped competitive complementary solutions, while best-of-breed providers have broadened prod-
uct offerings through both internal R&D and M&A. Further, both core provider and point solution
providers have become increasingly open to third-party integrations to drive retention and find
ways to monetize connections.
Modern cloud-native, API-first modularized cores can de-risk the core conversion process,
simplify third-party integrations, enable real-time processing, allow burst processing, and
facilitate real-time updates, among other benefits. Over the past decade, a growing number of
modern core providers have emerged, but maintain limited market share and are primarily used
in tandem with traditional cores to operate subsidiary-like initiatives, such as a digital neobank, or
to enable institutions to enter the BaaS or embedded finance space. Still, we believe that over the
long term, modern cores will eventually gain market share as financial institutions transition away
from legacy core systems. As a result, traditional providers are acquiring and/or building compet-
ing offerings; examples include Fiserv’s purchase of Finxact, FIS’s Modern Banking Platform initia-
tive, and the Jack Henry Platform.
Of the Big 3 core providers, FIS’s Modern Banking Platform and Fiserv’s Finxact were earlier to
market, but in our view, Jack Henry has provided the most defined product roadmap for its mod-
ern core initiative, which has drawn interest from larger institutions outside the company’s target
market. Modules have been released, but management believes the company is 3-5 years out from
a full core in the cloud and believes clients and regulators should be prepared for the transition at
that time. It remains early, but management believes the transition to the platform offering should
drive 20%-25% revenue uplift and support margin expansion.
Despite headlines of bank consolidation, activity is primarily concentrated across the smallest
institutions, while typical end-markets across our coverage remain robust measured by both
number of institutions and financial performance. The number of U.S. financial institutions has
fallen at a 3.5% annual clip since 2004 due to industry consolidation partly offset by limited de novo
growth. Despite the shrinking number of financial institutions, the total dollar amount of financial
institution assets and deposits was near peak levels exiting 2023; assets have grown at a 4.7% com-
pound annual rate since 2004, while deposits have grown at a 6.1% compound annual rate.
Cristopher Kennedy, CFA +1 312 364 8596 47
William Blair
Exhibit 29
Number of U.S. Financial Institutions and Total Deposits
($s in trillions)
20,000 30
18,000
25
16,000
14,000
20
12,000
10,000 15
8,000
10
6,000
4,000
5
2,000
0 0
Number of FIs (L-Axis) FI Deposits (R-Axis) FI Assets (R-Axis)
Sources: FDIC, NCUA, and William Blair Equity Research
As outlined in exhibit 30, the smallest financial institutions—banks with less than $250 million of
assets and credit unions with less than $50 million of assets—have seen the most consolidation,
with the number of institutions falling at a 6% compound annual clip since 2002. Interestingly, the
number of banks with assets between $250 million and $50 billion has increased at a 1.2% annual
clip to 2,706 institutions, while the number of credit unions with assets of $50 million to $10 bil-
lion has increased at a 1.4% annual clip to 2,445.
While not fully immune to bank consolidation, the banktech providers under our coverage typi-
cally target midsize or larger financial institutions. Target markets vary by company, but at the
lower end of the range, Jack Henry targets institutions with between $250 million and $50 billion
of assets, and its average customer has approximately $1 billion in assets. On the upper end of the
market, FIS maintains a presence with some of the largest financial institutions both domestically
and abroad. Given these dynamics, the group should see benefit from consolidation as their cus-
tomers acquire smaller institutions.
Exhibit 30
Number of Financial Institutions by Asset Range and Year
2002 vs. 2023
Banks Credit Unions
Asset Range 2002 2023 CAGR Asset Range 2002 2023 CAGR
<$250M 7,228 1,843 -6.3% <$50M 7,981 2,236 -5.9%
$250M to <$1B 1,582 1,756 0.5% $50M to <$250M 1,371 1,354 -0.1%
$1B to <$10B 453 837 3.0% $250M to <$1B 385 674 2.7%
$10B to <$50B 82 113 1.5% $1B to <$10B 71 417 8.8%
$50B to <$1T 24 43 2.8% >$10B 1 21 15.6%
>$1T 0 4 NA All 9,809 4,702 -3.4%
All 9,369 4,596 -3.3%
Sources: FDIC, NCUA, and William Blair Equity Research
48 Andrew W. Jeffrey, CFA +1 415 796 6896
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While we do not anticipate a banking crisis and corresponding economic downturn on the
scale seen during the great recession, we believe that bank technology providers should be
able to navigate a potential slowdown in the economic cycle and recent pressures among
financial institutions. Despite over 400 failures and severe financial pressure between 2008 and
2010, established banktech providers, including Fiserv, FIS, and Jack Henry, reported relatively
stable revenues and were able to successfully navigate the environment—during the peak of the
crisis, Jack Henry’s adjusted EBITDA fell 2% in 2009.
Exhibit 31
Established Banktech Great Recession Era
Estimated Pro Forma Revenue and Stock Price Performance
($s in millions)
Estimated Pro Forma Revenue
CY CY CY CY
2007 2008 2009 2010
FI $4,081 $4,074 $4,077 $4,133
y/y change 8.9% -0.2% 0.1% 1.4%
FIS $4,905 $4,953 $4,925 $5,270
y/y change 6.5% 1.0% -0.6% 7.0%
JKHY $815 $895 $908 $939
y/y change 13.8% 9.8% 1.5% 3.3%
Stock Price Performance
FI 5.9% -34.5% 33.3% 20.8%
FIS 3.7% -29.8% 44.1% 16.9%
JKHY 13.7% -20.3% 19.2% 26.0%
KBW Regional
-24.4% -21.7% -24.2% 18.2%
Bank Index
S&P500 3.5% -38.5% 23.5% 12.8%
Note: Values are estimated and pro forma for acquisitions and divestitures; JKHY values
calendarized
Sources: Company reports, FactSet, and William Blair Equity Research
Embedded Finance
As we outline in our recent industry report: A New Wave of Financial Services: How Open Banking
and BaaS Are Fueling Embedded Finance, we believe embedded finance should serve as a long-
term secular tailwind for companies in the fintech ecosystem; our definitions are outlined below:
• Embedded finance refers to the integration of innovative financial services into software ap-
plications for consumers or businesses, typically enabled by open banking, BaaS, and modern
API technology.
• Open banking refers to the provisioning of open access to financial data through secure APIs,
typically to trusted third parties servicing consumers or businesses. Access to this data through
open banking helps companies/developers create more seamless customer experiences, rang-
ing from account opening to payments, post-transaction follow-up, and credit availability in a
more personalized/tailored product offering. The use-cases for open banking will continue to
evolve and include payments, lending, and account verification.
• Banking as a Service (BaaS) refers to the leveraging of a licensed financial institution’s prod-
uct and regulatory capabilities by a nonbank entity to distribute financial products; these
functions are generally accessed through modern API architecture.
Cristopher Kennedy, CFA +1 312 364 8596 49
William Blair
Nonfinancial institutions (e.g., retailers, marketplaces, and software companies) have several ad-
vantages in offering digital financial services (e.g., payments, savings, credit, insurance, and bank-
ing) directly to their end-customers, including lower customer acquisition costs, attractive cross-
sell economics, situational product offerings, and improved consumer choice. However, financial
institutions should continue to have a key role in enabling nonregulated entities to offer various
solutions, such as deposit accounts, money transfers, card issuance, and loan origination services.
Exhibit 32
Extending Financial Products Beyond Financial Institituions
Legacy Distribution of Financial Products
P&C High Yield
Checking
Insurance Savings
Consumers and Credit
401(k)
Businesses Card
Health Online Life
Insurance Brokerage Insurance
Embedded Finance Distribution
Traditional Financial Services
P&C High Yield
Checking
Insurance Savings
Fintechs
401(k)
Open Banking/BaaS/
Consumers and
Embedded Finance
Businesses
Credit Infrastructure
Card Brands
Health Online Life
Insurance Brokerage Insurance
Source: William Blair Equity Research
We believe this integration helps create a win-win-win scenario for all parties in the ecosystem—in
general, consumers and businesses enjoy a better, more personalized/seamless experience; com-
panies benefit from improved customer retention and the opportunity for cross-sells (with attrac-
tive customer acquisition costs); and enablers benefit from overall market adoption. Further, the
combination of consumers’ willingness to share data and companies’ ability to capture data, along
with the adoption of new technologies such as generative artificial intelligence (GenAI), could have
significant implications globally. For example, utilizing data can create a more seamless experience
when onboarding customers by reducing fraud risk and by streamlining manual tasks or can cre-
ate a more personalized experience with more targeted recommendations for customers.
50 Andrew W. Jeffrey, CFA +1 415 796 6896
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The market opportunity for embedded finance, open banking, and BaaS is vast, given improvements
in technology, growing consumer adoption, and expanding use-cases. Precisely sizing the market is
challenging and estimates vary widely: consider Bain Capital estimates that embedded finance can
enable over $7 trillion of total U.S. financial transactions by 2026 while FIS expects the BaaS market
(TAM) to be greater than $25 billion by 2026 and the embedded finance TAM to be about $230 bil-
lion of revenue by 2025. Regardless, we believe the opportunity is large, expanding, and in its early
innings. In addition, we believe these technologies support the gig economy and drive financial
inclusion, which is a leading initiative by a host of government and nongovernment agencies.
We believe account-to-account (A2A) payments powered by open banking represent an emerging
use-case for the technology. Unlike traditional A2A payments that rely on travel over bank infra-
structure, open-banking-powered A2A payments offer myriad potential benefits, including lower
costs, faster settlement, and increased security (versus legacy A2A payments). For example, Token,
which is an open banking platform that enables A2A payments, has outlined that the cost of accept-
ing an account-to-account payment via open banking infrastructure is significantly below that of
other payment methods for merchants due to automated reconciliation and lower network/inter-
change fees. Further, in the United States, Mastercard helps power JP Morgan’s Pay-by-Bank, which
is an ACH-based payment that uses open banking technology. The initiative enables bill payments
between parties in a secure way without the need to manually enter a routing number and account
information and helps add new value-added services for traditional ACH transactions.
The data suggests financial institutions that embrace BaaS can generate higher returns as they
can leverage the bank charter and extend well beyond the confines of a geographic region. Using a
sample of 30 BaaS banks relative to the industry, BaaS banks tend to generate higher returns, yet
experience higher charge-offs/loss provisions. We note that the number of BaaS-sponsor banks
has increased to 136 exiting 2023 (up from 78 in early 2022), according to data from FedFis; fur-
ther, 74 of the BaaS banks only provide credit solutions, while 52 (38%) provide both credit and
deposit solutions.
Exhibit 33
BaaS Bank vs Community Bank Select Metrics
CY2023
BaaS FDIC Community
Banks Banks
(n=30) (n=4,140)
% of Unprofitable Institutions 10.00% 5.24%
Yield on Earning Assets 6.74% 5.04%
Net Interest Margin 4.75% 3.39%
Credit Loss Provision to Assets 0.65% 0.12%
Net Charge-Off to Loans/Leases 0.78% 0.11%
Efficiency Ratio 62.03% 64.17%
ROE 12.35% 10.74%
ROA 1.21% 1.01%
Sources: FDIC and William Blair Equity Research
While the financial opportunity of embracing BaaS is clear, regulatory risks exist; in 2023, BaaS-
sponsored banks accounted for 13.5% of severe enforcement actions issued to U.S. banks, accord-
ing to S&P Global. Based on data from the various banking regulators, we found that the number of
enforcement actions against BaaS-forward banks has been increasing and totaled 7 in the first half
of 2024 (versus 0 in 2021, 1 in 2022, and 5 in 2023).
Cristopher Kennedy, CFA +1 312 364 8596 51
William Blair
Key risks associated with embedded finance, open banking, and BaaS include managing consumer
data, the ability to operate at scale, and determining the party accountable when an issue arises.
The ecosystem that helps power embedded finance includes consumer brands, regulated financial
institutions, and fintechs, and the lines between these entities are blurring. Each party in the eco-
system serves a unique role and must balance the risk with the opportunity.
We believe Evolve Bank and Trust highlights some of the risk of banks working with fintechs and
managing consumer data in an embedded finance ecosystem. In 2023, Evolve Bank and Trust de-
cided to exit its longstanding contract with Synapse, and as part of the wind-down process it was
discovered that Synapse Brokerage maintained irregular internal ledgers and Synapse ultimate-
ly filed for bankruptcy in April 2024. Separately, in May 2024, Evolve Bank experienced a data
breach. Through a malware attack, criminal organization LockBit gained access to Evolve’s sys-
tems and leaked customer data, including social security numbers, account numbers, and contact
information of both Evolve’s personal banking customers and the customers of its open banking
partners; at this time, reports suggest impacted fintechs include Affirm, Branch, EarnIn, Marqeta,
Melio, Mercury, and Wise. The announcement of the breach came on the heels of Evolve receiving
a consent order from the Federal Reserve in June, which scrutinized practices within the bank’s
open banking division.
Embedded finance is a massive opportunity, and among the purer plays within our coverage, Mar-
qeta is a clear beneficiary of the trend. Through a series of platform investments, new leadership,
and changes in go-to-market strategy, the company has become increasingly focused on powering
embedded finance; management sizes the revenue opportunity at $22 billion today, growing at a
19% compound annual rate through 2026 to $55 billion. Management views embedded finance
as the next leg of growth for the company and recent trends have been encouraging; embedded
finance accounted for 35% of bookings in the 12 months ended September 2023. Initial areas
of focus within embedded finance include 1) accelerated wage access (AWA), 2) B2B, and 3) co-
branded credit. Comparisons should begin to normalize in the September quarter as it passes
the anniversary of the Block contract, and the company has a strong debt-free balance sheet with
$1.2 billion of cash (40% of market cap).
In addition to the purer-plays on embedded finance (Marqeta, Green Dot), several companies un-
der coverage are focused on enabling embedded finance.
• Networks: Visa acquired Tink/Pismo, while Mastercard acquired Finicity/Nets/VocaLink.
• Banktech providers: FIS recently launched Atelio, which enables developers, corporate cus-
tomers, and third parties to access FIS’s infrastructure to power embedded finance initiatives.
Finxact (owned by Fiserv) helps power Walmart’s Even app, which is a neobank initiative for
employees and includes features such as early earned wage access, budgeting, and saving
tools; the platform has nearly 900,000 active members. Q2’s Fabric and Helix offerings power
embedded finance experiences, and the company’s Innovation Studio enables banks to embed
fintech solutions directly into their customer experience. The Jack Henry Platform should
enable community and regional institutions to more easily integrate with and embed open
banking powered fintech offerings.
52 Andrew W. Jeffrey, CFA +1 415 796 6896
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Secular Trend: Cross-Border Payments and Remittances
Both international trade and migration have reached all-time highs, yet the existing cross-border
payments systems in place remain ripe for disruption. International trade measured by exported
goods and services as a percent of GDP has doubled to nearly 30%, or $32 trillion (versus 15% in
the early 1970s), according to the World Bank, while international migrant stock has increased
over 80% between 1990 and 2020, to 281 million individuals, according to the United Nations.
Despite these figures, payments across borders remain a pain point as they are typically character-
ized by higher costs, slower processing speeds, higher payment declines, and limited transparency
relative to domestic payments for consumers and businesses alike.
Sizing the market is complicated due to the TAM’s large size and strong growth, lack of uniform
data, and intra-bank transactions. However, Mastercard has sized the opportunity for send at
$32 trillion, while Visa estimates that $15 trillion is addressable by fintech providers, comprising
B2B (e.g., supplier payments, professional services spend), C2B (e.g., consumer e-commerce), B2C
(e.g., refunds, payroll, insurance disbursements), and C2C (e.g., remittances). Further, Payoneer
estimates that there are over 80 million small to midsize businesses (SMBs) globally, a growing
portion of which rely on international commerce for growth.
Exhibit 34
Estimated Cross-Border Payment Flows by Type
$12.0
$10.0
Dollars Annually in Trillions
$8.0
$6.0
10
$4.0
$2.0
2.8
1.6
0.8
$0.0
B2B C2B B2C C2C
Sources: McKinsey, EY, and Visa
Banks process most cross-border transactions, but incumbent and emerging fintechs are
focused on addressing the various challenges of cross-border payments across C2C, C2B,
B2B, and B2C flows. In addition to the inefficiencies of the correspondent banking system, we
attribute the challenges of cross-border payment to several factors, including: 1) inefficient inter-
national payments infrastructure; 2) increased regulatory and compliance burden; 3) difficulties
managing the growing number of alternative payment methods, or APMs—e.g., Alipay in China, Pix
in Brazil; 4) higher fraud challenges; 5) sales and value-added tax (VAT) management; and 6) for-
eign exchange management challenges.
There are several companies in our coverage list that are focused on enabling cross-border pay-
ments, and while overlaps exist, these companies range from infrastructure players such as Visa,
Mastercard, Euronet, FIS, and Fiserv to merchant acquirers such as Global Payments and Worldpay
and emerging private companies such as Airwallex, Stripe, and Checkout.com. Select verticals and
opportunities are outlined below.
Cristopher Kennedy, CFA +1 312 364 8596 53
William Blair
Cross-Border Commerce
Juniper Research estimates that cross-border e-commerce flows totaled $1.6 trillion in 2023 and
expects this number to grow at nearly a 16% compound annual rate through 2028. In addition to
the core complexities of cross-border payments, cross-border e-commerce presents the added chal-
lenges of acquiring foreign consumers through digital channels, presenting pricing and checkout
flows relevant to local consumers, tax and royalty challenges, and order fulfillment and returns. Data
points illustrating these challenges are bountiful: 1) international traffic constitutes roughly 30% of
total e-commerce web traffic but only 5% to 10% of e-commerce sales, according to Global-e, and
2) 52% of international merchants report international payment authorization rates below 80%,
according to a survey conducted by Bluesnap, which compares to an 85% approval rate for card-not-
present transactions and a 96% approval rate for card-present transactions.
A variety of public and private fintechs are addressing these challenges, and in our coverage no-
table mentions include PayPal, Nuvei, Payoneer, Flywire, and Worldpay (45% owned by FIS). Out-
side e-commerce, Flywire has developed a proprietary global payments network and vertically
integrated software to enable the acceptance of high-value, complex payments such as within edu-
cation and high-end travel, which represent $660 billion and $530 billion markets, respectively.
Cross-Border B2B Payments
Like domestic B2B payments, cross-border B2B payments remain dominated by traditional financial
institutions, which in our view creates a large opportunity for cross-border-focused fintechs to better
serve the market by digitizing flows and adding value through software. Cross-border B2B payments
merge the core challenges of cross-border with the outsized use of paper, tedious accounts receiv-
able (AR) and accounts payable (AP) processes, and manual reconciliation efforts of B2B payments.
Payoneer is a leading modern cross-border commerce enablement provider that has been diversify-
ing into value-added services like cards, AR/money-in service, working capital, B2B, and checkout.
About 26% of Corpay’s revenue is from its corporate payments segment, about 60% of which is
focused on cross-border payments. This business has been built through a series of acquisitions,
including Cambridge ($675 million), AFEX ($460 million), Global Reach ($103 million), and the
pending acquisition of GPS Capital Markets for $725 million (roughly 16 times 2024 EBITDA).
Global Remittances
The World Bank sizes total formal channel (e.g., money transfer operators and banks) remittance
volume at $857 billion globally, but the informal channel (e.g., cash sent through travelers) is at least
the same size, if not multiples larger. The remittance market is highly fragmented between global
money transfer operators (MTOs), regional MTOs, and traditional financial institutions. Consider
that Western Union maintains the largest share at 10% to 15% of the formal market, but a smaller
share when including the informal channel. While macro factors such as oil production and prices
can have impacts on migrant flows, and thus outward remittance volumes, remittance funds are pre-
dominantly used for daily living expenses and as a result, remittances are largely nondiscretionary.
Our work suggests that the remittance market is much larger and more fragmented than most inves-
tors understand, and that the market should support multiple winners. This said, within our coverage,
we believe that Remitly is best positioned to capture share within the remittance market and believe
the company is in the early innings of a long-term, high-growth story. Remitly has significant growth
opportunities in both existing send countries (31 total) and new markets, and in our view, the com-
pany has industry-leading technology and customer service, differentiating it from legacy peers.
54 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Despite concerns of a “race to the bottom,” industry pricing has remained stable since the
pandemic and provider considerations go beyond cost; providers that excel in speed, con-
venience, ease of use, additional features, and brand trust/loyalty should be able to sustain
premium pricing and take share. As we outlined in our recent industry report (see note), pricing
is complex as it is influenced by several factors such as channel, dollar amount sent, and speed, but
in general financial institutions remain the most expensive way of sending money, followed by MTOs
and digital providers. Further, while still below pre-pandemic levels, remittance pricing from MTOs
has been relatively stable to slightly increasing in 2023 across digital and retail channels. Further,
we believe that the ability of digital-first, customer-centric providers, such as Remitly, to charge pre-
mium pricing in large and mature corridors supports our view that the money remittance industry
is not a commodity (see note). Digital providers have taken share, but we believe adoption is still in
its early stages. We encourage investors to consider that Remitly has just 2% share of the $1.8 tril-
lion market, while estimates from the Visa Economic Empowerment Institute suggest digitally sent
remittances (including through legacy players) accounted for 57% of formal volumes.
Exhibit 35
Average Global Cost of Sending $200 USD Through MTO
by Channel
(as a percentage of $200)
8.0%
7.0%
6.0%
5.0%
4.0%
6.8% 6.7% 6.6% 6.7% 6.4% 6.4% 6.7%
3.0%
5.5% 5.5% 5.3% 4.8% 4.7% 4.8% 4.9%
2.0%
1.0%
0.0%
2017 2018 2019 2020 2021 2022 LTM
Sept-23
Retail Digital
Sources: The World Bank, Remittance Prices Worldwide, available at http://remittanceprices.worldbank.org, and William Blair Equity Research
In our view, planned entries and incremental investments in remittance from large con-
sumer-facing fintechs highlight the attractiveness of the space. Still, multiple hurdles to
entry exist, which create opportunities for scaled remittance providers and the networks.
Block (see note), PayPal (see note), Coinbase, and X, among others, have announced plans to en-
ter or further invest in the space in recent periods, but entering the market is challenging given
the highly regulated nature and the time and capital investments required to build networks at
scale. Further, the introduction of cryptocurrencies into the remittance ecosystem is not new, and
according to 2021 testimony to the United States Senate, Alexis Goldstein (director of financial
policy, Open Markets Institute) suggested that the cost of converting crypto to fiat currencies can
be prohibitive. Given these barriers, remittance providers have essentially white labeled their
in-house systems for third-party consumption. For example, Euronet’s Dandelion offering helps
power Remitly, Xoom, and Zepz/WorldRemit; Visa Direct and Mastercard Send are leveraged by
various remittance providers to disburse funds directly to cards; and Remitly has suggested op-
portunities exist for third parties to leverage its platform.
Cristopher Kennedy, CFA +1 312 364 8596 55
William Blair
Appendix
Exhibit 36
Corpay (CPAY) Estimated NTM P/E
28x
27x
26x
25x
24x
23x
22x
21x
NTM P/E
20x 20x
19x
18x
17x 17x
16x
15x
14x
13x 13x
12x
11x
10x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: Corpay company reports. FactSet, and William Blair Equity Research
Exhibit 37
Fiserv (FI) Estimated NTM P/E
28x
27x
26x
25x
24x
23x
22x
NTM P/E
21x
20x 20x
19x
18x 18x
17x
16x 16x
15x
14x
13x
12x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: Fiserv company reports. FactSet, and William Blair Equity Research
56 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Exhibit 38
Global Payments (GPN) Estimated NTM P/E
30x
29x
28x
27x
26x
25x
24x
23x
22x
21x
NTM P/E
20x
19x 18x
18x
17x 17x
16x
15x
14x
13x
12x
11x
10x
9x
8x 8x
7x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: Global Payments company reports. FactSet, and William Blair Equity Research
Exhibit 39
Mastercard (MA) Estimated NTM P/E
50x
48x
46x
44x
42x
40x
38x
NTM P/E
36x
34x 35x
32x
30x
28x 28x
26x
24x 25x
22x
20x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: Mastercard company reports. FactSet, and William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 57
William Blair
Exhibit 40
PayPal (PYPL) Estimated NTM P/E
70x
66x
62x
58x
54x
50x
46x
NTM P/E
42x
38x
34x
30x 31x
26x 26x
22x
18x
14x 14x
10x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: PayPal company reports. FactSet, and William Blair Equity Research
Exhibit 41
Visa (V) Estimated NTM P/E
40x
39x
38x
37x
36x
35x
34x
33x
32x
NTM P/E
31x
30x
29x 29x
28x
27x
26x
25x
24x 24x
23x
22x
21x
20x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: Visa company reports. FactSet, and William Blair Equity Research
58 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
Exhibit 42
WEX (WEX) Estimated NTM P/E
35x
34x
33x
32x
31x
30x
29x
28x
27x
26x
25x
24x
NTM P/E
23x
22x
21x
20x
19x 19x
18x
17x 17x
16x
15x
14x
13x
12x
11x
10x 10x
9x
8x
NTM P/E Pre-COVID Average Post-COVID Average
Sources: WEX company reports. FactSet, and William Blair Equity Research
Cristopher Kennedy, CFA +1 312 364 8596 59
William Blair
The prices of the common stock of other public companies mentioned in this report follow:
Affirm Holdings, Inc. $33.46
Amazon.com, Inc. (Outperform) $193.02
Apple Inc. $234.82
Bank of America Corporation $44.13
Booking Holdings Inc. $4,119.09
Coinbase Global, Inc. $251.49
Deutsche Bank AG $16.54
JPMorgan Chase & Co. $213.62
Shift4 Payments, Inc. $73.10
Shopify, Inc. (Outperform) $69.72
U.S. Bancorp $43.29
Walmart Inc. $69.99
Wells Fargo & Company $60.24
60 Andrew W. Jeffrey, CFA +1 415 796 6896
William Blair
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61 | Andrew W. Jeffrey +1 415 796 6896
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62 | Andrew W. Jeffrey +1 415 796 6896
Equity Research Directory
John Kreger, Partner Director of Research +1 312 364 8612 Scott Hansen Associate Director of Research +1 212 245 6526
Kyle Harris, CFA, Partner Operations Manager +1 312 364 8230
CONSUMER Life Sciences
Sharon Zackia, CFA, Partner +1 312 364 5386 Matt Larew, Partner +1 312 801 7795
Group Head–Consumer Life Science Tools, Bioprocessing, Healthcare Delivery
Lifestyle and Leisure Brands, Restaurants, Automotive/E-commerce Andrew F. Brackmann, CFA +1 312 364 8776
Jon Andersen, CFA, Partner +1 312 364 8697 Diagnostics
Consumer Products Max Smock, CFA +1 312 364 8336
Phillip Blee, CPA +1 312 801 7874 Pharmaceutical Outsourcing and Services
Home and Outdoor, Automotive Parts and Services, Discount and
Convenience INDUSTRIALS
Dylan Carden +1 312 801 7857 Brian Drab, CFA, Partner +1 312 364 8280
E-commerce, Specialty Retail Co-Group Head–Industrials
Advanced Manufacturing, Industrial Technology
ECONOMICS Ryan Merkel, CFA , Partner +1 312 364 8603
Richard de Chazal, CFA +44 20 7868 4489 Co-Group Head–Industrials
Building Products, Specialty Distribution
ENERGY AND SUSTAINABILITY
Louie DiPalma, CFA +1 312 364 5437
Jed Dorsheimer +1 617 235 7555
Aerospace and Defense, Smart Cities
Group Head–Energy and Sustainability
Generation, Eficiency, Storage Ross Sparenblek +1 312 364 8361
Diversiied Industrials, Robotics, and Automation
Tim Mulrooney, Partner +1 312 364 8123
Sustainability Services
TECHNOLOGY, MEDIA, AND COMMUNICATIONS
FINANCIAL SERVICES AND TECHNOLOGY Jason Ader, CFA, Partner +1 617 235 7519
Co-Group Head–Technology, Media, and Communications
Adam Klauber, CFA, Partner +1 312 364 8232
Infrastructure Software
Group Head–Financial Services and Technology
Financial Analytic Service Providers, Insurance Brokers, Property & Arjun Bhatia, Partner +1 312 364 5696
Casualty Insurance Co-Group Head–Technology, Media, and Communications
Andrew W. Jeffrey, CFA +1 415 796 6896 Software as a Service
Fintech Dylan Becker, CFA +1 312 364 8938
Cristopher Kennedy, CFA +1 312 364 8596 Software, Software as a Service
Fintech, Specialty Finance Louie DiPalma, CFA +1 312 364 5437
Jeff Schmitt +1 312 364 8106 Government Technology
Wealthtech, Wealth Management, Capital Markets Technology Jonathan Ho, Partner +1 312 364 8276
Cybersecurity, Security Technology
GLOBAL SERVICES
Maggie Nolan, CPA, Partner +1 312 364 5090
Tim Mulrooney, Partner +1 312 364 8123
IT Services
Group Head–Global Services
Commercial Services, Stafing Jake Roberge +1 312 364 8056
Andrew Nicholas, CPA +1 312 364 8689 Software, Software as a Service
Consulting, HR Technology, Information Services Ralph Schackart III, CFA, Partner +1 312 364 8753
Trevor Romeo, CFA +1 312 801 7854 Internet and Digital Media
Stafing Stephen Sheldon, CFA, CPA, Partner +1 312 364 5167
Vertical Technology – Real Estate, Education, Restaurant/Hospitality
HEALTHCARE
Biotechnology EDITORIAL AND SUPERVISORY ANALYSTS
Tim Lugo, Partner +1 415 248 2870 Steve Goldsmith, Head Editor and SA +1 312 364 8540
Group Head–Biotechnology Audrey Majors, Editor and SA +1 312 364 8992
Sami Corwin, Ph.D. +1 312 801 7783 Beth Pekol Porto, Editor and SA +1 312 364 8924
Andy T. Hsieh, Ph.D., Partner +1 312 364 5051 Lisa Zurcher, Editor and SA +44 20 7868 4549
Myles R. Minter, Ph.D. +1 617 235 7534 Mubasil Chaudhry, Editor and SA +44 20 7868 4453
Matt Phipps, Ph.D., Partner +1 312 364 8602
Healthcare Technology and Services
Ryan S. Daniels, CFA, Partner +1 312 364 8418
Group Head–Healthcare Technology and Services
Healthcare Technology, Healthcare Services
Margaret Kaczor Andrew, CFA, Partner +1 312 364 8608
Medical Technology
Brandon Vazquez, CFA +1 212 237 2776
Dental, Animal Health
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