In this clip from "The Future of Fintech" on Motley Fool Live, recorded on Feb. 10, Motley Fool contributors Matt Frankel, Jason Hall, and Will Healy discuss their IPO approaches and the factors they weigh when deciding to either invest early or wait one year to evaluate the business's financials and management's performance.
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Matt Frankel: In viewing [Block, Inc.] Square (NYSE: SQ) and its ecosystem, do you ever consider a peer comparison with Adyen (OTC: ADYE.Y) or Stripe? Stripe is also considering a 2022 IPO debut, and is this a factor at all in your investing among the three?" There's a lot to unpack there. For those who don't know, Adyen is a payment processor that primarily focuses on larger companies. I don't view them as a direct competitor to Square in that sense. They're starting to creep into the small and medium-sized business space but not very much, and even mid-sized businesses make up less than 2% of their payment volume. Their customers are like Microsoft (NASDAQ: MSFT) and Etsy (NASDAQ: ETSY), and they were the one that stole eBay's (NASDAQ: EBAY) account away from PayPal (NASDAQ: PYPL) as their primary payment processor. I don't set money aside because I think a company is going to go public like Stripe. I don't know about you guys, but I don't set money aside for pending IPOs. I would have to see what their valuation is going to be and what their business looks like because right now we don't know what their growth numbers look like. It could be a terrible investment for all I know. But I don't know, guys, what do you think about the three as investment opportunities and do you allocate less money to one in anticipation of maybe buying into some of the others. What do you think about it?
Jason Hall: One thing I want to say, I don't really think of Adyen as really like a peer to Square. Yeah, on the payments, they are providing the same services. But like Matt said, they are servicing very different cohorts and, also, Adyen is European and it doesn't hold a U.S. bank charter under any of its subsidiaries. There's two different platforms and I think that was the reason Square renamed itself Block. It wanted to differentiate the Square merchant services ecosystem and banking for businesses from what it wants to do on the consumer side. I think that was a differentiation there. It's, again, more of a pure-play. Again, they do target different markets. I haven't studied Adyen's business close enough to really make a comparison, but I agree completely with Matt on Stripe. I started learning to take more of the Danny Vena's school to IPOs, give them a year, let companies go public, give it time, put management in that quarterly spotlight. How do they handle it? Actually learn about their books, learn about the trajectory of their business, their GAAP and non-GAAP reporting, and then it's a little easier to evaluate.
Will Healy: I've been around enough to see a lot of potential IPOs fizzle. I want to see numbers first and we haven't seen that yet. Until we even see numbers, I'm not interested, frankly.
Frankel: I will say, to piggyback on what Jason said about the wait one year plan, my most successful investment of all time, until the recent downturn, was Square, which I bought three days after its IPO. I use the Peter Lynch method of analyzing Square. Invest in what you know. One day, I went to my local artisan market and a year before no one accepted credit cards and, all of a sudden, everyone was accepting credit cards.
Hall: Everybody had a Square terminal.
Frankel: Everyone had a Square terminal and I said, they're really on to something. I bought some shares. It was a small investment at the time, but it became a big position in my portfolio especially when it peaked. I think it was $285 earlier in 2021. But, I don't necessarily wait to buy an IPO. I do want to see the numbers though like Will just said. I want to see, especially with a company like that, Stripe is so consumer-facing in that sense. You're processing your payments through them when you go to buy things. I want to see visible trends of that being picked up more and more, which is really why I bought into Square so soon after its IPO.
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Jason Hall owns Block, Inc., Etsy, and SoFi Technologies, Inc. Matthew Frankel, CFP® owns Block, Inc. and SoFi Technologies, Inc. and has the following options: short January 2024 $200 calls on Block, Inc. Will Healy owns Block, Inc. and PayPal Holdings. The Motley Fool owns and recommends Adyen N.V., Block, Inc., Etsy, Microsoft, and PayPal Holdings. The Motley Fool recommends Adyen and eBay and recommends the following options: short April 2022 $62.50 calls on eBay. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
