Payfare looks to power the gig economy, says Eight Capital

Eight Capital analyst Adhir Kadve believes Payfare (Payfare Stock Quote, Chart, News, Analysts, Financials TSX:PAY) could be a moneymaker in the gig economy industry, initiating coverage with a “Buy” rating and target price of $17/share for a potential return of 51 per cent in a September 7 update to clients.

With its operations headquartered in Toronto, Payfare is a financial technology company which provides instant payment and mobile banking solutions to gig economy workers through its namesake platform.

Kadve believes the company has consolidated a strong position for itself and is well equipped for continued growth.

“Payfare has established first mover advantage in the Gig economy, and we believe it has an unmatched value proposition given that it offers Gig workers access to their wages at no cost,” Kadve said.

As Kadve explains, the idea for the company first came to be in 2015 as the company’s co-founders sat in the back of an Uber, and it has since grown to include more than 50 employees, and completed its initial public offering earlier this year.

Payfare’s client list includes three major brands in Uber, with whom the company’s Canadian branch initially signed in 2016; Lyft, with whom the company signed in 2019 and launched its Lyft Direct program specifically catered to Lyft drivers; and DoorDash, with whom the company has been affiliated since October 2020 through the DasherDirect program. Both the Lyft and DoorDash programs are only in the United States right now but plans do call for future expansion into Canada and Australia.

More recently, the company announced a partnership with MasterCard to integrate its MasterCard Send platform into Payfare solutions, as well as with Marqeta to leverage the latter’s card issuing platform, which is used in 36 countries, to help expand Payfare’s reach on a global basis.

Payfare also recently announced certification through the Visa Ready Fintech Enablement Program, which provides partners like Payfare with access to Visa’s growing partner network through top of funnel awareness, go-to-market support to uncover new markets and newly launched Visa products and solutions.

As the company provides its platform free of charge to gig platforms, who then allow its workers to use it free as well, the company’s revenue comes from interchange fees, which account for 60 per cent of total revenue, and user activity fees like ATM fees, transfers and foreign exchange.  

The company’s second quarter financial results, which were announced on August 16, were highlighted by revenue of $8.7 million, a 73 per cent sequential increase and 263 per cent year-over-year growth, with the company noting the national launch of the DasherDirect U.S. program as a contributing factor.

Payfare also reported a sharp rise in new users, with its active user count of 262,567 representing a 79 per cent sequential increase and 618 per cent year-over-year growth, with an additional 15 per cent uptake since the end of the second quarter alone.

“As the workforce looks to move beyond the COVID-19 pandemic, workers are joining the gig economy seeking flexibility in how, when and where they work. They’re also seeking flexibility in how they’re paid, and we’re continuing to see high demand for instant and automatic pay solutions,” said Marco Margiotta, Payfare CEO and Founding Partner in the company’s August 16 press release. “Further, within the past quarter, Payfare has activated a number of key partnerships that are opening up new revenue streams while increasing our global reach. Together, all these factors have provided a foundation for tremendous second quarter growth, and we are well-positioned to continue that expansion into the second half of 2021.”

Kadve believes Payfare is on an upward growth trajectory, as he projects revenue of $41.1 million for 2021, marking a 206 per cent potential year-over-year increase against the $13.4 million the company reported for 2020. 

Furthermore, Kadve believes the momentum will continue to 2022, where he projects revenue to hit $109.7 million for a potential 167 per cent year-over-year increase. 2022 is also when Kadve projects the company’s adjusted EBITDA will be positive for the first time, with the $4.5 million projection an improvement upon the projected $8.6 million loss for 2021 while representing a 4.1 per cent margin.

From a valuation perspective, Kadve believes Payfare profiles as an attractive investment, with the EV/Sales multiple forecast to drop from the 2020 reported figure of 38.5x to a projected 12.6x in 2021, then to a projected 4.7x in 2022.

“We believe that the scalability and versatility of its platform, enhanced via strategic partnerships with Mastercard and Marqeta and with strong reference customers such as Uber, Lyft and DoorDash, has set up Payfare for ongoing growth seeing as the platform can service nearly any mass workforce,” Kadve said.

Overall, Payfare’s stock price has risen by 75.3 per cent for the year to date, topping out at a high point of $13.43/share on July 14.