Increasing productivity gains through new machines have automated swathes of agriculture and manufacturing, driving down the relative price of their outputs. As a result, people have spent a greater share of their incomes on industries such as education, health care and recreation, which have not seen the same productivity gains. Overtime gross domestic product figures will keep getting slower owing to this and will result in a more globalized world where the next cheapest country will be targeted in an attempt to maximize lackluster profits. Artificial intelligence may one day replace some economic sectors, but there will also be industries untouched by it. Living in a utopian economy where goods are cheap, and humans are obsolete in physical domains, people will continue to dominate arts and culture.
Nuvei (TSX:NVEI, Nasdaq: NVEI) is a payments technology company based in Montreal, Canada. It offers payment solutions for companies with over 600 payment methods in over 200 countries and 150 different currencies. It has some big-name clients such as Riot Games, New Balance and GM. It offers traditional payment methods such as credit cards, alternative methods (Paypal, Klarna, Alipay) and cryptocurrencies. It has been profitable since 2021 (unlike some of its rivals) and has seen steady revenue growth from $245m in 2019 to $843m in 2022. I believe that over 2023, it will synergize its M&A division and will achieve more profit from less volume in cryptocurrencies (an issue in a previous quarter) and flat foreign-exchange rates. The US dollar strengthened against a basket of currencies over the past 12 months partly due to the Federal Reserve increasing its federal funds rate to roughly 5%, but which has since been paused (meaning the slide in revenue will stop).
-UPDATE AUGUST 20 2023-
Nuvei recently reported earnings, missing expectations and revising revenue down for the year. Shares went down some 55% bringing it close to the same evaluation as Lightspeed (LSPD:TO), a failing competitor. Lightspeed is not profitable and for the year ended March 2023 had booked net income of –1.070 billion (Nuvei had net income of 56.7 million for 2022). LSPD gets its money from high subscription fees for its ecommerce platform, while Shopify (arguably the market leader) uses a mix of lower subscription plus a percentage of credit card sales. Shopify dominates ecommerce in North America and has recently been hammered for its investment choices, Mercadolibre faces stiff competition in Latin America and only really dominates Argentina, and Sea Limited dominates South-East Asia but its cash cow gaming segment is being crushed under a Indian government ban. Adyen N.V., a european rival, could also acquire Nuvei to expand its North American business (which it has been struggling with). Nevertheless, Nuvei is making inroads anywhere it can and I think the Q2 sell-off was a huge over-reaction to the company’s results.
Both Lightspeed and Nuvei have been targets of short sellers. But the case against Lightspeed I think is much stronger. In 2021, it was accused of “has covered up massive inflation of its Total Addressable Market (TAM), customer counts, and Gross Transaction Volume (GTV).” It turned out to be true earlier this year. But accusations against Nuvei (ex: covering up a pattern of business failures and lack of organic growth) have largely stalled based on realities of the business, cherry-picked historical data as well as new evidence of the company’s performance. Nuvei is trying to establish a global footprint both through acquisitions and organic growth. And although Q2 2023 didn’t live up to market expectations, Nuvei will still be growing at a fast clip with guidance for the next three to five years at 15-20% annual revenue growth, with higher revenue comes greater profits and that will help prop up a new 1.67%-yielding dividend that has been added in Q2 2023.
Disclaimer: I own and recommend shares of Nuvei.
Devlin Demontigny 