We haven’t had a chance to talk about an important deal that happened last month. So we’ll talk about it now. The deal involved a “blank-check” investment group, aka special purpose acquisition corp., or SPAC, pouring more than $1 billion into the Tel Aviv/New York payments company Payoneer.
This company is no spring-chicken. At least not when compared with other SaaS companies focused on small and medium-sized businesses. Payoneer raised its first $2 million of venture capital back in 2005. Subsequent rounds eventually totaled $270 million. The most recent of which, totaling $180 million, closed in October 2016.
Fast forward to February 2021, the company is now planning to “go public” via a SPAC organized by long-time SPAC participant Betsy Zubrow Cohen. In 2020, she raised $750 million via FTAC Olympus Acquisition Corp. When the deal is completed, the company’s will merge and Payoneer shares will trade on the Nasdaq stock exchange.
PayPal for SMBs
We dug into the company a bit more. This quote from Cohen drew us in. “It’s like a PayPal for small and medium-sized businesses, instead of consumers.” The company claims some 5 million “users” around the world who use the platform to send payments around the world. Here are some of the facts and figures we pulled from an investor presentation.
- Payoneer claims 5 million users. Though when we reviewed the notes in the presentation it said, “customer count includes all customers since launch”. One thing we know about the small business world is that thousands of small businesses that were operating in 2005, when the company launched, have since gone out of business.
- The company processed $44 billion in GMV (gross market value) on its platform last year. The company expects to process $64 billion in 2021 and $85 billion in 2022. For comparison, high-flying Shopify processed about $120 GMV in 2020. That’s about 3X Payoneer’s volume.
- The company cites 400 million global SMBs (SMEs) as its addressable market. We think this is a bit of a reach. Many SMBs among the 400 million are sole proprietorships that are unlikely to offer much in terms of transaction volume to a company like Payoneer. For argument’s sake let’s cut that figure by 75%. A 100 million SMB TAM is still massive. In particular for a company that claims 5 million users since 2005.
- $26 trillion is the company’s estimate of the global eCommerce market. Assuming all the platforms out there combined are extracting 1 percent of this volume, that would put industry revenues at about $260 billion dollars.
Along with enabling global payments for SMBs, the company also offers SMBs credit or working capital. By leveraging machine learning the company can determine the risk profile of any small business, make the loan, and trigger automatic repayments based on the capacity of the SMBs at any point in time.
When the transaction is completed the company will have more than $500 million cash on hand. We’d expect the company to use that cash to strengthen its market position by making intelligent acquisitions. Though we’re not experts, we’ve got to believe there are dozens, if not hundreds of payment platforms that could be on Payoneer’s shopping list. Additionally, it’s imaginable that Payoneer could use some of that petty cash to buy SMB SaaS solution providers that could augment Payoneer’s transaction monetization with recurring monthly SaaS revenues.
Finally, the investor deck also lays out Payoneer’s implied market value at about $3.3 billion. That would compare to Shopify’s current valuation of $164 billion or 50 times that of Payoneer. This suggests to us that something is out of sync. After all, Shopify is only three times larger than Payoneer, in GMV terms at least.
Could it be that Shopify’s $164 billion valuation is too high? Or will Payoneer’s value appreciate considerably once the transaction is completed and the stock is trading? We don’t know for sure but with a global eCommerce marketplace swelling and cross-country transactions intensifying, Payoneer is likely to make Betsy and her investors even richer in the coming months.