Weekly Update September 15-19
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Paymentus is the plumbing behind the “Pay Now” button on household bills. Utilities, insurers, governments and banks plug into its platform, show customers the amount due, then route cards or ACH through its network. Each time money moves, Paymentus keeps a small transaction fee, and billers pay a subscription to stay connected.
Growth has three levers. First, land new billers. The company serves about 2,500 today, a sliver of the tens of thousands of US entities that mail recurring invoices. Second, widen distribution. Bank partners gained through the Payveris deal bring millions of payers onto the rails without extra sales cost. Third, deepen wallet share. As existing billers turn on more payment types and channels, Paymentus captures a higher take per customer. Legacy processors like Fiserv, FIS and ACI Worldwide focus on batch bank payments, leaving an opening for Paymentus’s real-time API that bundles bill presentment and payment.
Today’s valuation is around $5 billion, which is very high on near term earnings multiples. However, revenue growth is still over 40% and the TAM is gigantic. Frankly, I do worry about the tough Q3 and Q4 comps and margin compression. This sort of payment function is a scale game so it makes sense why the company could sacrifice margin for volume. I would expect more of the same in the future. This is why this is a tough stock to look at because I’m not quite sure what margins at maturity will be. At the same time, the switching costs are notable, there is a founder/CEO at the helm and the focus on stodgier companies means there is considerable inertia for changing platforms. If we do get a sell-off on weak Q3 numbers because of comps, I would be more interested but it’s on my watchlist.