Canadian payments processing technologies firm Nuvei‘s (TSX: NVEI) stock price gained nearly 12% on Wednesday morning after reporting revenue growth that exceeded market expectations. NVEI stock has gained more than 44% in value so far this year. Shares may sustain the recent recovery momentum well into 2023, especially if management continues to execute for growth.
Early gains on NVEI stock in 2023 are plausible. Shares bottomed out in January. However, it’s what comes next after Nuvei’s latest earnings that will determine how the stock will trend going forward. For guidance, we got some hints from the latest earnings installment.
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What happened
Nuvei’s reported 4% year-over-year growth in fourth-quarter revenue to US$220.3 million. This performance was close to the upper end of management’s upped guidance range of US$197-227 million for the quarter, and slightly better than analyst estimates for US$219.4 million. On a constant currency basis, revenue growth was much higher at 10% year over year to US$235 million.
Net earnings per share at US$0.06 per diluted share for the quarter were 14% lower than last year’s print, and missed analyst estimates of US$0.08 per diluted share. However, on an adjusted basis, earnings per share were flat year over year at US$0.47, and much better than the market’s average estimate of US$0.44.
As we zoom out into the bigger picture, investors in Nuvei stock saw annual revenue for 2022 grow by 16% year over year to US$843.3 million, or by 22% in constant dollars to US$883.9 million. However, net income took a knock as selling, general and administrative expenses surged from being 59.5% of revenue in 2021 to gobble 70% of revenue in 2022. Net income declined 42% sequentially.
The company has faced persistent challenges due to recent volatility in digital assets and cryptocurrencies, and losses flow to the bottom line.
What’s next after Nuvei’s latest earnings?
Executives at Nuvei remain upbeat about the company’s growth prospects. Management guides for a strong 45% increase in annual revenue for 2023 to US$1.3 billion. This outlook exceeds analysts’ projections for US$1.2 billion for this year. Although acquisitions will have a big role in engineering that growth, executives anticipate organic revenue growth (at constant currencies) of between 23% and 28% for 2023, excluding any impact of digital assets and crypto.
I consider constant currency-based performance measures a better reflection of the company’s performance, and management’s execution. This is simply because neither Nuvei, nor any other company, can influence how foreign currency exchange rates move.
Notably, the law of large numbers is now at play at Nuvei. Following the recent Paya acquisition, the company has adjusted its medium-term annual revenue growth target down from 30%+ to 20%+ annually as the business matures. Capital expenditures will keep growing with revenue as the company invests 4% to 6% of annual sales back into sustaining and growing operations.
Nuvei is shifting away from using total payment volumes as a planning target. Although transaction volumes should continue to surge in 2023, the company no longer considers volumes as a performance target. Management added capital expenditures to its targets instead.
Investors should take note that, out of the cash balance of US$752 million on December 31, 2022, the company subsequently used US$616 million to fund part of its US$1.3 billion acquisition of Paya in February this year.
Cash resources may have gone down in 2023. The company may not be able to afford another share repurchase or big acquisition in 2023.
Should you buy NVEI stock?
Growth-oriented investors still find Nuvei a good growth stock to buy at current valuations for good reason. The company remains a proven, innovative, and profitable business that’s still growing at a double-digit clip, thanks to continued innovation, a geographical expansion strategy, and accretive acquisitions.
Nuvei has been able to sustain its cash flow generation power and will be able to internally fund growth projects without resorting to the capital markets. Unlike other beaten-down tech stocks that still rely on shareholders to fund their operations (and business experiments), the company generates positive free cash flow and can self-fund its capital expenditures going forward.
Interestingly, Nuvei’s cash flow generation power hasn’t diminished as profitability levels took a knock in 2022. Cash flow is the lifeblood of any organization. To investor’s delight, Nuvei has plenty of options for deploying internally generated capital.
