Scaling Adyen during another year of sustained profitable growth
Point-of-sale (POS) volume for the second half was €18 billion, comprising 13% of total processed volume compared to 11% in H2 2018. It’s exciting that something we started relatively recently is growing at such a pace. We believe this is due to the convergence of shopping channels and the increasing need for merchants to adopt a unified commerce approach, essential in this age of experiential shopping. We now have a proven track record in helping our merchants in this space.
Full-stack volume share for H2 2019 was 73%. For FY 2019, this was 72%, up from 70% for FY 2018 and 61% for FY 2017. This trend reflects our changing merchant mix, the global roll-out of our acquiring capabilities and an increased share of POS volume as a percentage of total processed volume.
The payments space continues to be buoyed by numerous tailwinds — including an increase in cross-border commerce, a continually increasing share of online traffic in global commerce and the continuous shift from cash to cashless payment methods around the world. These are a few of the wider macroeconomic trends that affect the space, and from which we also benefit.
Beyond these tailwinds, we continue to invest in order to maximize long- term value for all of our stakeholders. Retaining the flexibility to invest has always been critical to us, and in line with this philosophy we grew the team at a faster rate in the second half of 2019 — without this new hiring rate being dilutive to culture. This is something we expect to be able to maintain for the foreseeable future.
 POS volume is volume for which we are always the acquirer
In the second half of 2019, we also began the process of investing more robustly in our global reach, most notably in the APAC region. This investment has been primarily in hiring and the opening of new offices — as offering local expertise in payments and on market developments is a critical part of our promise to merchants. They can now find us in Tokyo and Mumbai — and expect the same level of support as they receive in São Paulo or New York.
Our investments in expansion into Japan and India come on the back of merchant demand. The APAC region houses over half of the world’s population and is expected to contribute more to global GDP than the rest of the world combined in 2020. Moreover, the ubiquity of mobile technology in APAC is striking — as entire generations are skipping the desktop stage of internet usage. Naturally then, the region has our merchants’ attention.
A development tangentially related to the APAC region is the unwavering advance of shopping holidays like Black Friday and Singles' Day. These days are critical to our merchants’ success and serve as a solid test for our platform and its capacity to handle peak volumes. Exposure to peak traffic on these days has given us the opportunity to validate the robustness of our platform as we continue to scale our technology.
 12/19/2019, World Economic Forum
We ramped up hiring in the second half of 2019 in order to continue supporting our merchants’ growth, adding 195 FTE. This enhanced hiring rate is primarily a result of us growing off a larger base, but also due to several improvements that we have made in the structure of our team onboarding process. These include the introduction of tech-specific onboarding, the Adyen Sales Academy and an increased frequency and reformulation of the company introduction sessions. These improvements have resulted in a higher rate of absorption for new hires, allowing us to grow the team more quickly without it being dilutive to the culture. We expect to be able to continue this approach for the foreseeable future.
As in previous periods, senior management continued to invest significant time and energy into the hiring and onboarding processes in the second half of 2019, ensuring that every new Adyen team member sees at least one board member prior to joining. We have ramped up hiring, but we will not compromise on culture.
New hires in H2 2019 were primarily in commercial (43%) and tech roles (37%).
The Adyen team totaled 1182 FTE as of December 31, 2019.
Adyen’s 2019 FTE growth
Adyen’s 2019 FTE growth
Total operating expenses were €134.1 million in the second half of 2019, up 57% year-on-year. These represented 49% of H2 2019 net revenue. For the full year, total operating expenses were €239.7 million, up 36% year-on-year, and representing 48% of FY 2019 net revenue. This increase is mainly due to employee benefits.
Employee benefits were €67.6 million in the second half of 2019, up 55% from €43.5 million in the second half of 2018. For the full year, employee benefits were €122.4, up 41% from €87.1 million in full year 2018.
The larger growth of employee benefits in the second half of the year versus the full year number is due to the ramp up of hiring in H2 2019.
Other operating expenses totaled €54.7 million in the second half of 2019, up 47% from €37.3 million in the second half of 2018. Of these, sales and marketing costs made up the largest slice, totaling €18.7 million in the second half of 2019, up 89% from €9.9 million in the second half of 2018.
For full year 2019, other operating expenses were €95.1 million, up 19% from €80.0 million for FY 2018. Sales and marketing expenses were €32.3 million for the full year, up 52% from €21.3 million in full year 2018. As we continue to expand into new geographies and extend to new verticals, we feel it is imperative that our efforts in marketing support these initiatives.
H2 2019 EBITDA was €153.5 million, up 37% year-on-year from €111.7 million in H2 2018. Full year EBITDA was €279.3 million in 2019, up €181.9 million from 2018.
EBITDA margin came in at 56% for the full year, as it continued to benefit from the positive impact of the IFRS16 accounting change. Without this impact, the EBITDA margin would have been approximately 2% lower.
Net income for the second half of 2019 was €111.5 million, up 34% from €83.0 million in the second half of last year.
Full year 2019 net income was €204.0 million, up 56% from €131.1 million in 2018.
Free cash flow was €141.7 million in the second half of 2019, up 34% from €105.4 million in the second half of 2018. Free cash flow was €259.4 million in full year 2019, up 54% from €168.1 million in full year 2018.
Free cash flow conversion ratio was 92% in the second half of 2019, down from 94% in the second half of 2018. Free cash flow conversion ratio was 93% in full year 2019, up from 92% in full year 2018.
Investments in the scalability of our data centers drove CapEx slightly up to 4% of net revenue for 2019, up 45% year-on-year from 2018. H2 2019 CapEx were also at 4% of net revenue.
H2 2019 Income statement
All amounts in EUR thousands unless otherwise stated
Enterprise volume continues to be our largest growth driver. Solving problems for these merchants is what we do best. Within the enterprise segment, the growing share of platform business models is especially noteworthy.
Enterprise volume in EUR billions. Under the previous definition of mid-market (processing up to €12 million annually on our platform), H2 2019 enterprise volume would have been €132.3 billion.
We are gaining momentum in this space on the back of shifting shopper behavior. Merchants are increasingly adopting a unified commerce approach to adapt to this new environment.
POS volume evolution, including share of total
processed volume on the platform (%) in EUR billions
We continue to invest in the mid-market segment for the long term. We have redefined mid-market merchants as those processing up to €25 million annually on our platform. In H2 2019, 3,867 merchants met this definition.
Mid-market volume in EUR billions. Under the previous definition of mid-market (processing up to €12 million annually on our platform), H2 2019 mid-market volume would have been €2.7 billion.
We continue to invest in easier access to the single platform — providing mid-market merchants with a range of options for integration.
Several merchants have moved from the mid- market to the enterprise pilar as a result of their growth on the single platform.
We are refining our mid-market approach globally, targeting the next-adjacent segment to enterprise in more markets wherein we are active.
Growing the mid-market focused sales, customer success and plugins & partnerships teams continues to be a focal point for us in hiring.