Looking Beyond the Face Value of VeriFone Systems’ Results
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The announcement of second quarter results of the electronic payment company, VeriFone Systems (NYSE: PAY), made its shares plunge by almost 8%. The results did not meet the Street’s expectations and the company provided a weak outlook for the next quarter and for the fiscal year. But is this the real picture of the financial results of the company? Let’s find out.
A valuable performance with a grain of salt
Revenue for the quarter reached $472 million, shooting up an impressive 61% compared to the same period last year. But the earnings for the quarter were 13 cents per share, a drop of 52% over the past year. After getting rid of all the costs related to acquisitions and other restructuring charges the company posted a profit of 64 cents per share. Moreover, the credit card payment terminal provider has been enjoying a double digit increase in revenues continuously for more than a year now. But this quarter’s revenue growth was a record setting one. In fact, the company’s bottom line came in the green after it had registered losses in its fourth quarter results of 2011.
Getting into the financial performance a little further, there are some more good numbers to be seen. The total revenue growth was comprised by both the system solutions product sales and service revenue which grew by 45% and a mind boggling 130%, respectively.
In spite of all the positive factors working for the company, the outlook for VeriFone’s results was not very favorable leading to disappointment among investors. For the third quarter, the company projected revenue between $495 million and $500 million whereas the expectations were $502.2 million. The revenue was also hurt because of other currencies, especially the euro, becoming weak against the dollar. This is a trend that may well continue to affect VeriFone’s revenue from the overseas markets.
Host of acquisitions – a key strategy
VeriFone has been engaged in a number of acquisitions in the last one year in order to expand its geographical presence and product offerings. Among the most recent ones are the acquisition of Hypercom Corporation (UNKNOWN: HYC.DL) and Point. Hypercom’s acquisition last August was made to expand VeriFone’s presence in the European market and to accelerate its efforts to expand globally. With the acquisition of Point, an e-payment giant in Europe, the electronic payment solutions provider expanded its payment and gateway services to make it easy for retailers to accept all types of payments. The aim here, again, was to increase its footprint in the European market. The effort paid off since the company witnessed an increase of 113% in European revenue.
The mPOS (mobile point of sale) technology market leader has also announced that it will partner with PayPal, a subsidiary of eBay (NASDAQ: EBAY), to bring PayPal to all of its retailers’ checkout lanes. This will give customers an additional option to pay through PayPal card at the checkout counter. The partnership is made in direct competition with Google (NASDAQ: GOOG) which had launched a similar payment service in partnership with VeriFone last year. VeriFone had updated almost 40,000 POS systems in order to add the payment services by Google.
Bottom Line
VeriFone’s performance has been remarkable and the company has impressively managed to bring its results at record making highs and that too the recovery was made from huge losses. All thanks to its acquisition spree which has expanded company’s presence. Also, the increasing popularity of mobile point of sale technology has driven the revenues north. I don’t mind to have an eye on the stock.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Google and VeriFone Holdings. Motley Fool newsletter services recommend eBay and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
