This Payment Provider Is Making All The Right Moves
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There has been a dynamic shift in the use of payment systems lately. Cash payments have become obsolete especially with the popularity of online shopping. This has led to an emergence of the electronic payment industry where technology plays a key role. Whenever new technology emerges, the older technologies will suffer unless they adapt to the change. This makes the industry quite unpredictable.
An eminent industry player is the payment provider VeriFone Systems (NYSE: PAY) which has been posting great results for the last two years but still ends up losing on its stock price. Though its third quarter results grew, investors punished its share price resulting in a 10% fall.
Into The Quarter…
Driven by service segment’s exceptional performance, revenue surged 56% to $493 million which came slightly below market estimates. The company was on a buying spree until last quarter, which increased its top line all the more. However, even if we exclude the effect of acquisitions, revenue grew by a remarkable 16%. Earnings continued with its streak of beating estimates and stood at 75 cents per share on an adjusted basis.
The results were largely affected by a strengthening of the U.S. dollar, which led to lower overseas revenue. Another setback during the quarter was losses suffered due to fire at its staging and repair center in Brazil. This led customers to switch to rivals for the services. Nonetheless, VeriFone’s strong performance throughout its several geographic regions enabled it to perform well in spite of the obstacles faced. Among all the geographies, Europe was an outperformer because of the company’s recent acquisitions of Hypercom Corporation and Point.
Things to Look Forward To
In fact, VeriFone’s acquisition of Point has been a very beneficial one since Point’s leading position among the payment service providers in Europe helped the acquirer expand its footprint smoothly. With the help of the buyout, the company could expand into as much as 11 new countries with an already wide network of merchants. Since Point has been well integrated into its business, VeriFone will be able to reap greater benefits going forward. Point’s potential was affirmed when it announced that it will be providing payment services to McDonald’s online ordering system.
VeriFone’s partnership with eBay’s subsidiary PayPal is also expected to be fruitful. The company teamed up with its rival to make PayPal available in all of its retailer’s checkout lanes which will provide an extra option of payment for shoppers. A similar partnership with Google had been quite successful last year. For adding Google’s payment services, VeriFone had updated 40,000 Point Of Sale systems which Google benefited from in a large way. But partnership with eBay is larger than the previous one providing additional time saving option to the customers.
However, both the industry players are facing stiff competition from the private player Square. Square has been posing a threat especially with its recent deal of mobile payments with Starbucks. The deal will enable the use of mobile payments in Starbucks’ more than 7,000 stores. In fact, mobile payments seem to be an upcoming thing which if not explored by VeriFone can be a major block in its success.
VeriFone has been working on it so that it can provide customers with the facility of payment though their smart phones which can be used anywhere including retail locations and taxicabs. Its deal with Columbia’s Taxicab Commission to have payment devices in taxicabs can be a project to look forward to. This will also be a potential advertising strategy of the payment provider.
Well Stacked Against Its Rival
VeriFone Systems’ arch rival NCR Corporation (NYSE: NCR) has also been doing well. But when we look at the trailing P/E multiples of the two players we find that VeriFone is cheaper compared to its competitor. Its P/E multiple of 15.1 is much lower than NCR’s multiple of 32.69. Even PEG ratio (an indication of how fast a company is expected to grow and should ideally be lower) of 0.47 is lower than NCR Corporation’s ratio of 0.6 which shows that analysts expect VeriFone to grow faster. Hence, the company looks attractive on the valuation front.
VeriFone’s performance has been exceptionally great with strong earnings growth each time. Moreover, its margins have also been expanding which is appreciable. It has a strong market presence and its expansionary moves make it even more attractive. Most importantly, the electronic payment provider continues to strategize and try out new ways to increase its long list of customers. Its attractive valuation, strong growth prospects and dynamic nature makes it a potential candidate for long run. Investors should definitely take notice.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of Google, VeriFone Holdings, and Starbucks and is short Starbucks. Motley Fool newsletter services recommend eBay, Google, and Starbucks. 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.