The Mobile Wallet: Investing in the Way We Pay

By Kyle Metivier - August 10, 2012 | Tickers: AAPL, AUTH, INTC, SBUX, V, VOD | 0 Comments

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Progress Report:  Visa (NYSE: V), mentioned on numerous occasions, most recently February 28, 2012 (“Visa Mobilizes”) when trading around $117 per share, currently around $130 per share:

I tend to get distracted by technology from time to time, much like my dogs are with squirrels, and my subscriptions to the fine folks at cnet and ZDNet don’t help one iota. But this morning’s technology rodent that buzzed across my watchful eyes came courtesy of the Grey Lady and it had me scouring through posts of yore like the one mentioned above.

The announcement of the partnership between Starbucks (NASDAQ: SBUX) and mobile payment processor Square sent my mind racing and, of course, as I always profess, had me doing a bit of homework. If you don’t want to read the New York Times piece from the link above, the partnership gets the Seattle coffee shop CEO Howard Schultz a rather comfortable chair at the Board of Directors table in San Francisco with Square. For the $25 million investment, it’s probably one of those shiatsu recliners, and the courtship has definitely been bantered about quite a bit on the TV, not unlike a Kardashian wedding (or divorce). This union definitely makes for endless possibilities, the least of which will be for those industrious hackers to siphon information from loyal customers’ smartphones.

The beauty that Schultz brought to the coffee consumer is not just the delightful brew that gets us going each morning; it was the whole “Starbucks Experience.” Now as consumers and investors, we must ask ourselves (politely), “So what?” I’m sure like many of the 16 or so of you that voluntarily read my poetic words, you probably have a relationship with the proud personnel at “Your Starbucks” as I do with “mine.” They don’t even have to label my cup anymore, cutting the cost of Sharpie pens significantly. And the prospect of merely walking through the doors, soaking in that glorious aroma, and having my carefully selected image from my iPhone, with my payment information ready on the register without having to stand in line isn’t the only catalyst for this blissful union. In case you inquisitive folks didn’t already know, the founder of Square, Jack Dorsey, also co-founded another of my addictions, Twitter. Like I said, the possibilities are infinite.

So now, faithful readers, we must keep our eyes and ears alert as to what the rest of the publicly traded pros have in store for us. Recently Apple (NASDAQ: AAPL) announced plans to acquire AuthenTec (NASDAQ: AUTH) for an exorbitant $8 per share premium, amounting to roughly $350 million. The Florida-based company specializes in mobile and network security for a number of partners, including our very own government. This recent development had more than a few people scratching their heads with visions of an iWallet on the horizon. The news sent shares of AuthenTec soaring over 60%, and the price may not be set in stone just yet, especially since there may be someone else kicking the company’s tires after this latest bit of mobile news. 

As I mentioned in my post above, Visa had announced a partnership with Intel (NASDAQ: INTC) and Vodafone (NASDAQ: VOD) earlier this year, bringing the mobile payment dreams to everyone in Europe that doesn’t have money to spend. Intel has been blessed with enough forward-thinking to focus some attention to the chips that inhabit the tsunami of smartphones, and Vodafone has barely moved from its tight 52-week trading range ($24-$30) since the announcement (up a little over $2, hitting new highs for the time span). This new wave of monetary mobility is just getting under way, so don’t leave your wallets and coin purses at home just yet. But the beauty of the potential returns with these companies falls right in line with what I have been preaching all summer: dividends. The yields aren’t as hearty as Vodafone’s (6.7%), but still respectable and worthy of mention, since loyal shareholders are paid for the virtue of patience.

Starbucks recently offered downward guidance, sending share prices tumbling, and they currently trade at almost the same levels where they started 2012. The company pays a 1.6% dividend yield, 68-cents per share annually. After their nosebleed from hitting new 52-week highs earlier this year, we may be getting close to an entry point, so I’m considering scaling into a long position on any negative press that has sellers of the stock looking like Eeyore in a button down and a $75 haircut.

I have been long Intel for many years, and the 3.4% yield is enough to keep me comfortable until we see where this takes us. At the rate we’re going, I may never sell my long Apple position, and the new 1.7% yield that starts paying this month is more icing on that cake. Visa is everywhere I want to be, but that slight 0.7% yield could definitely use an upgrade. I wouldn’t be surprised to hear word of an increase in the not-too-distant future.

So no matter how many “growth slowing” anthems we hear between now and the end of the year, the future of mobile payments is getting started. These are tiny steps down the long path of an eventual world that we’ll be wise to enjoy, and wiser to invest in, because not only does writing a check take too long, it doesn’t come with a cool photo telling your cashier who you are, your order history, or how many Twitter followers you have.

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