VeriFone (PAY) Loses One Third of its Market Cap
Credit card terminal manufacturer VeriFone Systems (PAY: Analysis) plunged nearly 40% last week after the company announced preliminary first quarter earnings that widely missed analyst estimates. For its first quarter, VeriFone expects to earn non-GAAP adjusted earnings of 47 to 50 cents per share, on revenue between $425 million to $430 million.
Analysts had expected the company to earn 73 cents on revenue of $492.5 million. Looking ahead into the second quarter, the company's forecast was just as weak, expecting non-GAAP earnings of 45 cents to 50 cents per share on revenue between $435 million to $450 million - completely missing the consensus estimate of 80 cents per share on $514 million. Daily Chart
VeriFone attributed its disastrous earnings to weakness in Europe and Brazil, economic uncertainty in Venezuela, a delayed taxi project in Washington, D.C., delayed customer spending on major projects, and higher than expected deferred revenue. However, some analysts thought that those reasons alone were not a sufficient explanation for such a wide miss. Wedbush Securities analyst Gil Luria stated, "The macroeconomic conditions are certainly not enough to explain such a dramatic shortfall." Over the past two years, VeriFone acquired LIFT Retail Marketing Technology and Swedish payment services provider Point. LIFT's main product is a digital display which is set next to cash registers as gas stations and convenience stores. The display analyzes the products in a consumer's shopping basket and suggests additional purchases based on current preferences. VeriFone believed that the technology could boost an average store's sales by 5%. Point handles point-of-sale transactions, and at the time of VeriFone's purchase, was handling over 10 million transactions daily for 450,000 merchant customers across eleven countries. While the purchase price for LIFT was not disclosed, Point cost VeriFone $820 million - or $1.05 billion including the former's outstanding debt. Luria noted that these acquisitions didn't boost the company's growth as much as expected, and may have to be restructured to be properly integrated. VeriFone recently appointed Marc Rothman, the former CFO of Motorola Mobility, as its new CFO. Some analysts believe that VeriFone may have brought in the new CFO to help the company properly digest LIFT and Point. Jefferies analyst Jason Kupferberg was pessimistic regarding the company's guidance overhaul, stating, "Some of this could be the new CFO resetting the bar, but we see this miss as largely self-inflicted wounds, rather than industry weakness." VeriFone CEO Douglas Bergeron acknowledged the company's weak results, stating, "While we are disappointed with our performance and execution, we have a firm grasp on the challenges we faced and are taking aggressive steps to strengthen our competitiveness over the long-term. Although the focus on our services efforts impacted some local software and hardware modifications that were required to be competitive, our product platform and architecture are consistently recognized by the industry as being best-in-class." VeriFone has evolved past its traditional point-of-sale credit card hardware and inked a deal with PayPal, which allows PayPal users to use their accounts to send payments from VeriFone's payment terminals. VeriFone also offers several forms of NFC (near field communications) payments, which synchronize with a smartphone for instant payments. Industry watchers believe that this technology will eventually replace traditional plastic credit cards - and both Visa and Mastercard have launched NFC services to address this shift in demand. Shares of VeriFone trade at 5.2 times forward earnings with a 5-year PEG ratio of 0.36 - very cheap fundamentals that strongly suggest that the stock is oversold. It does not pay a dividend. Other News About PAY VeriFone shares slammed on forecast, downgrades
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Published on Feb 25, 2013
By Leo Sun