Is VeriFone A Buy?

Provider of electronic payment solutions, VeriFone Systems (PAY), lit up the Street with its first-quarter results by beating analysts' expectations. Investors were overwhelmed by the company's surprising performance, sending shares higher.

Delving deeper...

Both revenue and earnings per share were ahead of estimates, as they increased 2% and 36%, respectively. VeriFone managed to increase its revenue by having an installed base of 20 million terminals across 150 countries. However, the company has a list of issues which are yet to be resolved.

The hurdles faced

The biggest problem for VeriFone has been a lack of research and development efforts which led to bigger problems such as lack of product certifications and loss of customers. As a result, it lost market share in most of the markets despite decreasing product prices. Moreover, loss of a U.S. petroleum deal will be affecting revenue from the region even more.

Against industry players

In an environment where innovation is the key to a successful business, the electronic payment company has been lagging behind. Hence, VeriFone faces stiff competition from its industry peers who have been continuously making the right moves.

One of its strongest rivals, NCR Corporation (NCR), has been getting some great contracts to deliver its technology. Its expansion in China looks interesting with China Eastern Airlines expanding NCR check-in kiosks for its domestic airports.

NCR's expansion has been remarkable as it will also be delivering its technology solutions to shopping malls in China. The company has been very active and has been investing in a number of payment technologies. Its new orders to supply ATMs in China and other deals highlight the growth of this company.

Even Square is an important player with its best move being in mobile payments. The launch of its mobile payment platform set the market on fire, especially when coffee retailer Starbucks (SBUX) invested its money to adopt the new technology. Starbucks announced that all its transactions will be processed by Square.

Square's innovation enabled the coffee maker to attract customers in hordes since this technology provided a convenient way of paying for their coffee. Starbucks has been reaping the benefit which is evident from its move to ramp up its mobile payment system. The retailer also announced that 10% of its transactions are done through smartphones, signifying the success story of both Square and Starbucks.

On the other hand, VeriFone was a laggard with negligible efforts to innovate. However, there have been some improvements during the last quarter that are worth noting.

Interesting moves

It has made two new acquisitions, EFTPOS New Zealand Ltd. and Sektor, which will help in revenue growth. It has been focussing on payment-as-a-service segment in regions such as New Zealand, Australia and the U.S. since the segment is growing at a rate of 11% to 13%.

VeriFone also launched the taxi payment application called Way2ride which might prove to be fruitful for the company's prospects.

Its other moves such as making various applications available for tablets, such as GlobalBay Merchant and renewing existing contracts might help the company to stage a comeback.

Additionally, VeriFone has been performing well in its Services segment, which grew 17% during the quarter. This segment continues to perform well with growth in revenue during each quarter. Moreover, the company has been increasing its investments in R&D and paid off $160 million of debt during the quarter.

The bottom line

The company has been making a lot of effort to improve its performance. With increasing revenue and a stock price surge of 25.9%, VeriFone seems like an interesting investment. However, it faces stiff competition from its peers. Though the competition has been tough the payment solutions provider has started making some moves. Hence, investors should give this company a thought.

Currently 0.00/512345 Rating: 0.0/5 (0 votes)

Subscribe via Email Subscribe RSS Comments Please leave your comment:
More GuruFocus Links

Latest Guru Picks	Value Strategies
Warren Buffett Portfolio	Ben Graham Net-Net
Real Time Picks	Buffett-Munger Screener
Aggregated Portfolio	Undervalued Predictable
ETFs, Options	Low P/S Companies
Insider Trends	10-Year Financials
52-Week Lows	Interactive Charts
Model Portfolios	DCF Calculator
RSS Feed	Monthly Newsletters
The All-In-One Screener	Portfolio Tracking Tool

MORE GURUFOCUS LINKS

Latest Guru Picks	Value Strategies
Warren Buffett Portfolio	Ben Graham Net-Net
Real Time Picks	Buffett-Munger Screener
Aggregated Portfolio	Undervalued Predictable
ETFs, Options	Low P/S Companies
Insider Trends	10-Year Financials
52-Week Lows	Interactive Charts
Model Portfolios	DCF Calculator
RSS Feed	Monthly Newsletters
The All-In-One Screener	Portfolio Tracking Tool

PAY STOCK PRICE CHART 33.42 (1y: +44%) $(function(){var seriesOptions=[],yAxisOptions=[],name='PAY',display='';Highcharts.setOptions({global:{useUTC:true}});var d=new Date();$current_day=d.getDay();if($current_day==5||$current_day==0||$current_day==6){day=4;}else{day=7;} seriesOptions[0]={id:name,animation:false,color:'#4572A7',lineWidth:1,name:name.toUpperCase()+' stock price',threshold:null,data:[[1369717200000,23.15],[1369803600000,23.51],[1369890000000,23.51],[1369976400000,23.33],[1370235600000,23.36],[1370322000000,23.09],[1370408400000,21.95],[1370494800000,17.37],[1370581200000,17.09],[1370840400000,17.16],[1370926800000,16.79],[1371013200000,16.17],[1371099600000,16.4],[1371186000000,15.79],[1371445200000,15.75],[1371531600000,16.17],[1371618000000,16.48],[1371704400000,16.3],[1371790800000,16.51],[1372050000000,16.01],[1372136400000,16.31],[1372222800000,16.53],[1372309200000,16.86],[1372395600000,16.81],[1372654800000,16.8],[1372741200000,16.79],[1372827600000,16.75],[1373000400000,16.91],[1373259600000,17.2],[1373346000000,17.55],[1373432400000,17.9],[1373518800000,17.63],[1373605200000,17.76],[1373864400000,18.39],[1373950800000,18.36],[1374037200000,18.79],[1374123600000,18.61],[1374210000000,18.13],[1374469200000,18.5],[1374555600000,18.3],[1374642000000,18],[1374728400000,17.94],[1374814800000,17.83],[1375074000000,18.25],[1375160400000,18.5],[1375246800000,19.07],[1375333200000,19.29],[1375419600000,19.27],[1375678800000,19.28],[1375765200000,19.04],[1375851600000,19.1],[1375938000000,19.27],[1376024400000,19.62],[1376283600000,19.64],[1376370000000,19.86],[1376456400000,20.39],[1376542800000,19.84],[1376629200000,19.62],[1376888400000,18.89],[1376974800000,19.17],[1377061200000,19.17],[1377147600000,19.71],[1377234000000,20.39],[1377493200000,20.53],[1377579600000,19.29],[1377666000000,19.73],[1377752400000,19.87],[1377838800000,19.82],[1378184400000,19.74],[1378270800000,20.28],[1378357200000,20.72],[1378443600000,22.81],[1378702800000,23.41],[1378789200000,23.27],[1378875600000,23.26],[1378962000000,22.46],[1379048400000,22.59],[1379307600000,22.42],[1379394000000,22.84],[1379480400000,23.27],[1379566800000,23.51],[1379653200000,23.59],[1379912400000,22.99],[1379998800000,22.78],[1380085200000,23.09],[1380171600000,23.13],[1380258000000,23.13],[138051! 7200000,22.86],[1380603600000,23],[1380690000000,23.82],[1380776400000,23.44],[1380862800000,23.71],[1381122000000,23.07],[1381208400000,22.26],[1381294800000,21.7],[1381381200000,22.27],[1381467600000,21.99],[1381726800000,22.1],[1381813200000,22.1],[1381899600000,22.33],[1381986000000,22.32],[1382072400000,22.9],[1382331600000,23.21],[1382418000000,23.16],[1382504400000,22.63],[1382590800000,22.73],[1382677200000,22.63],[1382936400000,22.69],[1383022800000,23.11],[1383109200000,22.97],[1383195600000,22.66],[1383282000000,22.64],[1383544800000,22.76],[1383631200000,22.49],[1383717600000,22.41],[1383804000000,22.62],[1383890400000,23.44],[1384149600000,23.95],[1384236000000,24.97],[1384322400000,25.23],[1384408800000,25],[1384495200000,25],[1384754400000,24.21],[1384840800000,24.24],[1384927200000,24.1],[1385013600000,24.3],[1385100000000,25.5],[1385359200000,25.54]