Why VeriFone Systems Looks Like a Good Investment

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Jan 16, 2015

VeriFone Systems (PAY, Financial) progressed brilliantly on fixing its base by executing three major efforts: cost optimization, R&D reengineering, and superior product portfolio management.

What VeriFone is doing

Its three worldwide product lines are presently generating excellent aggressive payment terminals, productizing and organically enhancing its payment-as-a-service deliveries, and are developing commerce enablement solutions throughout its platform.

The well-established business of VeriFone is believed to generate significant free cash flows with considerable traction for its innovative product lines and unhindered services.

During the fourth quarter, VeriFone improved its top line by 13% on year-over-year basis. It enhanced its operating profit margins to 13.9%, equivalent to over 300 basis points enhancement compared to last year.

It also witnessed excellent results across its entire range of regional client franchises. In North America, its business expanded by 20% on year-over-year basis with a huge market share gain.

Latin America improved by approximately 16% compared to the previous year. In October, VeriFone grabbed a key win in Mexico, to be called as the favoured wireless terminal platform for BBVA, which is the largest bank in the country.

Growth in several geographies

A few financials discussed above illustrates the growing business for VeriFone coupled with significant expansion across varied geographies.

Moreover, considering its developing markets, VeriFone witnessed solid growth in Nigeria and Turkey, benefiting from the key government-sponsored efforts to accelerate cashless payments.

VeriFone registered extensive growth in Asia throughout the fiscal year 2014, and concluded the year with over 24% growth on year-over-year basis during the fourth quarter. This significant success in its regional client franchises is due to the solid execution of its transformation program coupled with the advantage of expanding macro trends, transforming paper to electronic payments, and the complete reinforcement of security.

The expansion into the Asian and other developing markets is believed to open up entirely new earnings verticals for VeriFone, driving significant cash flows, going forward.

VeriFone is focused on optimizing its product portfolio coupled with key cost reductions. It lowered its SKUs by about 60% to nearly 500, with least effect on its clients. It lowered the number of active terminal platforms from 13 to 8. It also filled up the portfolio gaps present in a few markets, such as China, France, Brazil and Canada, where it presently provides extra certified products in all the mentioned countries.

Leveraging its product portfolio management process, VeriFone divested its three non-core business lines in 2014 including, the sferragon consulting services business in France, the ChargeSmart online bill payment portal and the GlobalBay enterprise retail software business.

VeriFone is optimizing its workforce to further improve profitability. In addition, it is introducing a common architecture in its software applications, allowing it to merge its development environment. It is uniting and regulating its gateways, and it recently applied a project planning tool and resource for improving its R&D management.

VeriFone is also on a spree to restructure its workforce and cut down the number of non-core employees.

These cost-cutting efforts again demonstrate the company’s focus on improving its balance sheet to drive further investments into growth, moving ahead.

VeriFone executed a detailed review of its supply chain efficiency and effectiveness and is strengthening its strategic supplier relationships with its major partners.

In fiscal year 2015, VeriFone is estimated to introduce the hugely demanded, completely innovative terminal platform that shifts the industry away from just developing one dimensional purpose-built device.

VeriFone is also introducing superior mPOS terminals that operate brilliantly with several consumer smartphones and tablets, and execute VeriFone and third party software. There’s significant traction with merchants deploying both mobile and fixed points of sale within the store. A report from McKinsey shows that the interest for these innovative terminals from both small and mid-sized multilane merchants increased by 25% over the last year.

VeriFone is growing its terminal ECR product line, allowing merchants in developing countries like Turkey, and several other countries to fulfil the progressive local tax regulations. VeriFone is enhancing its portfolio in China, and developing the highly optimized value price terminal solutions for that market.

These unique lines of products are enabling VeriFone to beat the competition and remain at the top position offering highly innovative solutions.

VeriFone plans to launch its leading MX 900 series multilane retail terminals, offering the best security and enhancing its market position past the United States. VeriFone is improving its basic level PIN pad products and is estimated to offer an improved product portfolio for France.

SPAR is a major convenience supermarket chain in UK with about 1,200 stores running in 30 countries and has outsourced its point of sale operations to VeriFone.

VeriFone is one of the world's leading key payment service providers. Its gateways currently handle over 10 million transactions a day, which is 27% year-over-year improvement over last year.

Lately, VeriFone included some major well-known retail brands to the list of its VeriFone payment-as-a-service clients including The S Group, Turkish Airlines, Galleries Lafayette, The Body Shop, PUMA and The Limited.

VeriFone is investing continuously in its worldwide offering for terminal estate management solutions, enabling clients to distantly manage the fleet of their point of sale terminals.

Investing for the future

VeriFone is expanding its connected terminals count by its secure commerce architecture, or SCA which is a payment architecture enabling merchants to gain from a joint point of sale environment with no payment data being transferred to the PC-based point of sale register.

Microsoft retail is leveraging secure commerce architecture of VeriFone in its stores to eliminate consumer payment credentials from its point of sale register systems, enabling them to better preserve their customer payment data with no loss of functionality in their retail environment.

During the fourth quarter, VeriFone signed 10 innovative contracts with key US retailers to connect over 20,000 extra devices leveraging SCA with a solid, extensive and growing demand pipeline of major retailers.

VeriFone’s significant services include non-payment solutions like instant rewards redemption, loyalty programs, targeted and card-linked offers and several other valuable services demanded by its clients.

VeriFone is considerably expanding its collection of digital media screens and connected terminals to successfully scale and commercialize its platform. In the beginning of this year, VeriFone signed a major strategic deal with Gilbarco Veeder-Root which is a world's leader in fuel dispenser technology, and achieved crucial mandates from Citgo, Tesoro and Sunoco.

In the start of 2016 and post the next five years beyond that, VeriFone is expected to upgrade over 400,000 payment devices at the pump. VeriFone significantly enhanced its forward inventory of digital media screens in taxis, by entering into major contracts within Mexico, in Istanbul and in the New York City during the fiscal year 2014.

A month earlier, VeriFone signed a deal with MasterCard to provide card-linked offers in Las Vegas cabs. It provided offers from local merchants leveraging swipe messengers to significantly link offers on its taxi screens to the particular card used while paying for their ride.

In fiscal year 2015, VeriFone expects to invest considerably in developing its worldwide commerce enablement platform. The efforts include, expanding its media product and thus further enhancing its platform for advertising and immediate offer delivery.

VeriFone estimates to considerably expand the size of its network of 48,000 connected digital media screens during the fiscal year 2015. It plans to introduce card linked offers, loyalty, offers and digital coupons, utilizing both VeriFone and third party solutions and developing its position in value-added services.