VeriFone Systems (PAY)
As editor of the Dick Davis Digests, I’m constantly on the look out for patterns and trends arising in the investing advice of the day. The hundreds of analysts and editors that we follow all have different investing philosophies, and as many viewpoints on the market. But there are distinct...
As editor of the Dick Davis Digests, I’m constantly on the look out for patterns and trends arising in the investing advice of the day. The hundreds of analysts and editors that we follow all have different investing philosophies, and as many viewpoints on the market. But there are distinct currents and themes running through their advice at any given time.
Most recently, I took note of a particular stock that just seemed to keep popping up. This happens sometimes when a stock is in the news, like BP, or when a sector is on a tear, like cloud computing. But this stock didn’t have any of those factors, which made its seeming omnipresence all the more interesting to me.
The stock is VeriFone Systems (PAY, NYSE). The company’s business doesn’t sound that exciting at first glance: it’s the leading provider of point-of-sale electronic payment technologies. That mostly means it makes and sells those little machines on store counters that allow you to swipe your credit or debit card and sign the screen or punch in a PIN number. It also makes the equipment that allows you to pay for gas at the pump with a credit card. VeriFone is by far the leading provider of this technology, with the largest market share in North America, South America, Northern Europe, Russia and India, and a second-place share in Southern Europe. In China, the company is tied for first place with a local provider.
So it’s a great company. But what makes it an exciting company—and most likely what made so many advisors take an interest in it recently—is VeriFone’s future growth potential. The company is expanding rapidly on two fronts right now: by introducing new technology on one hand, and by expanding its presence in growth markets on the other. And VeriFone has already made enough progress on both these fronts that the growth was reflected in the company’s recent earnings announcement, which got it even more attention.
Expansion into new markets is contributing most of the growth so far. In 2004, 64% of VeriFone’s business came from the U.S. In the years since then, the company has aggressively pushed its products in emerging growth markets, especially China. VeriFone’s unattended payment systems are being installed at gas stations all over China, where consumers are increasingly getting used to luxuries like paying for gas at the pump. Today, VeriFone gets as much business from emerging markets as it does from the U.S., with each segment making up 39% of the company’s market (non-U.S. developed countries make up the rest.)
On the technology front, VeriFone is working to expand its business in the U.S. and other developed countries by introducing new payment technologies. These include contactless point-of-sale systems that let customers simply wave their card over the machine to pay and the PAYware Mobile system for the iPhone.
PAYware Mobile is aimed at what the company calls “micro merchants” who want to be able to accept credit card payments but don’t need one of VeriFone’s more expensive systems. The system includes a plastic sleeve with a credit card swiping channel that slips onto the iPhone, and an App for processing payments and capturing signatures.
Finally, PAY the stock looks great; it’s traded up for five straight weeks now. That’s another thing that attracts analyst attention.