VeriFone actually made several acquisitions in the last few years that will boost growth. Two more in particular stand out: Last August, PAY acquired Hypercom, which also provides electronic payment solutions and value-added services at the point of transaction (like couponing), for $644 million. The deal helped VeriFone broaden its product and service offerings globally, and the payoff has been fast. Revenue recognized from Hypercom in fiscal 2011 was $65 million, or 25% of the company’s total.
An even more significant acquisition came at the end of last year when VeriFone bought Point International, a Swedish company that is Northern Europe’s largest provider of payment and gateway services and solutions for retailers. The deal was worth approximately 600 million euros plus payment of Point’s outstanding debt of 170 million euros.
It’s important to understand that Point International is not a payment processor; it provides payment-related services to retailers, connecting them with banks and processors. This acquisition expands VeriFone’s services, gives them a good deal of recurring revenues, and also enlarges the company’s under-penetrated presence in Northern Europe.
Building on Already Strong Results
In fiscal 2011, VeriFone’s adjusted earnings jumped 45% to $1.92 a share; revenues grew 31% to $1.31 billion. One of the main drivers was a 43% increase in systems sales to foreign countries, which would have been only a 20% increase without the acquisitions we just talked about. Service revenues soared 54%, driven by acquisitions as well but also showing a strong 41% increase in organic sales in North America. These were the result of various efforts, including the company’s taxi payment services. International service revenues grew 28.5% on an organic basis.
Strong growth continued in the first quarter of fiscal 2012 (reported March 5), with adjusted earnings growing 35% to 58 cents a share from 43 cents the year before. Revenues were up 50%, again largely due to the acquisitions made in 2011 but also featuring good internal growth with system revenues up 7% and service revenues up 10% organically.
Even with the current earnings momentum, PAY sells for approximately 20X estimated earnings for the current fiscal year. That’s a reasonable valuation that becomes even more attractive when you consider the company’s potential.
Electronic payment processing remains a growing industry, especially in foreign markets where there’s still significant opportunity, but also with the game-changing innovation taking place as companies scramble to be among the early leaders in mobile payment. VeriFone’s large installed base of devices and systems almost assure that it will continue to be a leader for some time to come.