VeriFone Tumbles After Another Weak Earnings Report
Shares of VeriFone Systems (NYSE: PAY) tumbled at the open on Friday following the release of the company's fourth quarter earnings.
PAY traded down over 10 percent to a level it had not seen since October.
The company's fourth quarter earnings were mixed, with earnings per share coming in line with analyst expectations at $0.76. Revenues were a bit light, at $485.4 million -- less than the $495 million that had analysts were expecting.
Still, shares were largely hit by the company's weak forward guidance. VeriFone said its first quarter earnings per share would fall between $0.70 and $0.73, less than the $0.75 consensus estimate. On sales, VeriFone said they would come in between $490 million and $500 million; analysts were expecting $498.5 million.
Thursday's report was just another in a string of weak performances from the company.
The last time the company reported earnings, in early September, shares tumbled about 10 percent. At that time, VeriFone reported light revenues and guided future revenue lower.
The quarter before that, in May, VeriFone beat on earnings but guided revenue lower.
With a history of guiding lower, some investors may be getting concerned with the company's long-term profitability. VeriFone largely derives its revenue from credit card machines found at cash registers all over the world. As alternative forms of payment develop, the demand for VeriFone's services may be in jeopardy.
Startups, like Square, have introduced innovative new methods of mobile payment. Large companies, like Intuit (NASDAQ: INTU) have followed suit. At the same time, other companies like Google (NASDAQ: GOOG) and eBay (NASDQ: EBAY) have jumped into the ring, with Google creating Google Wallet and eBay working to expand Paypal into a more robust payment method.
Square, founded by Jack Dorsey (who also created Twitter), may not have been viewed as a legitimate threat to VeriFone until recently. In the fall, Square inked a deal with Starbucks (NASDAQ: SBUX) to use its payment system in some of their stores.
That contract prompted VeriFone's CEO to appear on CNBC to address concerns. Doug Bergeron, the company's CEO, argued that VeriFone could continue to thrive alongside these rapidly rising alternative payment methods.
Yet, Bergeron's comments may appear similar to arguments offered by PC apologists in recent years, who said that the classic PC could continue exist alongside new mobile platforms.
In 2012, PC stocks were decimated as consumer demand shifted to the new mobile sector. Likewise, even if VeriFone's business remains viable for quite some time, shares may still struggle as growth slows. With a short float near 11 percent, many short sellers may be banking on this scenario.
However, analysts at Goldman Sachs were undeterred. Despite the weak results on Thursday, Goldman reiterated its Buy rating on the company with a $43 price target.
Goldman notes, “While PAY will have to navigate a fluid demand backdrop, we believe that its leading global position remains strong and its new cadre of software/services and mobile offerings enhance its capabilities as new POS technologies continue to ramp.”
Shares of VeriFone traded at $29.87 on Friday, down over 10 percent.
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