Bank Systems & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Payments

11:10 AM
Reuters
Reuters
News
Connect Directly
RSS
E-Mail
50%
50%

Verifone Shares Nearly Halve, Analysts Query Management

After cutting its profit outlook for the next quarter analysts are questioning the management of payments hardware provider Verifone as to how they could have been so far off on their profit estimates.

Shares of credit card swipe machine maker VeriFone Systems Inc. nearly halved in value after the company slashed its profit outlook, with analysts questioning why management was so off with its forecasting when peers were not doing so badly.

VeriFone shares slid to $17.93, their lowest in nearly three years, and at least seven analysts cut their price targets on the stock. Deutsche Bank, in a client note, said the company had finally admitted it had failed to execute on its plans to move to a more subscription-based service model.

Several analysts suggested that VeriFone's new chief financial officer had taken a more conservative accounting approach at the company, which already faces a court case for a past accusation of reckless accounting.

The company will likely be sold, SunTrust Robinson Humphrey analyst Andrew Jeffrey wrote in a note, cutting his rating on the stock to "neutral" from "buy".

"Management credibility has been lost," he said. "Market share losses are deeper and more persistent than we had previously believed."

"We believe VeriFone will be acquired before it completes its business model transition."

Deutsche Bank analyst Bryan Keane said he could not suggest who might be interested in buying the company. "...We still think the valuation is expensive, when you look at the free cash flow the company generates," he told Reuters.

VeriFone, based in San Jose, California, sells payments equipment to shops and restaurants. The company is seeking to move more to a service model for its systems, rather than straight equipment sales.

The company might have been aggressively shifting to services from hardware sales and the management took its eye off the ball in terms of product evolution, allowing rival Ingenico SA to take market share, analysts said.

Equipment and related software sales brought in $1.34 billion, or 71.8 percent of total revenue, in the year ended Oct. 31. Services revenue doubled to $527 million from a year earlier.

VeriFone largely attributed its lower-than-expected first quarter estimates to weakness in Europe, lower-than-expected revenue from large customers in Brazil, delayed customer spending on major projects, and the cancellation of a Washington, D.C. taxi project.

Deutsche, which rates the stock a "sell", slashed its price target to $15 from $27. The brokerage said past acquisitions had masked what was happening at the company and that it had long been wary of its "aggressive accounting recognition."

"The recent CFO retirement/resignation and the first-quarter revenue recognition requirements could also suggest accounting red flags in prior quarters," Deutsche said, noting the latest quarter's accounts had been signed off by the new CFO.

A U.S. appeals court revived a proposed securities class action against VeriFone in December over its 2007 restatement of results, ruling that the lawsuit properly alleged that VeriFone Chief Executive Douglas Bergeron was "reckless" as to the truth of financial reports.

"I think Douglas Bergeron is well embedded in that company, and it'll take a few more blowups before the board will kick him out," Deutsche's Keane said. "I don't think he's going anywhere anytime soon."

Previous
1 of 2
Next
Comment  | 
Print  | 
More Insights
Register for Bank Systems & Technology Newsletters
Slideshows
Video
Bank Systems & Technology Radio
Archived Audio Interviews
Join Bank Systems & Technology Associate Editor Bryan Yurcan, and guests Karen Massey and Jerry Silva from IDC Financial Insights, for a conversation about the firm's 11th annual FinTech rankings.