SiHien Goh, Kapitall Verifone [PAY] shares have been taking a beating on the Street in the last few weeks after they cut earnings guidance for this quarter by half. Shares reacted instantly by nose-diving close to 50% on February 21, 2013 on the day of the guidance announcement and shares fell even more in the subsequent days. After the bloodbath, the results for the first quarter were finally in yesterday, and after a solid earnings call performance from the CEO and the new CFO, shares of Verifone have reacted strongly and are up 10% at market open. In our original post the day after guidance was cut, we argued on Kapitall Wire that with a market cap of 1.97 billion, Verifone was looking more like a value stock. Furthermore, at the stock price of less than $19 a share, investors are buying into a piece of a company whose products are used everywhere in McDonalds, on New York City cabs, and in petrol kiosks. For such an entrenched company, Verifone was and is still trading below a certain upstart called Square, which is now valued on the private market at $3.25 billion. Square, as a reminder, made only $40 million in revenues last year, while Verifone made $1.8 billion. During the conference call, Doug Bergeron, Verifone CEO, struck the perfect tone of being both apologetic about past missteps and firm about steps they needed to take to correct the problems. The sell-side analysts repeated sounded like they wanted to murder management during the call, with Doug Bergeron both apologizing for the past and defending the future at the same time. An interesting point the CEO made on the call was that both Verifone and Ingenico (its main competitor – whose payment system is used by 7-eleven) have gained and lost market share over the years, and that the sell-side analysts’ belief that Verifone will never gain back those market share was misguided. This sounds very much like a classic value investing theme to me — that businesses have their up and down and as an investor you should probably not look at the quarter-to-quarter changes but look at the long-term performance of the company.
Interestingly, accounting principles and revenue recognition seemed not to have changed under the new CFO, Marc Rothman. This was a little surprising (although, yes, management has repeatedly denied it already) because one of the reason guidance was cut in the quarter was because certain revenues that they thought could be recognized in the quarter had to be deferred to subsequent quarters. The Jefferies analyst, the only one to ask a question about their accounting principles, asked the CFO on the call if they had any expectations in the near term to change their accounting policy and the CFO sounded pretty adamant in his reply that there was no near term expectation to change accounting policy. Lastly, the only letdown about the earnings call was that there seem to be no interest in taking advantage of recent stock crash to buy back shares. The CEO sounded pretty sure that there will be no stock buyback program when the Citigroup analyst asked about its depressed stock price. He sounded very focused on 'fixing' the operational issues that they have now in order to compete with its main competitor in markets such as Europe that they have lost market share in recent quarters. SiHien Goh, Kapitall Contributor