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The funk at VeriFone Systems Inc. continued late Wednesday when the leading point-of-sale terminal maker said revenues and profits for its first quarter of fiscal 2013 ended Jan. 31 would come in far short of earlier predictions. The downward forecast triggered a selloff in VeriFone’s shares, whose price was off by more than 40% Thursday afternoon from Wednesday’s close.
VeriFone blamed poor economic conditions in Europe, lower than anticipated revenues from some large Brazilian customers, uncertainty in Venezuela, usually a strong market for VeriFone, and deferred revenue from a new mix of customers in the Middle East and Africa. The company also said several customers delayed major projects beyond the first quarter, and it noted the cancelation of a contract to outfit 6,500 taxicabs in Washington, D.C., with VeriFone “smart meter” media and payment terminals. A Washington Post report in November said the contract was worth $35 million, but a local board determined the bidding process was riddled with “pervasive improprieties.”
VeriFone’s stock closed Wednesday at $31.89 per share but in early-afternoon trading on Thursday the price was only $18.31, a drop of nearly 43%.
The company’s latest bad news came on the heels of its December announcement that it would cease management of its Sail merchant portfolio, which VeriFone launched to compete with mobile-payment processors such as Square Inc. and Intuit Inc.’s GoPayment. Also, the company dodged a legal bullet earlier this month when the U.S. Attorney’s Office in Manhattan and the Securities and Exchange Commission concluded an investigation into possible insider trading by chief executive Douglas G. Bergeron without taking action. VeriFone denied any improprieties and said it cooperated with authorities, who began investigating after The Wall Street Journal reported about questionable stock trades by senior executives at various companies under pre-set trading plans.
Santa Clara, Calif.-based VeriFone forecast in December that net revenues for the first quarter on a non-GAAP (Generally Accepted Accounting Principals) basis would come in at $490 million to $500 million, and non-GAAP earnings per share would range from 70 to 73 cents. Instead, the company now expects to report revenues of $425 million to $430 million and earnings per share of 47 to 50 cents when it releases its financials on March 5.
“During the first quarter we faced a number of external headwinds and internal challenges, which impacted our results,” Bergeron said in a statement. “While we are disappointed with our performance and execution, we have a firm grasp on the challenges we faced and are taking aggressive steps to strengthen our competitiveness over the long-term. Although the focus on our services efforts impacted some local software and hardware modifications that were required to be competitive, our product platform and architecture are consistently recognized by the industry as being best-in-class.”
A VeriFone spokesperson declined to comment beyond the statement. VeriFone is in the midst of a long-term effort to boost recurring services revenue, which it sees as ballast against the more cyclical revenues of its hardware business. In doing so, however, VeriFone may have lost some U.S. business to its France-based rival Ingenico S.A., says Gil Luria, a financial-technology analyst at Los Angeles-based Wedbush Securities. Ingenico has a big North American operation based in Atlanta.
“They were very focused on shifting their business to more of a services model; while they were doing it they dropped the ball,” Luria says. “They didn’t have the right products for customers, and they bought from Ingenico.”
Bergeron, however, indicated that the U.S. and Canada were mostly bright spots for VeriFone. “We are encouraged by the performance of our North America region,” he said, adding that the region grew by “double-digit percentage points” year over year. The chief executive also said VeriFone is optimistic about its prospects due to the rollout of EMV (Europay-MasterCard-Visa) chip card terminals in the U.S., and it also is seeing growth from fuel-pump deployers, taxi companies, and national retailers.
Still, one analyst quoted by Reuters said \”management credibility has been lost. Market-share losses are deeper and more persistent than we had previously believed.\”
While some observers believe the upstart mobile-payments players such as Square, GoPayment, PayPal Inc., and others could cut into the market for products from VeriFone and Ingenico, Luria doesn’t believe they’re hurting VeriFone. “I think it is a very small factor,” he says. “Most of what Square and GoPayment and PayPal are doing here is bringing new people into payments. VeriFone’s issues have a lot more to do with internal execution than anything else.”
San Francisco-based Square, by the way, on Wednesday introduced its “Business in a Box” product for merchants that use its Square Register payment service centered around Apple Inc.’s iPad tablet computer. For $599, the merchant gets two card readers that plug into the iPad, an iPad stand, a cash drawer, and a Star Micronics receipt printer. A $299 version excludes the printer. Business in a Box represents the first time Square has charged merchants for hardware.
