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VeriFone Systems Inc. is best known for its point-of-sale payment terminals, but the company is growing its cloud- and software-based payment products and services. VeriFone also has made a name for itself in payment and media services for taxicabs, but that business is now on the block, company officials announced this week.
The need for greater investment to grow what is currently a low-margin business prompted San Jose, Calif.-based VeriFone to divest its Taxi Solutions unit, top executives said Thursday at a quarterly earnings call with analysts. While VeriFone expects the unit to generate $60 million in revenues in 2017’s second half, chief financial officer Marc Rothman said its margins are “significantly lower” than the average for VeriFone’s overall services business.
“To compete and grow this business on a global basis requires focus and additional resources and capital,” chief executive Paul Galant said on the call. “As such, we believe that we are not the ideal steward to drive the next chapter of growth of the taxi business given our strategic priority to scale our next-generation solutions.”
The coming divestiture, for which VeriFone has not disclosed an expected date, marks a complete turnaround from 2005, when VeriFone formed a joint venture with TaxiTronic Inc. called VeriFone Transportation Systems to equip taxis with fleet-management and payment technology. In 2010, VeriFone acquired TaxiTronic’s remaining minority interest in the venture.
VeriFone’s taxi-payment services, which included in-cab video content such as local news, weather, and traffic reports, eventually were deployed in many big-city fleets, including those in New York City, Philadelphia, Boston, Chicago, Las Vegas, Miami, Baltimore, and Washington D.C., and also some foreign cities. In-taxi card payments were routed through VeriFone’s gateway, generating per-transaction fees for the company. The video content also produced some advertising revenues for VeriFone.
The taxi unit developed capabilities such as a system launched in 2013 that enabled American Express Co. cardholders to use their AmEx Membership Rewards points to pay taxi fares in New York City. It also developed the Curb hail and ride-sharing mobile app.
Neither Galant nor Rothman mentioned ride-sharing leaders Uber and Lyft during the call, but those two firms have captured a big share of the passengers who formerly used taxis. In Chicago, for example, the value of a medallion—a license to operate a taxicab—is down 84% to about $60,000 from a peak of $370,000 four years ago, according to a bank’s estimate cited last month by the Chicago Tribune.
VeriFone’s annual report for fiscal 2016 ended last Oct. 31 acknowledged the ride-sharing threat to its taxi business.
“We also compete with new and emerging companies that are disrupting traditional markets and sectors,” the report says. “For example, as ride-sharing companies and other taxi alternative companies expand, the market for our taxi products could be negatively impacted.”
Indeed, the report flagged Taxi Solutions as an under-performing business, and in March of this year “our management committed to a plan to sell our Taxi Solutions reporting unit,” the company’s regulatory report for the second quarter says. VeriFone took a $17.4 million goodwill-impairment charge in connection with the divestiture.
VeriFone also pulled back from another under-performing business by recently forming a 50-50 joint venture with Destination Media Inc.’s Gas Station TV to operate its media business at gasoline pumps.
“The taxi and media businesses were never core to VeriFone, and therefore it makes sense for them to exit those businesses,” Gil Luria, director of research in equity capital markets at D.A. Davidson & Co. in Lake Oswego, Ore., tells Digital Transactions News by email. “Lowering their debt ratios, buying back stock, and making acquisitions within their core competence are better priorities for VeriFone’s capital.”
Galant noted on the call that VeriFone is concentrating on new product lines, including its Engage, Carbon, and mobile-payment systems, as well as its software-based services.
“VeriFone is increasingly focused on the software and services that get bundled with its terminals, and taxi and media do not contribute to that strategy,” says Luria.
Galant said some potential buyers have expressed interest in the Taxi Solutions unit, but he did not identify them.
