VeriFone Plummets as New Chip Cards Hamper Sales Outlook

  • Payment-tech company cuts 2016 earnings guidance by 17 percent
  • Five analysts downgraded VeriFone shares after the report

VeriFone Systems Inc. fell the most in more than three years after the payments-technology company cut its outlook for full-year earnings by as much as 17 percent, citing “difficult market dynamics,” and several analysts downgraded the stock.

The shares plunged 23 percent to $21.70 at 2:44 p.m. in New York, and earlier fell as much as 30 percent to $19.71 in their biggest intraday decline since February 2013.

Blaming pricing pressure in Asia and delays in implementing chip-card technology in the U.S., VeriFone said it expects fiscal 2016 earnings of $1.85 a share, a drop from $2.21 to $2.24 forecast earlier this year. Sales will be $2.1 billion, lower than its previously guided range of $2.15 billion to $2.17 billion, according to a statement Tuesday.

U.S. retailers began accepting European-style chip cards last year, and while millions of smaller merchants have yet to make the switch, targeting them brings VeriFone into more direct competition with Square, First Data’s Clover and many others, said David Ritter, an analyst at Bloomberg Intelligence, in a research note.

While the chip-card challenge has been a well-documented story, at least as far as merchants are concerned, this was the first time VeriFone rose a warning flag, Ritter said.

“It certainly hadn’t come up before as something that would impact their revenues,” Ritter said in an interview.

Certification Delays

Many of the small to mid-sized businesses the company is working with are facing delays in having their chip-enabled equipment certified, VeriFone Chief Executive Officer Paul Galant said Wednesday on an earnings call. The gear must be certified, often by several companies such as payment processors, before it can be turned on. As a result, VeriFone can’t collect service revenue on those idle devices, he said.

The company “can’t bill for any of the services that we have even if they were purchased until those devices are actually accepting chip cards, and that’s all being delayed,” Galant said.

In addition, emerging markets have always been a problem for VeriFone, Ritter said, as the company has struggled to compete in Asia. “The doubts have been in the stock for a while.”

Analysts’ Ratings

Five analysts, including at JPMorgan Chase & Co., Compass Point Research & Trading LLC and Barclays Plc, downgraded VeriFone Wednesday.

The San Jose, California-based company is planning to cut jobs, which could yield $30 million in cost savings next year, according to the statement. The payments provider also is reviewing “underperforming” businesses.

Ingenico Group SA, the company’s biggest European competitor, slipped as much as 7 percent, underscoring problems facing the industry. Together VeriFone and Ingenico account for almost 80 percent of the market for payment terminals, ABI Research estimated in 2014.

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