Can VeriFone Systems Inc. (PAY) Walk the Talk?

I have long been an admirer of electronic payment solutions company VeriFone Systems Inc. (NYSE:PAY). The first time I looked at the stock nearly six months back, it was trading near its 52-week low. I thought that the stock would make for a good buy. VeriFone was growing its top line at a rapid pace, and looked well-positioned to benefit from the digital payment revolution.

VeriFone Systems Inc

But all expectations came crashing down last month when VeriFone Systems Inc. (NYSE:PAY) sounded out a terrible earnings preview for the recently reported first quarter. This sent the stock to another 52-week low as it dropped around 40%.

Fellow Fool blogger Leo Sun remarked that very bad times lie ahead for VeriFone, and rightly so. The changes that the company brought about in its business, and the acquisitions it made, set it up for failure. Hence, it’s not surprising that VeriFone’s top line grew just 1% in the previous quarter, a far cry from the solid growth it used to record.

VeriFone Systems Inc. (NYSE:PAY)’s poor acquisition strategy, underinvestment in customizing its payment devices according to requirements of customers, and poor sales planning and execution hurt the company badly. The overturning of the D.C. taxi smart meter contract, delayed tenders, weak spending due to economic conditions, and internal execution challenges have pushed VeriFone into a corner apart from leading it to lose market share.

The talk

However, it seems that VeriFone Systems Inc. (NYSE:PAY)’s CEO Douglas Bergeron has had enough now. Bergeron went on the offensive on the latest conference call, and signaled his intent of shaking up the management and fixing up the company by the end of the fiscal year. His commentary was received positively by the Street, and the stock soared even after a lackluster quarterly report.

But a difficult walk

But it remains to be seen how VeriFone Systems Inc. (NYSE:PAY) walks the talk, as the challenges it faces during this period of “rebuilding” are quite formidable. From economic troubles in Europe to government regulations in India and currency issues in Venezuela, VeriFone has a lot on its plate. The company understands that these external factors can’t be controlled; hence it is trying to bring its innovation and execution up to speed.

Moreover, stiff competition from the other big name in the industry, Ingenico, would be another sticking point to contend with. Ingenico seems to have taken advantage of VeriFone’s woes and execution challenges by grabbing market share. The French company did what VeriFone failed to do by customizing its products as required. It capitalized on a “changing competitive landscape” and grew its business across the world, right from Europe to emerging markets.