Fidelity National Information Services (FIS): Why This Tech Firm Is a Compelling Investment

It’s a great sign when a company can emerge from an industry crisis with minimal damage. It’s even more impressive when a company can actually thrive during those tough times. That’s exactly what Fidelity National Information Services (NYSE:FIS), the world’s largest global provider dedicated to banking and payment technologies, did during the 2008 financial crisis. Annual revenues have never fallen since 2006, growing at a compound annualized rate of 16%. Here are four more reasons why this company is firmly on my investing radar:

It’s time for stage 3
Fidelity National Financial Inc (NYSE:FNF)Fidelity National Information Services (NYSE:FIS)’s management foresaw the dramatic increase in the demand for financial technology services and the industry trend toward outsourcing. That’s why the first two stages of the strategy it initiated in 2006 were all about making acquisitions and then focusing on integration and building global scale.

This has enabled Fidelity National Information Services (NYSE:FIS) to become a market leader, processing more than 27 billion transactions, moving more than $5.5 trillion between parties, and reaching more than 750 million end consumers in the last year alone. With its leadership firmly cemented, Fidelity National Information Services (NYSE:FIS) can now shift to the third stage of its strategy: improving margins and generating sustainable organic growth to take full advantage of these industry trends.

Market dynamics
With interest rates at such low levels, many banks are having a hard time earning desirable returns on shareholder equity (ROE). To increase their ROE, they’re aiming to lower costs by outsourcing and upgrading inefficient infrastructure. Fidelity National Information Services (NYSE:FIS) estimates that North American banks will spend close to $57 billion on the services and products Fidelity National Information Services (NYSE:FIS) offers; you can throw in another $133 billion from international banks as well.

Given that many international banks are using dated, in-house developed software, this market should continue to see robust growth in the next few years. And while many of FIS’s competitors will be looking to go international and capture a piece of this pie, FIS is already there: International accounted for more than 20% of sales during its fiscal 2012.

An attractive business model
At the end of the day, a firm is only as good as its business model, and FIS really shines here. At its most recent investor day, FIS highlighted that almost 90% of its contract revenue comes from recurring sources. These long-term contracts average five years in length, and make for a very predicable revenue stream that helps management develop a long-term strategy.