Groupon Inc (GRPN): Will VeriFone Systems Inc (PAY) Earnings Look Ugly Again?

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VeriFone Systems Inc (NYSE:PAY) will release its quarterly report on Thursday, and the stock has continued to fall in light of new challenges facing the payment processor. With revenue expected to decline sharply again this quarter, VeriFone Systems Inc (NYSE:PAY) earnings should continue to drop compared to year-ago levels, raising questions about the company’s future strategic direction.

Insider trading Verifone PAYVeriFone Systems Inc (NYSE:PAY) has been an important company in the payment-processing space, helping to connect thousands of companies in its broad payment network. A huge rise in competition, however, has threatened the company’s traditional strength in the industry. So far, VeriFone Systems Inc (NYSE:PAY)’s response to the competitive threat hasn’t been sufficient to give investors confidence that the company will remain an industry leader. Let’s take an early look at what’s been happening with VeriFone Systems Inc (NYSE:PAY) over the past quarter and what we’re likely to see in its report.

Stats on VeriFone

Analyst EPS Estimate $0.20
Change From Year-Ago EPS (73%)
Revenue Estimate $400.83 million
Change From Year-Ago Revenue (18.7%)
Earnings Beats in Past 4 Quarters 2

Source: Yahoo! Finance.

How can VeriFone earnings pay off for investors?
In recent months, analysts have dramatically marked down their views on VeriFone Systems Inc (NYSE:PAY) earnings, slashing July quarter estimates by 60% and cutting full-fiscal year projections for both this year and next by about a third. The stock has continued to drop, falling 16% since late May.

Much of the damage to VeriFone came as the company announced its fiscal second-quarter earnings in early June. Even though VeriFone has been working hard to try to turn around its business, earnings and revenue came in well short of expectations. Even worse, the company gave guidance that forced investors to downgrade their future views on earnings and revenue, with calls for $400 million in sales coming in about 13% below previous expectations and earnings guidance less than half of what shareholders expected to see.

But VeriFone made a big step forward toward getting back into the payment-processing game last month, creating a partnership with daily deals giant Groupon Inc (NASDAQ:GRPN) to offer users of its terminals access to Groupon’s payment service. That move is arguably more significant for Groupon Inc (NASDAQ:GRPN) as it tries to find a new source of growth. For VeriFone, the partnership marks yet another attempt to avoid disintermediation, as it tries to convince eBay Inc (NASDAQ:EBAY)‘s PayPal and other big players that having their payment services accepted not just online but in physical stores as well unlocks greater value.

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