VeriFone Systems Inc (PAY): Competition and Innovation are Taking This Company Down

The first half of the year is now in the rear-view mirror and it has been a pretty good one for the market. The Dow and the S&P 500 have gained in the early teens and the latter enjoyed its best first half in the last 15 years. But, while the major benchmarks have advanced, there are a few stocks which investors must have regretted buying.

VeriFone Systems Inc (NYSE:PAY) is one such stock. The so-called “global leader in secure electronic payment solutions” is seemingly falling into an endless abyss as it has failed to set its house in order. The company has been plagued by numerous issues ranging from a poor acquisition strategy to poor planning and execution, macroeconomic headwinds, and most importantly, a change in business model (requires sign-in).

As such, the stock’s massive decline of around 43% this year doesn’t come as a surprise. VeriFone Systems Inc (NYSE:PAY) has been missing estimates and issuing sorrowful guidance figures of late. The company’s growth story seems effectively over as revenue and earnings declined once again in the previous quarter from the year-ago period. Now, for a company plying its trade in the electronic payments industry, this is unacceptable.

Elbowed out

VeriFone has been trying to turn itself around, but things seem pretty difficult from here. The company is presently headed by an interim CEO after former CEO Douglas Bergeron stepped down in March. Revenue across various geographies declined in the previous quarter and this does not make for good reading. VeriFone Systems Inc (NYSE:PAY)’s competitors, such as Ingenico, have made life difficult for it and seem to have pushed it into a corner.

VeriFone understands that lack of innovation has hurt it, and the fact that it strayed from its proven model of selling hardware to a monthly subscription model hasn’t done any good either. While this has had a terrible impact on the company’s financial performance, competitors have moved in and it would be difficult for VeriFone Systems Inc (NYSE:PAY) to move into markets where players like Ingenico have established a hold.

For instance, Ingenico will be rolling out contactless payment terminals in Mexico for Banco Nacional de México (Banamex) in the country. Banamex plans to deploy this system to around 30,000 retailers which will allow the 1 million contactless cards which were issued recently to be used with them.

Now, this is certainly a massive boost for Ingenico. But at the same time, this is a big loss for VeriFone as it was among the technology providers who were tried out for the project and finally lost out to its competitor. Moreover, when you consider that VeriFone Systems Inc (NYSE:PAY) had its D.C. Taxi smart meter contract overturned as the Taxicab Commission decided that it’ll allow multiple vendors to install credit card readers, taking exclusivity away from VeriFone, question marks might be raised over the company’s future.