The Current Market Discourse
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Global Payments Inc. (NYSE:GPN) finds itself in a tempestuous sea near 52-week lows, where debate on organic growth and potential share loss in the merchant acquiring sector rages on, as highlighted in a recent note by Mizuho Securities.
Potential Paths to Prosperity
Despite the tumult, the payment technology company harbors strategies that may reignite optimism, according to analyst Dan Dolev.
It is conjectured that a potential sale of the Merchant Solutions business combined with a spin-off of the Issuer arm could unleash approximately 30% of untapped value. Dolev’s mathematical musings propose that the issuer processing business could be a standalone gem valued at $40-$45 per share, unlevered. Shedding the ailing point-of-sale (“POS”) business might add another $145-$150 per share to the treasure trove, ultimately culminating in a total value for GPN of $125-$130 per share.
Performance Metrics and Machinations
In the realm of figures, Merchant Solutions’ adjusted operating income of $790.4 million in Q1 saw a slight decline from the previous quarter’s $797.3 million but an uptick from the $688.3 million recorded a year before. Measures for Issuer Solutions were also scrutinized, with Q1’s $241.4 million slipping from $251.0 million in Q4 2023 but ascending from $215.2 million in Q1 2023.
Dolev highlights a troubling trend where GPN’s merchant unit’s revenue growth, excluding certain disposals, has lagged behind the aptly named rival Fiserv (FI) since 2019. The gap between the two has only broadened in recent times.
Ruminating on the reasons behind the sluggish growth, Dolev posits, “The leading cause of slower growth could be GPN’s lack of branded POS solutions.” This absence has led to formidable foes like Fiserv (FI), Toast (TOST), and Block (SQ) making significant inroads in the North American POS landscape, exacerbating GPN’s struggle to retain market share and attract new merchants amidst a tech revolution that renders legacy GPN systems obsolete.
Comparatively, GPN’s issuer processing arm stands as a beacon of stability, showcasing steady mid-single-digit core growth and room for further expansion. Dolev asserts that this segment holds a considerable market share of 20%-25% within the $8 billion-$9 billion total addressable market, with prospects to double the TAM with forays into products such as fraud & risk management, digital, and commercial payments.
Market Sentiment and Historical Context
Positing on a prospective pathway, Dolev suggests that Global Payments (GPN) may win favor with the market should it opt for a spin-off of its POS business. This strategic maneuver draws parallels to the momentous decision by rival Fidelity National Information Services (FIS) to divest a majority stake in its Merchant Solutions wing, globally recognized as Worldpay, following a $35 billion acquisition in 2019. The reverberations of this move were positive, inducing a 40% surge in FIS’s shares over the past year.
Despite such luminous examples, GPN’s own stock has been a laggard amidst peers and the general market trend. Over the past half-decade, GPN has descended by 37%, a stark contrast to the S&P 500’s 89% ascent and the legacy payments sector’s modest 16% uptick. Dolev, exercising neutrality, maintains a Neutral rating on GPN, calling attention to its underperformance in the broader financial milieu.