Fiserv Inc.’s stock fell. to its worst performance in more than 19 months on Wednesday after the fintech company discussed the loss of a major processing client during its earnings call and offered a more muted comment about the current quarter than some had expected.
The stock fell 10 percent in trading on Wednesday, achieving the largest percentage drop in one day since March 18, 2020, when it lost 10.9 percent.
The company reported third-quarter net income of $428 million, or 64 cents a share, up from $264 million, or 39 cents a share, in the first quarter of the prior year. On an adjusted basis, Fiserv earned $1.47 per share, up from $1.20 per share a year earlier and ahead of $1.45 per share that analysts tracked by FactSet had been expecting.
Revenue increased to $4.16 billion from $3.79 billion, while analysts were looking at $4.12 billion.
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The company now expects internal revenue growth of 11% for the full year, along with adjusted earnings per share of $5.55 to $5.60 for the period. The company’s previous forecast was for revenue growth of 10% to 12% and $5.50 to $5.60 in adjusted EPS.
Analysts saw several reasons for the stock sell-off on Wednesday, including CEO Frank Bisignano mentioning “the loss of a significant processing client through one of our joint ventures” during the company’s earnings call.
Chief Financial Officer Robert Howe added that Fiserv noted the loss “in terms of adjusting our volume and transactions for transparency” but that the situation “has very little overall impact on actual revenue.”
“It looks like they’ve lost a tape,” Baird analyst David Koning wrote. While this “sounds bad”, he agreed that losing this customer was “almost immaterial in relation to revenue” since large buyers and large merchants tend to pay “very low fees” per transaction.
On a more positive note, “Clover’s explosive growth is coming in very high returns…maybe 10-20x + return on Stripe volumes,” he continued, referring to the company’s Clover business that offers card processing and point-of-sale technology.
Barclays analyst Ramsey El-Assal also suspected Stripe of being the customer referred to.
“Management indicated that the client brought the processing internally, rather than a competitor taking over the business (although investors are concerned about competitive pressure from fintech companies, a loss could have a greater impact on sentiment),” he wrote.
Representatives for Stripe and Fiserv did not respond to MarketWatch’s requests for comment on whether Stripe was a customer who left the joint venture.
Al-Assal also noted that Fiserve suggested that fourth-quarter admissions revenue could be roughly in line with third-quarter revenue. He noted that those expectations are “likely somewhat lower than investors had been hoping for, especially given potential support from the upcoming holiday season.”
Raymond James analyst John Davis focused on Fiserve’s free cash flow forecast, which he called “the biggest concern” of the report. Fiserv expects to convert 95% to 100% free cash flow for the full year, down from its previous forecast of at least 108%.
While at this stage we do not expect a material disruption to the management objective [of] With $30 billion in capital allocated over the next five years, Davis wrote, we believe the higher capital expenditures are sustainable (Reinvestment for Growth + Ondot Software Development), which will impact FCF’s transformation in the future.
Fiserv’s competitors to Global Payments Inc. GPN,
and Fidelity National Information Services Inc. FIS,
It lost 7.6% and 6.7%, respectively, in the Wednesday session. Payment stocks generally struggled Wednesday: Visa Inc. V,
It fell 6.9% after the company delivered a disappointing forecast for the new fiscal year, while Mastercard Inc.
It fell 6.0%.
Fiserv shares have lost 13.8% over the past three months, like the S&P 500 SPX,
It rose 3.4%.