Lack of R&D could be fatal
Moreover, there is further threat from the likes of PayPal from eBay Inc (NASDAQ:EBAY). eBay has been taking PayPal to retail stores and it had entered into a partnership with Ingenico last year to enable in-store payments. Consumers would be able to make payments via a PayPal card or mobile. It should also be noted that PayPal has a similar deal in place with VeriFone Systems Inc (NYSE:PAY) as well.
Now, as fellow blogger Salvatore “Sam” Mattera had pointed out eBay Inc (NASDAQ:EBAY) might disrupt the space, and I think that it could even eliminate the need for terminals in the future once it establishes its presence in stores. Since PayPal’s in-store payment system doesn’t require an NFC device, the company is well-capable of pulling a fast one on the likes of VeriFone.
The advent of mobile payment solutions are a threat to VeriFone Systems Inc (NYSE:PAY)’s business, and given the fact that the company has failed to focus on research and development has made life further difficult. VeriFone accepts the fact that a failure in R&D led to a loss of market share as customers switched to competitors.
While the company is now looking to fix that, I doubt whether a customer who has bought a different device will switch back considering the logistical challenges of switching every now and then. Failure to innovate and execute properly has also increased threats from the likes of Square as VeriFone Systems Inc (NYSE:PAY) had to shelve its own solution that was intended to compete with Square.
Stay away
VeriFone Systems has endured pretty tough times, but management did offer some positives over the previous conference call as to what they intend to do. But, such positive commentary has been a common feature over VeriFone Systems Inc (NYSE:PAY)’s earnings calls. In the end nothing has come of it. Increasing competition and a rising threat of disruption from newer technology coupled with VeriFone’s own failure to move fast has doomed the company.
Moreover, despite the stock having crashed significantly this year it still trades at 100 times earnings, which is too much to pay for a company with declining revenue and earnings, and that too in an industry with potential to grow. In comparison, competitor Ingenico has an acceptable trailing P/E of 28 times and has growing revenue. Thus, it’s best to stay away from VeriFone Systems Inc (NYSE:PAY) even though the stock might be trading near its 52-week low.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends eBay. The Motley Fool owns shares of eBay Inc (NASDAQ:EBAY).
The article Competition and Innovation are Taking This Company Down originally appeared on Fool.com.
Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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