Third-quarter results posted before the market opened Wednesday (Oct. 29), and a guidance cut that pointed to growth rates being sliced roughly in half sent the stock plunging more than 40% in early trading.
Details via company presentation materials indicated that organic growth slipped to 1% and margins declined. Sales in its Financial Solutions segment were down 3%. Overall organic revenue growth forecasts were chopped to a 3.5% to 4.5%, where that rate had previously been around 10%. Within the Financial Solutions unit, digital payments revenues slid 5%, banking related revenues dipped 7%.
Management changes are also in the works. Takis Georgakopoulos and Dhivya Suryadevara were named as co-presidents effective Dec. 1, and Paul Todd will be the incoming chief financial officer.
During the conference call with analysts, CEO Mike Lyons said that “you’ve seen our results and revised guidance for the year. While disappointing, the actions we are taking are driven by a rigorous analysis of the company conducted during the third quarter and represent a critical and necessary reset and a revitalizing moment for the company.”
Competitive Gaps
Company internal analysis “also identified certain competitive and client service gaps which we are actively working to fill and are confident that with focused investment we can fully address,” he said.
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“One of the key takeaways from our analysis is that Fiserv’s growth and margin targets need to be reset … it became clear that there were incremental assumptions embedded in our guidance including outsized business volume growth, record sales activity, and broad based productivity improvements, all of which would have been objectively difficult to achieve even with the right investment and strong execution.”
He told analysts that “nothing at Fiserv is fundamentally broken. Our businesses are well positioned. The markets we serve are growing. We are expanding into new TAMs and our clients have a near insatiable appetite for innovative technology and payment solutions. This reset is about aligning structural versus cyclical growth and sustainable revenues and expenses versus short term results.”
Total Clover Q3 GPV grew 8% on a reported basis, said Lyons, and in the U.S., Clover GPV grew approximately 7.5% excluding the Gateway conversion, which marked a slight acceleration from the first half of the year. In guiding for the months ahead, through 2025, Clover revenues are expected to be $3.3 billion, where they had been expected to be $3.5 billion. “We continue to invest heavily in Clover to make it the go to operating system for SMBs, a massive critical market where we have the clear right to win,” Lyons said.
Parsing the Lines of Business
Incoming CFO Todd said Clover revenue grew 26% in the third quarter and was impacted by approximately 100 basis points due to Argentinian FX headwinds. He said volume growth in Q3 was 11%, similar to Q2 growth.
“Looking at the business line level, In digital payments, organic and adjusted revenue each declined 5% due to industry dynamics in the quarter, while the company experienced healthy debit processing, debit network and Zelle transaction growth,” he told analysts. Company materials indicated that Zelle volumes were up 19%. In banking, organic and adjusted revenue declined 7% in the quarter, primarily due to lower periodic license activity. Lyons pointed to longer term potential with banking clients and core offerings such as its Cash Flow Central.
“We certainly can grow faster than mid-single digits. But if take out cyclical and focus on structural long term sustainable growth,” said Lyons.
