Sunday , August 14, 2022

Shift4 Spells Out Big Ambitions for Bigger Merchants And International Expansion

Shift4 Payments Inc. has long made no secret of its plans to expand the size of merchants it serves, but early on Thursday its chief executive made the company’s overarching strategy crystal clear following recent signings of such international clients as Time Inc. and SpaceX’s Starlink satellite business, along with major-league sports stadiums. “For 18 years, we served incredibly small customers, and it was a service burden on the company,” said Jared Isaacman, who also founded the Allentown, Pa.-based processor. “Now look at the direction we’re going in. It’s huge companies, and the service burden is so much less.”

Addressing Shift4’s second-quarter results, Isaacman added the company’s direction has shifted from small and domestic to big and international. Indeed, the company’s average merchant size has already doubled since 2019, Isaacman said.

The latest key to this strategy is the company’s pending acquisition of e-commerce acquirer Finaro, which is now expected to close in the fourth quarter. “Finaro is the first” deal in Shift4’s international expansion strategy, Isaacman said, “but it will not be the last.”

Isaacman: “Finaro is the first” deal in Shift4’s international expansion strategy, “but it will not be the last.”

Shift4 agreed earlier this year to pay $525 million upfront for Israel-based Finaro, along with a $50-million earnout, to be paid in stock. Finaro, which processes transactions in the United Kingdom, Europe, Hong Kong, and Japan, supports more than 170 alternative payment methods, vastly expanding Shift4’s currency capabilities in addition to moving the company into overseas markets in a major thrust for the first time. International transaction rails, Isaacman said, are “something we spend a lot of time thinking about.”

Playing a role in this strategy is the company’s ongoing effort to convert gateway clients to what the company calls “end-to-end” processing, which is more lucrative for Shift4. With the gateway model, the company ultimately hands off transactions to the client’s processor rather than handling settlement itself.

Shift4 has been working on these conversions for years, and during the June quarter launched a “gateway sunset strategy” that involves limiting the offering and moving faster on conversions. “We feel good about our success rate,” said Taylor Lauber, president and chief strategy officer for Shift4, during the earnings call. “The downturn in the economy increases merchants seeking out a more efficient solution.”

The new approach may be starting to pay off. Shift4 reported its end-to-end volume totaled $16.9 billion in the quarter, up 43% year-over-year and representing a 45% compound annual growth rate since the second quarter of 2019. “We feel good about our success rate,” Lauber said.

Said Isaacman: “We’re confident we can convert gateway merchants to the end-to-end platform or get paid [equivalent value].” Apparently, many of these merchants are opting for end-to-end service. “I could not be more excited about the pipeline,” Isaacman said, adding he sees big potential in converting hotels. “Lodging is where we’re going to have a ton of traction,” he told the analysts.

Overall, Isaacman wanted to ensure analysts got the point about Shift4’s ambitions. Finaro was the first move toward building out the company’s transaction rails internationally, he said, adding, “it will not be the last.” He acknowledged the competition in that arena he expects Shift4 to encounter from companies such as Stripe Inc. and Adyen NV, but was undeterred.

“Our number-one priority is extending our rails to the world,” Isaacman added. “It’s a number-one capital-allocation priority right now. Number two is anything that can extend our end-to-end processing growth.”

For the quarter, Shift4 reported gross profit of $105.8 million, up 35% over the same period last year. For the year’s first half, profit totaled $190.4 million, up 47% year-over-year. Gross revenue for the quarter came to $506.7 million, up 44%. For the first six months, revenue was $908.6 million, a 54% increase.

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