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By: Michael Vidovic, AIM student at
Marquette University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
Euronet Worldwide, Inc. (NYSE:EEFT) provides
solutions for electronic payments and transactions to financial institutions,
retailers, individuals through DCC, and service providers in the United States
and throughout Europe.
•
EFT and E-pay segments have shown strong revenue with 16% year over year growth
in Q1 of 2018.
•
EEFT slightly missed 2017FY and Q1 2018 on a revenue basis, but margins were
higher than expected.
•
The company is experiencing very negative news coverage related to their
currency conversion platform, and regulation is in formation.
•
Key points: Euronet Worldwide has a
very appealing business strategy in that they offer highly valuable services to
tourists and travelers through their electronic payment and conversion
platforms. We saw this business model as being quite sustainable given how
consistent tourism is in America and Europe. However, 2017 proved to be quite a
caustic year in terms of public opinion of EEFT’s currency conversion platform.
Regulations is in the works now for the business segment, and EEFT won’t be
able to experience the same level of segment profitability they had previously
seen.
What
has long since surprised me about the name is of how consistent ATM usage has
been outside the US. While I haven’t been to one in 6 months, ATM’s provide a
necessary source of funds internationally, and I believe the services Euronet
provides will remain in strong demand in the near future. The strong ATM usage
trends reaffirm my belief that the company still has plenty of growth in
emerging economies, and developing countries that would benefit from easy
internationally financial platforms.
Euronet
Worldwide has seen strong segment results in their EFT and electronic payment
segments with 16% growth in year over year growth in Q1 of 2018. Euronet just
launched their ATM networks in Bulgaria and Sweden, while integration in India
remains strong. Overall, I like how the business is growing largely, but the problems
with the DCC division are concerning.
What has the stock done
lately?
The
stock was down 17% in early February following shortfalls on revenue generation
in the company’s annual statement as well as global concerns about the future
of the Dynamic Currency Conversion platform. The company does not break out the
profitability of its different segments, but the DCC platform is estimated to
be around 30-40% of the company’s profit, and as such experienced huge swings
as Europe has begun regulating the technology.
3 Month Price Chart
Past Year Performance: EEFT is down 6.1% for the last twelve
months, but recently found itself down 15% in early May due to severe problems
related to the company’s Dynamic Currency Conversion platform. The segment has
received a lot of criticism in 2017 regarding how DCC is being used
internationally not for the convenience of transferring currencies, but to rip
off people by charging as high as 500-500bp in markup. In May the European
Commission proposed greater transparency and competition in DCC space, and
fraud prevention plans in general. While the stock has shown a slight
resurgence since it’s problems were unveiled in early February, all the
concerns are still unanswered at this point.
1-Year Return Relative to the
Russell 2000
My Takeaway
EEFT
is maintaining their impressive international growth story with continual ATM
expansion across the globe. I think the concerns with the DCC platform are
overinflated, and the European Commission likely will just set a maximum spread
above the previous day’s exchange rate. That being said, growth has been lower
than expected, and the regulation change will only slow this amount further.
Until the DCC platform stabilizes I issue a hold rating for Euronet Worldwide,
Inc.
