Shift4 Payments (FOUR) is an under recognized emerging industry leader in integrated payment processing with a large growing and broadening customer base. While competitors are trying catch up with their technology, FOUR has established solutions for POS hardware, software, payment processing, analytics, security, and more, enabling customers to convert to a single vendor for its merchant solutions from what might have been as many as a dozen different software vendors.
FOUR has a particular edge in servicing larger more complex operations for restaurants, casinos, hotels, sports and entertainment facilities and arenas, food and beverage, retail, specialty, e commerce, colleges, theme parks, and more as the company adds new verticals. FOUR’s Shift4 Shop offers a best in class e commerce shop solution for its merchants. The company has well over 200,000 customers and is adding thousands each month.
FOUR has been misunderstood as a reopening play but the company is taking share at such a high rate that it grew revenue a surprising 30%+ when many of their customers were shut down in the second quarter of 2020. The company’s mouse trap is being increasingly appreciated as superior, enabling Shift4 to steal customers from across its verticals at a y/y rate of 25%+ new merchants, while at the same time increasingly upgrading customers from their lower margin starter gateway service to its high margin fully integrated end to end services. A reopening stock play would be an uninspiring “one and done” revenue pop. But FOUR is a disruptor and its growth rate is surging with excellent prospects for the longer term in good times and bad.
Shift4 Payments is my second largest position after UPST. Together, the two stocks represent more than 50% of my holdings, which i would have thought foolish in any prior year of my multi decade investment life.
My conviction is that FOUR is an extraordinary hypergrowth fintech disruptor led by an exceptional founder/visionary and highly capable executive, Jared Isaacman, whose world class aviation achievements got him appointed by Elon Musk to serve as Commander of the historic SpaceX mission launched two months ago. I thought that fame might bring Shift4 more attention, but it hasn’t.
Rather, two unpleasant stories in the last two weeks, 1) an FBI raid on China based payments device maker PAX Technology and 2) the disappointing LSPD results, seem to have driven down the FOUR stock price and set the company up for what i believe is a rare buying opportunity.
Regarding the raid on PAX, Shift4 discloses on their web site that they use PAX devices, and that seemed to stimulate rumors enough to crush the Shift4 stock. The company issued a positive statement in an attempt to provide assurance that PAX’s problem would not disrupt, and additionally disclosed October merchant volume y/y increase of 80% and a 25% increase in merchant count. That didn’t help the share price much.
I then fired off an email to IR and asked directly about potential PAX disruption, and was stunned but pleased to receive a reply directly from CEO Isaacman, indicating that he thought the company’s 10/28 public statement was clear that there was no PAX disruption at all.
Good Morning Shift4 Payments Investor Relations:
"I’m a small independent investor and have had a significant holding in Shift4 Payment shares since 2020, have continued to add, and the stock now stands as one of my top two holdings.
Would it be possible for you to share with me as to whether FOUR is using the China based PAX Technology POS payment hardware that led to the FBI raid earlier this week?
It is hard for me to imagine that with all of this going on, Shift4 was not aware of this incident.
Pleased with the good news statement today but shouldn’t management have addressed the elephant in the parlor?
I would very much appreciate a prompt reply."
Didn’t expect to hear back directly from CEO Jared Isaacman within the hour, but i did. If i may omit fully quoting Mr Isaacman directly out of respect, He was very clear on two points:
1)that he thinks they addressed the PAX issue directly in the Shift4 statement on 10/28, and
2)FOUR sees no disruption at all from PAX.
Meanwhile, i was exchanging emails with our favorite Ticker Target guru who referred to a CS statement debunking the rumor about FOUR disruption due to PAX. The result was precious little, if any, bounce in the stock. I usually tell myself that the Renaissance Technology types only follow and drive momentum and don’t watch the news, but I don’t really know why traders would clobber a secular hypergrowth fintech stock that is so undervalued and very well led.
Regarding the second event that hit the FOUR stock last week, LSPD continued to soar in the face of the PAX news and leading up to its own fateful earnings release. After LSPD sighted supply chain as an explanation for its weak report, FOUR (along with SQ, PYPL, etc.) declined further. We’ll see on November 10 if that concern is called for. I doubt it.
Anyway, IMO, neither the Pax Technology raid nor the price decline in sympathy with LSPD will prove to be justified and I expect a surprisingly stellar report from FOUR on November 10, similar to the blowout numbers in previous quarters with continued expectations for accelerated growth in subsequent quarters. Of course, i have no way of being certain of this forecast, and even if FOUR does report good numbers, who knows how the stock will respond in the near term.
I’m wrong a lot, but I follow this company closely, and this is my conviction. I think the stock should sell at $150-$200 right now, depending on share dilution. I’m using 85 million fully diluted. Short sellers are piling on. I think they will soon get burned.
Shift4 growth is primarily organic, mostly from new merchant customers signing at a rapid rate, and also by upgrading customers from its starter gateway service to its fully integrated service which the FOUR website says is converting gateway customers to full service at a rate of 100% y/y. The company is also active with patch on acquisitions. FOUR has the kind of ambitious leadership needed for a potential multibagger. They want to seize the large available market and build a great company; and take over the world, as we sometimes say about our most committed and inspired young companies.
Bert’s work introduced FOUR to me just a few months after it went public in June, 2020, in the dead of the shutdown. His enthusiastic analysis on Shift4 Payments which was first released in October 2020, has not taken hold. For sure, my initial reaction was to blow it off as another payments system stock and reopening play in which i had enough exposure. But Bert kept coming back to it with anecdotes so i decided to take a closer look. As always when i go deeper on a stock, i started with a closeup look at the competency of the leadership and was rather blown away.
Jared Isaacman, who months later became more visible for SpaceX fame, i found to be a Founder/CEO of the highest rank with the vision and executive capability to grow this company into a fintech giant. And he’s still under 40.
I bought in November, 2020, have added since, and now stand a little underwater and was astounded that the grand slam Q2 report released last August was ignored by the market.
In a note after the 2Q report on FOUR in August, Bert Hochfeld said:
"…Shift 4 reported an even stronger quarter than Datadog. The year over year comparisons are not particularly meaningful; this is a company that has a strong focus on the travel and hospitality industries which were nearly shut down in Q2 2020 and which enjoyed strong, reopening trends in this current quarter. That said, the strong sequential performance with a 42% jump in revenues less network fees, and a 48% growth in payment processing volume led to the company’s first-ever GAAP profitable quarter.
During the conference call, management indicated that July processing volume was up more than 20% compared to the average for Q2, and had reached a rate of more than $14 billion compared to $11.8 billion for the quarter just reported. Based on this data presented and the results of the month of July, I have increased my estimate for 12 months forward revenue less network fees to $739 million. (This company reports both gross revenues-which is what is shown on Yahoo Finance as the 1st Call consensus, and net revenues less network fees. As is the case for Square, and for the other fintech companies who report both gross and net revenues, I use net-I think this is the revenue metric that is most used by investors and analysts in evaluating the shares and comparing valuation to the valuation of other companies."
The Shift4 outlook has only getting since August. I’ll be surprised if Bert doesn’t write something about FOUR after earnings.
CEO Isaacman said in the Q2 call: “As was the case last quarter, the majority of our growth was the result of new and larger merchants joining our platform over the last 12 months…Consistent with our volume growth, we are driving a higher mix of our revenues from net processing fees, as more and more of our gateway customers migrate to our end-to-end solution, which as you know, represents significant accretion to our profitability.”
FOUR has elements of SQ, SHOP, LSPD, TOST, GPN, and PYPL. FOUR is leading in end to end processing, FOUR is the one grabbing the most market share adding major new customers at a rapid rate such as Allegiant Stadium, the United Center, and the Tao Group last summer; FOUR is ready for the emerging crypto world; FOUR has exceeded every projected revenue estimate; FOUR is expanding effectively into adjacencies; FOUR grew revenue 30% when most of its customer base was shut down in 2Q 2020 and has grown by more substantial revenue rates in subsequent quarters; FOUR leadership is the more able, with capability at the Dorsey/Finkelstein/Benioff level IMO, FOUR has 50 PCI certified hardware integrations powered by their own proprietary encryption technology, their world class platform to meet current and anticipated demand, and a simple and clean conversion process.
It would take too long to tell Jared Isaacman’s inspiring story. In a word, he dropped out of high school at 16, to work for a payments company. After a few months of seeing how undelighted customers were with the unwieldy process, he quit and started his own company in his parents garage and began to design his own more streamlined system. After a couple of years, he bought out his old company. Isaacman’s aviation records and now astronaut accomplishments are historic.
My bet is that FOUR will emerge as a desirable hypergrowth stock by any definition within the next few quarters, starting this Wednesday.
Here’s a nice piece on SA dated 10/20/21 on FOUR entitled
Shift4 Payments: One Ecosystem At One Price (NYSE:FOUR)
To address an obvious point, I don’t know if this is a good time or a bad time to discuss FOUR here in the wake of competitor LSPD’s mess. But this is when i could get it done. I have not looked at LSPD beyond checking out the company leadership a few months back, and don’t know anything about the short report, or much else save they recently announced some Shift4 Shop kind of tool that seemed to be well received and that the recent Q was weak.
FWIW, on February 8, i introduced FOUR and UPST to this board. I first bought FOUR in November, 2020, and UPST in early January of this year. Bert’s work introduced FOUR to me, i in turn introduced UPST to Bert a few days after my initial buy and he agreed to research it.
My 2/8 post did not offer adequate analysis to stimulate much interest here so the reaction was understandably light and mixed. I did receive a few positive emails at the time so perhaps it helped someone here. I’ve got clerical limitations and so don’t do many long written narratives. Thanks for Bert, Saul, jonwayne, and all the smart lucid explainers willing to share. I also discussed a small adtech stock in that post, and yes, i’m still bullish on it.
Bert finally issued his usual compelling analysis of UPST in April.
Too bad he decided to wait until UPST reported 12/31/20 earnings on March 17, which was the Mother of All Beat and Raises (from $279M to $500M revenue for 2021) which caused the stock to instantly pop from $60 to $164. Bert and I exchanged emails and he said “what is the point” of him issuing the UPST recommendation after the price explosion. A few weeks later the stock settled down to the $80s, and he released his article that got Saul and others here interested.
I first heard of UPST from Eric Jackson’s CNBC interview on January 4. I did my thing, which is a deep look at the leadership and the standard check of the numbers and the story. I went all in and have done well. FOUR, on the other hand, has dropped since then from $80 down to $60 after rising to $104. Like everyone else, I’m right sometimes and wrong sometimes.
George Soros said “it’s not how often you are right or wrong, but how much you make when you are right and how much you lose when you are wrong.”
So far, i’ve tied up a lot of capital in FOUR for a year with poor results. I think that is going to change soon.