The shift toward a cashless society is accelerating, driving demand for seamless digital payment solutions. Shift4 Payments (FOUR) stands out by focusing on the lodging and restaurant industries, offering an all-in-one platform simplifying operations while boosting profitability. In today’s FA Alpha Daily, we analyze how Shift4’s transition into end-to-end payment solutions positions itself for sustained growth.
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The world is inevitably transitioning into becoming a cashless, paperless society due to the digitization of money and developing payment systems.
As we move into this transformation, we don’t only need banks or card networks like Visa (V) and Mastercard (MA). We also need payment processors that connect merchants, merchant banks, card networks, and consumers to make card payments possible.
This is where Shift4 Payments (FOUR), a niche payment processor, comes in.
Instead of dividing its focus for any industry that needs payment solutions, Shift4 primarily focuses on the lodging and restaurant industries.
The company makes around 40% of the transaction volume in the lodging industry and 16% in the restaurant industry.
Additionally, the company provides an all-in-one platform for businesses to manage their digital operations.
The offerings through the platform include a business intelligence dashboard, loyalty programs, waitlist and reservation management, and CRM tools.
Through the platform and its technology solutions, the company is transitioning its customers from its lower-margin gateway payment processing business to higher-margin end-to-end solutions. Doing so simplifies the customer’s business and cuts out the competition for Shift4.
The company is highly successful in this conversion too. The 3-year compounded annual growth rate (CAGR) for its end-to-end solutions volume is 47%, which is a remarkable growth.
Moreover, the company plans to expand into new but similar markets like retail, casinos, and sports and entertainment facilities to drive further revenue and profitability growth.
Additionally, since going public, it has made multiple acquisitions to help it expand into new verticals, including e-commerce and sporting and concert venues.
These integrations and acquisitions have helped it become even more essential for its core restaurant and lodging customers. It has built out capabilities to expand to connected markets.
And its work on building a complete solution has allowed it to successfully expand its offering to a full set of solutions for the markets it has come to dominate.
All these factors combined enabled the company to achieve a 60% Uniform return on assets ”ROA” and 80% asset growth last year, and analyst expectations for the future look even better.
Take a look…
Despite Shift4’s business hitting an inflection point as it transitions from simple POS to end-to-end services, the market has concerns over competition and the sustainability of successful M&A activity.
We can see this by looking at the company’s Uniform P/E ratio.
Shift4 currently trades at 17.6x Uniform P/E, lower than the corporate average.
Considering how the company has been expanding from dominating its markets, having “landed” in them, to expanding into a far bigger wallet share for its customers as it moves from being a gateway solution business to an end-to-end market provider, it’s likely for growth to accelerate.
Shift4 has already been highly profitable in a normal environment with a majority in the POS business.
Now, as it’s transitioning most of its customers from its gateway business to an end-to-end market solution, returns will only continue expanding once it gets back to business as usual for its clients.
Best regards,
Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research
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