Payment Data Systems Inc. (PYDS), a major player in card payment processing segment, announced its fourth quarter and full year results for 2016. The financial results were a little concerning, as the company reported higher than before net loss, as well as decline in its revenue. However, the investors with medium to long term horizon are required to have vision which goes beyond short-term results. Despite the dip in its margins, the company still remains strong with stout reserves and fundamentals. The results also looked slightly disappointing, as the company is now competing against the high bar it has set up for itself. Read more
So, let’s dig deeper to understand the long term implications of the company’s financial results and their impact on its stock prices.
Payment Data Systems recorded $2.9 million in revenue for the fourth quarter, while its net loss for the same time period stood at $243,382, or $0.03 per share. For the entire year, the company earned $12.1 million in revenue, lower than $14.4 million it had earned in the corresponding period of the previous year. Payment Data Systems suffered net loss of $1.2 million, while it had generated $1 million in net income the previous year. On per share basis, the company swung to net loss of $0.15 per share, up from the income of $0.08 it had earned a year back.
The one main cause of worry is that only the absolute figures for loss are higher than before, but also other metrics, such as gross margin and transaction volume, showed negative trend. Payment Data Systems reported its gross margin for the financial year at $3.8 million, down from $5 million it had earned the previous year. The gross margin percentage also went down from $34.5 percent of the revenue to 31.3 percent.
The dollar value of transactions processed dipped 11.7 percent during the fourth quarter to $736 million. For the entire year, the corresponding value was $2.9 billion, 11.7 percent lower than 2015 figure. But we need to look beyond the obvious to make intelligent investment decisions, which eventually generate better than average returns. Despite decline in the absolute numbers, Payment Data Systems recorded the third largest number for dollar processing in 2016, showing the actual robustness of the company’s business model.
Despite slightly disappointing numbers, the company took a number of steps during 2016 for the long term profitability. The company retained its focus on bringing about innovation in its business practices, as well as on diversifying its portfolio by adding new services. These actions have long term implications and their impact is expected to be visible through the company’s financial results and through its stock market performance.
In 2016, Payment Data Systems introduced a new web app to simplify the payment management system for clients. The new app is intuitive in its design and is easy to be used. The company is optimistic that it will help Payment Data Systems in attracting new clients.
Apart from this, Payment Data Systems also geared to monetize the emergence of apps. The company introduced an Apple iOS software development kit, designed to help developers in integrating payment acceptance into their apps. This will help the company in increasing its user base as it will be able to leverage the user base of different apps for growing its revenue. The kit also has many other features such as real-time provisioning of mobile wallets and issuance of digital incentive, as well as gift cards.
However, investing in technology and new applications is not the only progressive step taken by the firm. Payment Data Systems ensured that its business grows not only organically, but also through acquisitions. This strategy is astute as it helps the company in growing its business exponentially, yet in a controlled manner. The company has made recent plans to acquire Singular. The deal will allow Payment Data Systems to boost its revenue by better utilizing its sales channels. While the parties to the deal chose not to disclose the financial terms and conditions, however, its structure suggests that operationally, this collaboration will be accretive for the company.
While, the year 2016 had been pretty hectic for Payment Data Systems, its stock price dipped over 25 percent in the past 12 months. It is a point of concern as the company stock price failed to factor its operational growth. However, at the same time, it also shows that the stock has untapped potential which may be easily yielded by investors with medium to long term investment horizons. The stock is currently trading nearly 65 percent lower than its 52 weeks high of $3.80. Despite its long term sluggishness, the stock is showing some strong signals. In the past 5 trading sessions, it has picked up more than 5 percent. At this price point, I would build up position in the stock incrementally spread over the course of next couple of months. The stock is expected to factor in the impact of the recent endeavors undertaken by the company in near future.