Payment Data Systems $PYDS: Why This Mobile Payments Company Should Be On Your Radar


The mobile payments industry has been seeing significant growth, driven mainly by the increasing use of smartphones and tablets. Indeed, the industry has even piqued the interest of electronics payment giants such as Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA).

 According to a report by Trefis published on Forbes, mobile payment transaction volume is expected to reach $717 billion by 2017. Not surprisingly, Visa and MasterCard, who together account for 80% of the market share in total credit card and debit card spending, have been interested in this growing space. The Trefis report notes that in the U.S. alone, the mobile payment market was worth approximately $50 billion in 2014.

Interestingly, the mobile payment industry is seeing interest from not just electronic payment giants Visa and MasterCard but even technology companies like Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG).

Apple Pay, a mobile payment and digital wallet service, was launched by Apple in late 2014. The service enables users to make payments using their Apple devices. Apple Pay has been described as a game-changer for small businesses and has been seen as a major step toward making mobile payments mainstream. Last year, Google announced the acquisition of Softcard.

Several other deals have been announced in the mobile payments space, including PayPal’s (NASDAQ: PYPL) acquisition of Paydiant. According to reports, PayPal paid around $280 million to acquire Paydiant, which licenses a technology platform employed by major retail chains to create their own mobile wallet apps.

The mobile payments industry is seeing consolidation and not surprisingly this has boosted valuation. But there are still some opportunities in the mobile payments space. One such opportunity is Payment Data Systems Inc. (NASDAQ: PYDS). Based in San Antonio, Texas, Payment Data Systems processes electronic payments for other companies.

Payment Data Systems has been seeing consistent growth in its transactions processed per year. Back in 2011, the company processed a total 4.3 million transactions. This doubled to 8.6 million in 2012 and from there it rose another 50% to 13 million in 2014. In terms of dollars processed per year, Payment Data Systems has been growing at a CAGR of 102%. In 2011, dollars processed by the company totaled $204 million. Dollars processed rose to $630 million by 2013. In 2014, dollars processed jumped to almost $3 billion.

In January, Payment Data Systems reported record transaction processing results for the fourth quarter and full year 2015. For the fourth quarter, total dollars processed exceeded $833 million, which was consistent with the same period in the previous year. Credit card processing volumes for the fourth quarter of 2015 set a new record, with credit card dollars processed rising 6% and credit card transactions processed rising 5%, compared with the same period in the previous year.

For 2015, total dollars processed by Payment Data were $3.3 billion, a record and up 18% over 2014. PYDS’s ACH transaction processing volumes for 2015 also set a record, rising 13% over 2014 levels. Credit card processing was also at record levels in 2015. Credit card dollars processed 9% in 2015 and credit card transactions processed rose 3% in 2014.

Michael Long, CEO at Payment Data Systems, said last month, “In 2015, we posted another record year across all key operating metrics, and for the first time exceeded the $3 billion mark for total dollars processed. We were pleased with our fourth quarter metrics and the rapid adoption of our new verification service that significantly reduced return check rates for our customers. This service is a win-win for our customers and for us, improving quality for merchants and providing a solid revenue stream for Payment Data Systems.”

Payment Data Systems expects to report record revenue for 2015. More importantly, the company is extremely bullish about its growth prospects. Long said last month that the company’s growth plans call for continued and aggressive expansion of its core payments business by securing new clients and expanding its high-growth prepaid and incentive card business.

Payment Data Systems has taken several steps to maintain the robust growth it has experienced in the last five years. Last month, the company made two major announcements. One, PYDS announced the expansion of its relationship with its customer C2Go Inc., an innovative electronic payment solutions provider to business and individuals participating in today’s increasingly variable workforce. According to the agreement, Payment Data Systems will provide funding to C2Go for expansion of its B2B commission services in Las Vegas market and C2Go will co-brand the Akimbo Prepaid MasterCard(R).

According to Payment Data Systems, the addition of C2Go’s cardholders could more than double the number of Akimbo Card users by the end of 2016.

Payment Data Systems also announced last month that it now supports Apple Pay(TM) on the Akimbo Prepaid MasterCard. Louis Hoch, President & CEO of FiCentive, said, “Being first-to-market with the latest payment innovations is a top priority for our prepaid card solutions, and we’re proud to launch Apple Pay support for our flagship consumer card brand Akimbo. Our goal is to help businesses use the Akimbo platform to deliver a wide variety of payments from rewards and incentives to regular payroll.”

Despite these positive developments, Payment Data Systems looks significantly undervalued. The stock is trading at just 6.70x earnings, which is low for an emerging company like PYDS. Remember that many of acquisitions in the mobile payments space have come at a hefty premium. With PYDS significantly undervalued, it would not be a surprise if it starts seeing interest from major players in the mobile payments space.

Earnings Call Transcript 3/24/16:

Upcoming Event: Spring 2016 Sidoti Emerging Growth Convention in NYC 3/31/16:


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