Shift4 Payments Inc – November 24, 2022

Merchants are increasingly adopting a multitude of software solutions and new digital tools to operate their businesses, manage interactions with customers, and accept payments, all whilst remaining competitive. The complexity of conducting commerce across these software suites has created an enormous challenge for card-accepting merchants.

Shift4 Payments is redefining commerce by simplifying complex payment ecosystems across the world. As a leader in commerce-enabling technology, Shift4 powers billions of transactions annually for over 200k businesses across virtually every industry. It has achieved this leadership position through decades of solving business and operational challenges facing customers’ overall commerce needs.

The company distributes services through a network of software partners and value-added resellers. For software partners, it offers everything from a single integration to an end-to-end payments solution, along with a proprietary gateway and a robust suite of other technology solutions to simplify payment acceptance. While for merchant customers, it provides a seamless, unified consumer experience as an alternative to relying on multiple providers to accept card-based and digital payments.

Shift4’s best-in-class technology provides the backbone payments for many leading brands from Burger King to Elon Musk’s Starlink. With a strong track record of consistent execution and winning new business, coupled with the ongoing growth in digital commerce the company is poised to benefit from huge tailwinds in payment processing needs.

While working as an employee of a payment processing company, the then 16-year-old Jarod Isaacman identified what he saw as inefficiencies in the industry. In response, he launched United Bank Card in his parent’s basement in New Jersey. At the time, it generally took merchants about one month to set up a payment system and merchants had to pay for their credit card readers and sign a lengthy application. As an alternative, Isaacman’s new company cut the set-up time to one day, gave merchants free credit card readers, and only required them to sign a two-page application.

In the preceding years, the company expanded by acquiring multiple payment processing and point-of-sale companies, including payment gateway provider Shift4 Corporation, and in the process, rebranding itself as Shift4 Payments.

Shift4 went public on the NYSE in June 2020, raising $345 million through its IPO, as one of the few companies to go public in the months after the start of the COVID-19 pandemic. Since then the company’s acquisitions have continued with 3dcart, an eCommerce platform, which was subsequently rebranded as Shift4Shop. Followed by VenueNext, a provider of point-of-sale and payment solutions for stadiums, arenas, and other entertainment venues. Along with global payment provider, Finaro, a year later.

Still with the company as chief executive officer, Jared Isaacman manages the core divisions of Shift4, as well as the overall operations of the company. He is considered to be one of the industry’s most influential business leaders and has been recognized with several prestigious awards including one of “America’s Best Entrepreneurs” by BusinessWeek Magazine and “30 Entrepreneurs Under 30” by Inc. Magazine.

Taylor Lauber serves as president and chief strategy officer and is responsible for all aspects of growth, including overseeing product development, strategic partnerships, and corporate development/investments. Prior to joining Shift4, Lauber held several senior roles at financial giants Blackstone and Merrill Lynch.

While chief technology officer, Michael Russo, has over 30 years of experience in the hospitality and healthcare technology space, building cutting-edge software products, driving strategic business initiatives, and developing go-to-market strategies.

At the heart of Shift4’s business is its payments platform. The company’s value proposition is to create a seamless end-to-end payments solution that includes point-of-sale (POS) terminals, payment gateway integration, and processing.

The platform provides omnichannel card acceptance and processing solutions across multiple payment types, including credit, debit, contactless card, EMV, QR Pay, and mobile wallets, as well as alternative payment methods such as Apple Pay, Google Pay, Alipay, and WeChat Pay. It also provides full eCommerce capabilities, including web-store design, hosting, shopping cart management, and fulfillment integrations, along with security and risk management solutions, as well as reporting and analytical tools.

Shift4’s comprehensive suite of technology solutions which is designed to streamline customers’ business operations includes:
• VenueNext – provides stadium and entertainment venues with a frictionless commerce experience that includes mobile ordering, countertop point-of-sale, self-service kiosks, and digital wallets to facilitate food and beverage, merchandise, and loyalty functions all within a white-labeled technology application that is fully integrated with its secure end-to-end payment processing platform.
• Shift4Shop – a turnkey eCommerce platform for merchants to build their business online. Merchants can create a webstore in minutes, manage their product catalog, order fulfillment and inventory management, search engine optimization, and secure hosting.
• Lighthouse – a cloud-based suite of business intelligence tools that includes customer engagement, social media management, online reputation management, scheduling, and product pricing, as well as extensive reporting and analytics.
• SkyTab hybrid-cloud-based Integrated Point-of-Sale – purpose-built POS workstations pre-loaded with powerful software suites and integrated payment functionality for restaurant and stadium clients.
• SkyTab Mobile POS – provides pay-at-the-table, order-at-the-table, delivery, customer feedback, and email marketing functionality.
• Marketplace – enables seamless integrations into complementary third-party applications such as inventory, loyalty, payroll, timekeeping, and other human resource services, reducing the number of vendors on which merchants rely.

The majority of Shift4’s revenue is derived from fees paid by merchants, which principally include a processing fee that is charged as a percentage of end-to-end payment volume. In cases where merchants subscribe only to the gateway, Shift4 generates revenue from transaction fees charged in the form of a monthly and fixed fee per transaction. It also generates subscription revenue from licensing its POS software, business intelligence tools, payment device management, and other technology solutions.

Shift4 markets and sells its solutions through a diversified network of over 7,000 software partners, which consists of technology providers that develop commerce-enabling software suites with which they can bundle the payments platform, along with other organizations that provide distribution support.

The company has over 200k customers which mainly consist of brick-and-mortar restaurants, hotels, casinos, sports arenas, gyms, etc. The vast majority of its merchants include highly-scalable small to medium size businesses across numerous verticals including food and beverage, hospitality, stadiums and arenas, gaming, specialty retail, non-profits, and eCommerce. Yet its most well-known customers include Hilton, Caesers, DoubleTree, Burger King, Applebees, Popeyes, Dennys, TGI Fridays, the LA Galaxy Arena, and many more. While most recently, the company saw contract wins with Wisconsin and Alabama Universities, as well as taking on the payments for the Starlink satellite internet service.

Starting its life as a payment gateway which it still provides today, Shift4’s differentiation lies in its expansion into a complete end-to-end platform. This expanded suite of services offers many functional advantages and with over 400 software integrations, enables it to deal with the most complex payment requirements. Furthermore, as users migrate from a payment gateway to a wider usage of services, the company benefits from improvements in its overall gross margins and ultimate profitability.

Acquisitions in recent years have helped Shift4 take advantage of expanded verticals including sports and entertainment venues, gaming, and eCommerce, adding to its market-leading position in the restaurant and hospitality space and extending its total addressable market to more than $3.5 trillion. The purchase of VenueNext has driven substantial new customer acquisitions as individual stadiums and arenas are far larger than restaurants or even most hotels in terms of their contribution to payment volume.

These revenues from stadiums can also benefit from tickets to events and other merchandise, usually sold in conjunction with a Shift4Shop integration, born out of the 3dcart acquisition. Despite the availability of a substantial number of eCommerce platforms, including the ubiquitous Shopify, Shift4Shop has gained significant traction expanding its user base to tens of thousands of online stores, as merchants appreciate the in-built functionality of payment processing within the store management toolset.

Whilst most recently, the company’s purchase of global cross-border payment provider and fully licensed bank, Finaro, underscored its aggressive efforts to deliver a unified commerce experience across the world. By integrating Finaro’s capabilities, Shift4 expects to further expand its current services including SkyTab POS, Shift4Shop, and VenueNext stadium offerings globally.

The rollout of the latest version of Shift4’s SkyTab POS solution has also been of particular focus as restaurants remain by far, the largest single vertical of the company covering over 125k locations. It is anticipated the overall product refresh will continue to help solidify new wins and the conversions of gateway customers to the end-to-end platform, as the company looks to de-emphasize gateway-only connections to remove unnecessary operational parts, whilst also improving revenue and margins in its high-growth core business.

Shift4’s rapid expansion in recent years has flowed through to strong growth in end-to-end volumes, revenue, gross profit, and net income. This trend continued in its latest quarter with record results across the key metrics. Gross revenue was $547.3 million for the September 2022 period, compared to $377.8 million 2021, representing an impressive increase of 44.9% year-on-year. The increase was largely driven by end-to-end payment volume of $7.1 billion which was up by more than 52%, while subscriptions and other revenues were also up a healthy 24%. The strong result sent revenues for the year to date to an all-time high of $1.46 billion, surging over 50% on the same nine months in 2021.

Record levels were also reached for adjusted EBITDA and net income which came in at $85.4 million and $46.4 million respectively, as more and more enterprise gateway customers were re-signed under more favorable economic terms consistent with the company’s ‘gateway sunset strategy’ that is focused on ‘sunsetting’ legacy contracts.

Looking ahead, Shift4 is forecasting another robust quarter with revenue expected to close out 2022 between $1.95 and $2.04 billion, aligning with consensus estimates and representing year-over-year growth of 44%. While full-year earnings per share estimates for 2022 are also forecasted to improve by an enormous 95% to $1.38 per share, up from $0.71 in 2021.

Shift4 competes with a range of providers, many delivering particular components of Shift4’s offering, but do not provide an integrated end-to-end solution capable of addressing complex business challenges for software partners and merchants. Major competitors include third-party payment processors such as Chase Paymentech, Elavon, FIS, Fiserv, and Global Payments, along with integrated payment providers such as Adyen, Lightspeed POS, Shopify, Square, and Toast. For its hospitality gateway offering, the company competes primarily with Fusebox (a division of Elavon) and FreedomPay.

Despite the extensive list of well-established competitors, Shift4 believes its reputation, domain expertise, scale of distribution channels, and breadth of offerings and innovation, among other things, have been key to its rapid expansion.

On the economic front, high inflation and a rising interest rate environment have caused many analysts to forecast a recession. Consequently, fintech company share prices have come under pressure as it is assumed consumers will likely make fewer transactions resulting in lower payment volumes for companies like Shift4. Fortunately, any such reduction is likely cyclical.

Thanks to a concerted foray into additional verticals, international expansion, and the launching of new and enhanced products, Shift4 has demonstrated its ability to execute much-needed growth initiatives in the face of a potentially deteriorating economy. With a large base of existing customers and significant contract wins keeping the company delivering record results, it appears to be effectively combating any slowdown in consumer spending.