The person VeriFone's board of directors chooses as its next CEO must move quickly to address the myriad challenges facing the point of sale terminal maker. But opportunities abound that make the company's revival a worthwhile undertaking.
VeriFone is still seeking a permanent replacement for Doug Bergeron, its prior CEO, whose nearly 12-year-long reign began when private equity firm Gores Technology bought VeriFone from Hewlett-Packard in July 2001. Succeeding Bergeron will be a tall order, since VeriFone is often regarded by investors as "Doug's company," UBS analyst John Williams noted following Bergeron's March 12 resignation, adding, "We do not believe his departure was amicable or voluntary."
From the moment the new CEO walks in the door, it'll be hard to dodge comparisons to Bergeron. VeriFone's next CEO will have to make the tough decisions to right the VeriFone ship, and also earn the loyalty of the company's 5,000 worldwide employees—and of the investors who had grown wary of the boisterous and outspoken former CEO.
Since VeriFone pre-announced its earnings in February, analysts’ conversations with investors "often center around trust and the investment community's erosion of confidence in [VeriFone's] leadership…Indeed, investors who were uncomfortable with management may now take a fresh look," Williams wrote.
Pete Hart, the former MasterCard president and CEO who now sits on the boards of both VeriFone and Global Payments, is heading the CEO search committee. According to Deutsche Bank analyst Bryan Keane, executive search firm Heidrick & Struggles has been hired to assist in the search.
VeriFone's "new leader will face significant challenges both internally and secularly (there is no quick fix), but we expect communication and transparency with the street to improve," Keane wrote.
VeriFone communications director Andy Payment would not comment on the company's CEO search or on specific candidates.
VeriFone recently promoted internal candidates to newly-created COO and regional president positions, but most analysts predict the new CEO will come from outside the organization.
Since VeriFone "is in turnaround mode, we would expect the new CEO to come from the outside…and we believe a key prerequisite for the new CEO is to have a mix of IT hardware and services experience," wrote Jeffries analyst Jason Kupferberg.
However, a notable dissenter is Andrew Jeffrey, an analyst at SunTrust Robinson Humphrey.
"We are enamored of Jeff Stiefler, an existing Director," Jeffrey wrote. "We view Stiefler as a strong operator with a proven track record as a public company CEO," noting his work leading Digital Insight before its 2007 acquisition by Intuit.
Analysts noted a number of upsides for VeriFone, including a global trend toward electronic payments and the upcoming cycle of terminal upgrades brought on by the migration to the EMV chip-card standard in the U.S. And for many analysts, the challenges at VeriFone don't appear to be life-threatening.
"[I]t seems that a very basic lack of attention to investment in technology and R&D is a root cause of the company's current problem, as well as integration difficulties in Europe related to the Hypercom acquisition," Williams wrote, adding that in many ways, VeriFone “has simply fallen behind."
But there's less consensus around the competitive landscape for point of sale technology, particularly among emerging offerings from the likes of Square and other players that put less emphasis on traditional hardware.
"The near-term risks presented by upstarts (i.e. Square and others) are overstated given limited customer overlap and larger merchants' different needs," Williams wrote.
That opinion would seem to echo VeriFone's stance on mobile POS technology, given that the company sold the assets of its Sail mobile payment business to an undisclosed third party for $6 million in January, according to VeriFone's financial filing for its fiscal year first quarter that ended on Jan. 31.
VeriFone initially established Sail in May 2012 to go head-to-head with Square. The Sail card reader, like Square, plugs into a smartphone to facilitate swiped card payments. VeriFone even added a version that can accept EMV-chip cards. But by the end of the year, VeriFone chose to abandon its strategy of selling Sail readers directly to small merchants.
Keane argues that VeriFone will have to adjust its business model to respond to new advances like software- and cloud-based wallets.
"We believe NFC (hardware-based solution) is having little traction, but we are seeing QR codes resonate as a likely stepping stone to other technologies such as geofencing and Bluetooth," he wrote. "Additionally, we are seeing growth of mobile POS devices like iPhones/tablets and dongles, likely further hampering [VeriFone's] growth opportunities (especially in emerging markets)."
Like the questions surrounding mobile technology, VeriFone's other itinerant payments offerings, its taxi fare and advertising platforms, have their own unique opportunities and challenges. And its VeriFone media division provides "taxi top" and other advertising for both cabs and public transit.
But in its attempt to expand that segment, VeriFone has run up on opposition. Competitors successfully challenged Washington D.C.'s awarding of a $34.9 million contract to VeriFone. An appeals board ruled that the municipal government did not follow its contracting requirements when it granted VeriFone the right to install "smart meters" in the district's 6,500 cabs.
One of the companies that filed the complaint in D.C., Creative Mobile Technologies, has also sued VeriFone over its taxi advertising system in New York City. The two companies are the exclusive providers of taxi payments technologies in New York City cabs and, separate from the lawsuit, are among the vendors vying for the opportunity to expand into so-called e-hailing technology.
The city's Taxi & Limousine Commission approved a pilot program of the technology, which allows consumers to use a smartphone to schedule and pay for rides, and was set to begin in mid-February. But the effort has stalled after trade groups representing the city's livery cab drivers sued, claiming the technology disrupts the balance between black town car drivers, who exclusively serve prearranged rides, and yellow cab drivers, which are only allowed to accept street hails.