We recently hosted a virtual fireside chat with Greg Cohen, Industry leader and Principal at PayX Advisory. Greg sees a three-pronged impact from Coronavirus and a recessionary environment which include: 1) volumes to remain challenged mirroring consumer sentiment 2) uptick in merchant attrition, particularly SMBs, and 3) increase in chargeback and loss experience at merchant acquirers.
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While two-three weeks ago impacts to GPN revenue from COVID-19 appeared relatively limited to APAC and select EU countries, the changing landscape has led us to readdress our estimates for several additional variables. As a reminder we estimate APAC at ~4% of revenue, and Spain revenue at roughly 2-3% of revenue. It’s worth noting that at least a portion of Spain revenue (~20%) is eCommerce driven. We estimate that restaurant exposure is roughly 6% of GPN, but also note that roughly half of this is driven by recurring software revenue. Travel related revenue is estimated at ~2% of total revenue.
Over the last several weeks, we’ve received incremental inbounds from investors looking for insights on the resiliency of our names to an economic slowdown, exposure to heavily pressured verticals and/or geographies, and debt/covenant considerations across our coverage.
Earlier this week (3/10 - 3/11), over 60 public and private companies across the FinTech space presented and/or hosted meetings at the ‘virtual’ Wolfe FinTech Forum. While most companies signaled near-term headwinds tied to COVID-19, others with significant eCommerce exposure were more constructive on trends and are seeing incremental volume shifting from physical POS. In addition, companies with significant recurring revenue and less cross-border exposure called out resilience in models. While hoping that health concerns and cases ease over the next several months, we continue to believe that if past is precedent, select names in our coverage, particularly with the above characteristics will continue to outperform the market in an economic downturn. While timing may be difficult, we also see the market dislocation as an opportunity to own long term secular growers. In this note, we highlight the most impactful themes from the event and provide stock specific takeaways (pages 6 to 14).
In this week’s Sunday Spotlight, we revisit FLT & WEX’s sensitivity to the price of crude in light of last week’s negotiation breakdown between OPEC and non-OPEC allies on production levels amid the COVID-19 outbreak, diving the global crude price per barrel below $40. Based on current prices and RBOB futures, we estimate the 1Q20 national average price per gallon of regular gasoline and diesel to be ~$2.45 and $2.85, respectively. Looking ahead, futures imply the 2H20 average price per gallon of regular gasoline and diesel to be in the range of ~$2.25-2.35 and ~$2.75-2.85, respectively. For reference, we recently reduced our 2Q20 EPS estimates for both FLT and WEX EPS reflecting fuel prices and COVID-19 implications and are now 5% and 7% below the Street for FLT and WEX, respectively. Despite our view that oil price fluctuation is largely non-fundamental, shares have historically exhibited a significant correlation to the price of crude.
We recently had the opportunity to host Jeff Sloan, CEO of Global Payments for a fireside chat at the Wolfe FinTech Forum. Below are our key takeaways:
In this week’s Sunday Spotlight, we highlight our expectations for potential key takeaways on a company specific basis for the upcoming Wolfe FinTech Forum on March 10th and 11th (virtual format— update below.) See the body of the note for full detail, however some of our potential key takeaways include: 1) Coronavirus trends and impact color for V, MA, PYPL, WEX, WU, EEFT, and FLT, in particular to direct exposure on travel, cross-border, or other areas. We also expect discussion to increasingly focus around the U.S. exposure/impact on names like GPN, FIS, and others given potential spending changes at SMBs.
On March 10th and 11th 2020, we will be hosting the Wolfe FinTech Forum in NYC. Nearly 70 public and private companies across the space will be presenting and hosting meetings. Click here for registration and see Pages 4-6 for the agenda. We believe the winners in FinTech in the medium-term will be differentiated in one, if not more of the highest demand areas of the market, including: (1) eComm and mComm payments (2) POS software/tech (3) digital wallets enablement (4) digitization of B2B payments, including virtual cards, (5) cross-border enablement and risk management, and many more.
In this week’s Sunday Spotlight, we highlight work from Wolfe’s Technical Analyst Team, led by Rob Ginsberg and John Roque. The team provides a technical perspective on some of the names of which we have been receiving the most inbound calls including PYPL, SQ, FIS, FISV, GPN, V, MA, DXC, FLT, WEX, WU and EEFT. The team sees a bullish technical set-up for 4 out of the 12 names shown in this note, while 4 names appear to be in a holding pattern, and the remaining 4 names appear to be facing resistance or in position to consolidate. For each name we also highlight the key topics on investor’s minds coming out of 1Q. Notably, thematic trends emerged from the Technical Team’s analysis among the deal stocks (FIS and GPN bullish, FISV in a holding pattern) and the fleet cards (FLT and WEX bearish). See pages 4-16 for stock-specific technical charts and takeaways.
In this week’s Sunday Spotlight, we revisit China in the context of cross-border eComm considering commentary over the last week from several large retailers and reports suggesting significant economic headwinds due to Coronavirus. China remains among the largest markets for cross-border eCommerce with cross-border (inbound) eComm sales estimated to reach nearly $140B in 2020, relative to overall global cross-border eComm estimated at ~$700B. On the ground in China, many retailers have already begun to call out considerable headwinds tied directly to Coronavirus, with Adidas expecting Chinese sales to be down 85% Y/Y, AAPL expecting revenues to come in below guidance, and BABA calling for negative revenue growth for the quarter in select segments including China retail and local consumer services. While muted brick and mortar spend is to be expected in China near term, Coronavirus implications on eComm are less obvious.
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