Morningstar | Worldpay Benefits From the Ongoing Increase in Electronic Payment Volumes
The merger of Vantiv and Worldpay created the largest stand-alone acquirer in the U.S., or second if First Data's bank joint ventures are considered. In our view, Worldpay's market position is solid and the company will enjoy a long-term secular tailwind given the ongoing shift toward electronic payments.Merchant acquirers such as Worldpay are essentially tollbooth businesses, and benefit from the ongoing increase in electronic payment volumes. However, the industry is evolving, and acquiring services are becoming more commoditized as merchant acceptance reaches a saturation point. Increasingly, customers are looking for acquiring solutions that are integrated with their business software, and providers that can offer omnichannel solutions (both brick and mortar and online). We think Worldpay is successfully managing this transition. Its preference is to partner with software providers, as opposed to owning software assets, which strikes us as a relatively low risk strategy that will help the company maintain its market position. Additionally, Worldpay has seen strong growth in e-commerce, suggesting its omnichannel offerings are up to snuff. We believe Worldpay will maintain growth at a rate a little bit better than industry averages going forward, as its capabilities and scale position the company to be a long-term survivor in a consolidating space.On top of relatively strong top-line growth, Worldpay has opportunities for margin expansion. The merger is expected to result in $200 million in cost synergies (or about 5% of revenue) by 2020. While this is a one-time benefit, we believe the scalability of the business model will allow for modest but steady margin expansion over time as the industry continues to grow. In sum, absent a marked downturn in the economy, we think Worldpay has a clear path to solid double-digit earnings per share growth over time.FIS recently announced its intention to merge with Worldpay in the $43 billion deal. While we're somewhat skeptical of the long-term strategic benefits, we think the offer is attractive from Worldpay's perspective.Worldpay is a holding company. Through its subsidiaries, the company provides electronic payment processing services to merchants and financial institutions. The company operates two segments: Merchant Services, which provides merchant acquiring and payment processing services to national merchants, regional and small-to-mid sized businesses; and Financial Institution Services, which provides card issuer processing, payment network processing, fraud protection, card production, prepaid program management, automated teller machine driving and network gateway and switching services that utilize the company's proprietary Jeanie debit payment network to a set of financial institutions.
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