OBSERVATIONS FROM THE FINTECH SNARK TANK
Fiserv’s share price collapsed by nearly 50% this week, the company’s worst trading day on record. The company reported third‑quarter earnings of $2.04 per share on $4.9 billion in revenue, both metrics falling short of analysts’ expectations.
The company slashed its full‑year outlook for revenue growth from ~10% to 3.5% to 4%, and dropped its adjusted EPS guidance to $8.50 to $8.60 from $10.15 to $10.30.
The Q3 shortfall and guidance cut revealed that Fiserv’s momentum has deteriorated. Revenue growth essentially ground to a halt, and earnings are now expected to be far lower than previously thought.
Management admitted the company had been too optimistic. CEO Mike Lyons candidly said on the earnings call that “our current performance is not where we want it to be nor where our stakeholders expect it to be,” and acknowledged that the challenges were largely self-inflicted by prior missteps.
Industry Implications From the Fiserv Freefall?
The fintech literati on LinkedIn are busy extracting insights from the stock price fall and making broad proclamations about what it means to the banking and fintech world:
- “For banks, this moment demands attention because banks’ dependency on Fiserv links directly to their ability to deliver payments, scaling, and digital innovation to customers.” My take: This has been true for years.
- “The market is drawing a line under the growth at all costs era—investors now reward quality of growth.” My take: The previous “growth at all costs era” ended two years ago and a new one–rooted more in AI and stablecoins–is starting to take hold again. The Fiserv stock price decline is unrelated to investors rewarding quality of growth.
- “It signals a major recalibration of expectations for a vendor deeply embedded in banking tech infrastructure.” My take: This is correct–but begs the question “why is this recalibration happening now?
What No One is Saying About Fiserv’s Stock Decline
The “major recalibration of expectations” needs to be unpacked a bit here. William Blair analysts wrote that they’re:
“Perplexed by a 4.5 point sequential merchant organic revenue growth deceleration and a roughly 10-point financial solutions segment revenue deceleration.”
Really? Why were they so “perplexed”? For years, my colleagues at Cornerstone Advisors have been writing and talking about the service issues and technology challenges Fiserv has been facing.
How do they know that? They talk to bank and credit union executives day in and day out.
Who are the Wall Street analysts talking to? It doesn’t seem like they’re talking to the bankers. They could blame the prior management team at Fiserv for misleading them, but that doesn’t get them off the hook for not knowing what was going on at Fiserv.
So here’s the thing that no one is saying about Fiserv’s stock price freefall: Wall Street has been way overvaluing Fiserv’s stock all along.
Major competitors of Fiserv–like FIS and Jack Henry–haven’t seen the same rise in their stock’s valuation like Fiserv.
Instead of interpreting the Fiserv stock decline as a major turning point in banking and fintech, it may really just be a decline in one company’s stock price from irrational exuberance to rational reality.
Meaning: This doesn’t represent some life-threatening crisis for Fiserv as a company.
The Best Week in Fiserv CEO’s Professional Life
Someone said to me this week, “it must’ve been a tough week for Mike Lyons,” Fiserv’s CEO. Au contraire, Pierre–this has been the best week in his professional life.
The stock price hit was a gift from Wall Street: 1) He gets to blame the previous management team for Fiserv’s problems; 2) He’s given permission to make drastic cuts and changes–like consolidating 16 cores down to just 5–because everyone believes this is a “life-threatening crisis” for Fiserv; and 3) The starting stock price on his watch is reset to $71 from $128.
Wall Street just put a lot of treats in Fiserv CEO Mike Lyon’s basket this Halloween week.