While investors in VeriFone (PAY) may feel that the board of directors has tolerated operational mistakes for too long already, a far more definite move was made on Monday. After the close, the company announced that CEO Doug Bergeron is stepping down immediately from his role as CEO and leaving the board of directors. This move certainly brings closure to an executive tenure that had recently turned sour, but it also increases the uncertainty of the company's near-term trajectory. On a longer term basis there would seem to be value in the shares, but there's an uncomfortable amount of hope in that thesis.
The End Of An Era
Once an overpriced darling of the Street, VeriFone shares had fallen about two-thirds from their high in the wake of repeated execution issues, renewed competition and execution from main rival Ingenico (OTCPK:INGIY), and the emergence of strong competition from Square and Intuit (INTU) in the mobile small merchant space.
Now disgruntled investors have a head to mount on the wall, as CEO Doug Bergeron has taken responsibility (or been made to accept it) and stepped down from his role. Bergeron has been the CEO of VeriFone since 2001, and led the acquisition of the company from Hewlett-Packard (HPQ) back in the day. I think it's worth mentioning that for all of the faults, missteps, and errors of VeriFone in recent terms, we're also talking about the person who led the company to what it is today, so his legacy is not all negative.
For now, the company's Chairman, Richard McGinn, will serve as the interim CEO. Although Mr. McGinn does have experience as a CEO (at Lucent, more than a decade ago), I do not believe he is a serious candidate for the permanent CEO job. Likewise, while CFO Marc Rothman has an interesting resume (having been the CFO at Motorla Mobility prior to the Google (GOOG) deal), I don't believe that the Street would accept/welcome him as the new full-time CEO.
Make It Fast, Get It Right
VeriFone has put itself in a difficult position. The company has a lot on its plate in the near-term, as the company has dropped the ball on execution over the recent year - including failing to devote sufficient resources to customization. Likewise, the company has pledged to invest more resources into product development, gateway development, and customization/localization.
Many of these tasks can be performed with or without a CEO - it is not as though a company's CEO personally chaperones each one of a company's employees and makes sure that they're performing to plan. That said, there are a lot of strategic decisions that do flow straight to the top and VeriFone clearly needs to commit to a new strategy (and execute it). Consequently, VeriFone cannot afford to dawdle. Likewise, there may be large customers unwilling to commit to VeriFone in the absence of more stability at the top.
While VeriFone cannot afford to let the CEO search drag on too long, the board must also make the right hire. To me, Ingenico looks clearly revitalized. Moreover, it's equally clear that Square, Intuit, Google and eBay (EBAY) want to turnover the established payment ecosystem and create a space for themselves. Last and not least, companies like NCR (NCR), MICROS (MCRS) and Gemalto (OTCPK:GTOMY) are all looking to make their own mark as well - whether it's through incorporating new payment technologies into existing systems or advancing new approaches to security and authentication.
What that means to me is that VeriFone must hire a CEO who is both operationally detail-oriented and capable of simultaneously advancing a long-term strategy that will keep VeriFone at the forefront of the industry.
The Bottom Line
It's well worth remembering that VeriFone still has about half of the U.S. market (roughly double the share of Ingenico) - the most active/avid card-using market. Likewise, the company has strong share in Latin America and the Mideast/Africa region. Ingenico leads in Europe and the two companies are neck-and-neck in Asia, but all in all I'd say that VeriFone is still in a very salvageable position. As such, I think the company and shares have some value.
That said, the absence of a permanent CEO is a large and obvious gap. Absent a permanent CEO, investors have to just assume (or hope) that the company will get itself turned around, respond to Ingenico's renewed vigor, and fend off the likes of Square, Intuit and NCR in mobile and new payment technologies. I still like these shares as a turnaround, but investing today requires a fair bit of hope, faith and patience, and those are not the best components in an investment strategy.