Will This Beaten-Down Stock End the Year On a High?

VeriFone Systems (PAY) investors would love to forget 2013. The stock was sent packing in February after VeriFone offered dismal guidance, and things started going haywire from there. Along the way, the company lost some key contracts, brought in a new CEO, saw increased competition from the likes of Ingenico (INGIY), and is also facing threat from companies such as eBay (EBAY -1.59%).

VeriFone had lost its way because of a change in the business model, switching to a monthly subscription model from selling hardware, and also because it failed to properly address customers' needs.

Bouncing back?
However, VeriFone finally offered hope to investors with robust third-quarter results and a decent outlook three months ago. The news was cheered by investors, and they will be expecting a similar outcome when VeriFone reports its fourth quarter results this month. But can VeriFone deliver? And more importantly, can VeriFone turn things around in 2014?

It would be incorrect to expect great things from this electronic payment solutions provider after just one good quarter. But then, VeriFone has been making some progress of late.

First of all, the company brought in Paul Galant as CEO. Prior to VeriFone, Galant was the CEO of Citigroup's enterprise payments unit. Before that, he was the CEO of Citi Cards division. Galant has got good experience in the payments and e-commerce industry, and was also chosen as a "Young Gun" by CNBC in its "Five Under 40" profile in 2006. So, VeriFone has now got a full-time CEO with a good profile at its helm. 

Positive cues
More importantly, the repair work at VeriFone had started even before the new CEO came in. The company had increased its research and development spending in the previous quarter by 19%. In addition, it also brought out GlobalBay Merchant, a new payments software suite. This new platform seems to be working well for VeriFone as the company had brought on board a dozen partners that serve around 500,000 merchants.  

Management had some more good news in store for investors on the last conference call when they said that VeriFone is getting more business from an important retailer in the U.S. Next, the company also won a tender for providing 450,000 payment terminals in Russia, contract wins in the U.K. and Brazil, and a contract renewal with India's largest petroleum company. 

More recent customer wins include a contract in Egypt and at a French mobile phone operator. These moves should instill confidence in investors, since VeriFone was falling behind Ingenico previously. Ingenico was selected for providing contact-less payment terminals for Banco Nacional de México (Banamex) , and VeriFone was in the race for this contract as well, ultimately losing out. 

Banamex had issued 1 million contactless cards earlier this year. It is now rolling out payment terminals at around 30,000 retailers to put the cards into use. This was a setback for VeriFone as it lost a key contract to its rival.

VeriFone might not be able to regain the customers it lost to Ingenico any time soon because of the challenges involved in switching from one provider to another. However, VeriFone has bolstered its distributor network in regions such as U.K. and Brazil, and this move is reaping results, according to management. 

Mobile is the key
VeriFone is also looking to make some headway into mobile. Its recently launched mobile platform -- Way2ride -- would give taxi passengers in New York a new way to pay their fare. VeriFone is looking to increase the adoption of this platform, which is why it partnered with Hailo, a taxi hailing app. In addition, VeriFone's mobile payment platform was chosen by French railroad company SNCF. Moreover, VeriFone management claims that more merchants are interested in its upcoming mobile platforms. 

However, the company needs be wary of disruptive tech companies such as eBay. In September, eBay unveiled PayPal Beacon. According to PayPal, this device will "enable consumers to pay at many of their favorite stores completely hands-free." PayPal Beacon uses a Bluetooth device to connect to a customer's smartphone that has a PayPal app installed on it.

The Beacon Bluetooth device will have to be plugged in to point of sales systems compatible with PayPal. Also, eBay has been targeting to push PayPal Here aggressively.  PayPal Here is a small card reader that attaches to mobile devices and allows sellers to accept payments through customers' PayPal app. Given the rapid growth of PayPal across the globe, VeriFone might face some tough times in the future and it needs to develop its own mobile initiatives at a rapid pace. 

What next?
There have been some positive developments at VeriFone, but the company is also competing with a number of disruptive players in the mobile payments space. As such, investors should stay on the sidelines for a quarter or two and see if VeriFone's turnaround is for real. But investors with a higher risk appetite could consider scooping up some shares if VeriFone issues a bright outlook once again this month. It trades at a forward P/E of around 15 and has some good contract wins in the bag, which might make it worth the risk.