Global ATM network owner and money transfer services provider Euronet Worldwide, Inc. (NASDAQ:EEFT) reports second-quarter 2016 earnings Tuesday before the markets open. Euronet isn't in the habit of providing detailed quarterly guidance, but management has projected adjusted earnings per share of $0.90, which would represent an improvement of roughly 15% over the prior year. Below, we'll discuss key items investors should note when Euronet files its report. Since the company divides its business into three distinct segments, let's examine each one in turn.
Euronet's EFT processing segment is the company's smallest but most profitable revenue stream. The segment's primary business is its global ATM network, but EFT also provides value added services such as point-of-sale (POS) services to merchants.
EFT started the year showing crisp growth, booking a Q1 revenue increase of 16%, to $86.6 million, versus the comparable 2015 quarter. Investors will want to see if the segment can add another quarter of double-digit growth, as EFT expanded revenue by only 5.8% during the entire prior year.
Each quarter, it's also important to check in on EFT's ATM network growth, since this is the backbone of the segment's revenue and profit. In Q1 2016, EFT's ATM network increased by 19% versus 2015, to 24,761 terminals. Recently, Euronet has been able to broaden its network by adding machines in Europe as well as India -- we're likely to see growth in both of these geographical areas in Q2.
Euronet's epay segment is currently a work in progress. The segment processes and distributes prepaid mobile airtime, including "top-up" services, on five continents and provides physical and digital gift card services in Europe. The segment's revenue declined by 9.6% last year, but in the first quarter of 2016, the pace moderated to a 3% decrease for a total Q1 2016 revenue haul of $170.1 million.
The market for prepaid mobile services has weakened in the last couple of years, but epay plans to combat this with further expansion into the gift card side of its business. In addition, the segment has branched into new services like digital content streaming and gaming. Euronet's niche through epay is its ability to provide access to subscription services, from Netflix to Microsoft Office, at retail outlets where the primary payment method is cash.
Shareholders of Euronet will want to see if these newer services help epay reverse trend and hit even a marginal revenue increase in Q2. Short of this, the segment will be expected to at least match last year's Q2 operating income margin of 9.7%.
The most significant question investors will have for the Money Transfer segment is whether it can keep up the rapid growth it boasted in the last sequential quarter, Q1 2016. Money Transfer expanded revenue at a rate of 25% and, even more impressively, pushed operating income up by 58%. This segment has benefited enormously from subsidiary company RIA's 2014 deal with Wal-Mart Stores (NYSE:WMT)to provide money transfer services to the retail juggernaut's customers.
Several acquisitions have also bolstered Money Transfer's revenue, including a 2014 deal to acquire U.K.-based forex specialist HiFX, and 2015 purchases of Malaysian money transfer company IME, and Canadian forex company XE. Have you noticed yet that the Money Transfer segment loves to own acronym-branded subsidiaries?
Money Transfer ended last quarter with 310,000 transfer and remittance network locations, which represented growth of 26% against Q1 2015. Like the EFT segment, revenue improvement depends on network expansion. So, in addition to seeing if the segment can post the type of robust top- and bottom-line performances it recorded in Q1, it's important to gauge network growth in the second quarter of 2016.
One additional factor to watch
Given that all three of Euronet's business segments essentially facilitate transactions of varying types, currency fluctuations often impact the company's earnings. Last year, in the second quarter, Euronet reported $425.1 million in revenue and net income of $26.8 million. How much the organization improves on these numbers may be impacted by recent developments, including the depreciation of the British pound near the end of the quarter due to the U.K.'s Brexit vote.
Interestingly, Euronet management discussed Brexit uncertainty all the way back in April, on its Q1 earnings call with analysts. So, if the company doesn't hit its predicted Q2 adjusted earnings per share of $0.90, look to currency effects -- they'll be a likely culprit.