Global Payments Inc. (NYSE:GPN) is a payment processing company, meaning it processes credit, debit, and mobile payments at the point of sale or online for merchants and vendors. With a market cap of $15 billion and in an industry most consumers aren't familiar with, Global Payments is probably flying under most investors' radars. And given its market-beating returns of the past few years, that's a shame. This year alone, Global Payments' stock price has risen more than 43%, nearly triple the S&P 500's returns over the same period.

In the company's recently reported third-quarter earnings report, Global Payments once again showed strong growth: Adjusted net revenue grew to $930.4 million, a 12% increase year over year, and adjusted EPS grew to $1.15, a 29% increase year over year. The company not only grew, but grew more profitable: Adjusted operating margin increased 110 basis points to 31.3%.

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The solid results come at a busy time for the company. In the third quarter alone, Global Payments closed on a billion-dollar-plus acquisition, unveiled international expansion plans for its school-based commerce platform, TouchNet, and launched the customer management platform, Heartland Analytics. With so much going on, it might be easy to overlook how these developments all fit nicely within Global Payments' long-term, two-pronged strategy to drive growth. Let's take a closer look at this strategy to see exactly how the company's goals should continue to propel the company's stock price higher in the years to come.

Paying an order with a contactless credit card at a bakery.

Payment processing companies need to stay on top of evolving consumer payment trends. Image source: Getty Images.

A solid strategy for an evolving payments landscape

During the company's third-quarter conference call, transcribed by S&P Global Market Intelligence, CEO Jeffrey Sloan reminded investors that the strategy he had been preaching the past two years was to grow the company's integrated and vertical markets and strengthen its omnichannel offerings:

As we have described over the last couple of years, there are two fundamental drivers of share gains for our business: expansion of our integrated and vertical markets, and our e-commerce and omnichannel solutions. ... We continue to further differentiate our company as the leading provider of payment technologies worldwide through these strategies. Our integrated and vertical markets business provides customers with specific payment technology solutions that are relevant to their verticals. ... In addition, our e-commerce and omnichannel solutions leverage our market-leading worldwide footprint in both the physical and virtual worlds. 

Combined, these two segments account for approximately 40% of the company's revenue and, Sloan later added, Global Payments would like to eventually see that number reach 50%. In today's quickly changing retail landscape, where consumers buy something as simple as a cup of coffee with an app, this is exactly the right strategy for a payment-solutions company to have.

Owning the entire vertical market

Global Payments believes the company can differentiate itself is by partnering with enterprise software providers or owning and operating the software stack itself. For instance, Global Payments' recent billion-dollar acquisition of ACTIVE Network illustrates the company's ambition. ACTIVE Network's event-planning software has over 36,000 clients, including organizers of youth camps, sports leagues, and marathon races. Its high-profile customers include organizations such as the YMCA, IronMan, and the A.S.O., the organizer of the Tour de France.

For these events, this means that not only is Global Payments the system of record, but it is also the engagement, registration, and payment engine behind the program. In other words, Global Payments owns the entire "vertical" of these transactions, from the time parents signs up their kids to a youth sports league to the time a payment is made. This makes it much more difficult for an event planner to switch to another payment-processing company. To do so, the customer would have to swap out the entire system it uses to organize and run its event.

Global Payments had a similar goal in mind when it launched Xenial, another vertical software management platform that targets the restaurant industry. The platform was built to handle everything from menu and order management to customer engagement and data analytics. Like event planners with ACTIVE Network, once a restaurant runs its entire business through this platform, the chances it will switch to another payment-processing company is extremely unlikely. Not only would it be costly, but it would also probably cause an upheaval to the entire business' operation as it made the transition.

Another platform with a similarly vertical-minded goal is Global Payments' TouchNet, specifically designed for school-based commerce. The software solution centralizes and manages campus commerce, incorporating everything from online student tuition payments to sales made at the campus bookstore. In the third quarter, Global Payments launched TouchNet in several international markets and plans to do the same with Xenial "in the coming months."

Flexible solutions for a shifting landscape

The second part of Global Payments' strategy is to leverage its "market-leading worldwide footprint in both the physical and virtual worlds." Management may have oversold its "uniqueness" in its ability to offer omnichannel solutions, but it's still an absolute necessity in today's retail world. In an age where the lines between traditional retail and e-commerce grow increasingly blurred, merchants must keep up with consumers' changing behaviors and spending habits or risk losing sales.

One of the things Global Payments did this past quarter to bolster its offerings in this space was to launch Heartland Analytics. In the conference call, Sloan said this new service is targeted at small and medium-sized businesses, "which provides small-business owners with comparative key metrics, such as sales trends, customer visits, new versus repeat-customer business, and changes in average ticket size." Such services will not only boost Global Payments' top and bottom lines but, again, also make it that much harder for a customer to leave the company's payment processing service once the customer is using Heartland Analytics for customer engagement and marketing campaigns.

With so much going on, it might be hard for investors to keep up with this low-profile company. But if investors use Global Payments' own strategy as a filter for the company's news, it might make it easier to evaluate the company's moves. Shareholders simply have to ask themselves if a new initiative or platform captures an additional vertical market or strengthens the company's omnichannel offerings. If it does, then the move fits nicely within the company's overall strategy and will probably continue the company's winning ways. In other words, it would be business as usual.