Euronet Worldwide (NASDAQ:EEFT) has rapidly booked 27% in share-price gains thus far in 2019, partially because of benign overall market conditions in January and the beginning of February. The company's fourth-quarter 2018 earnings report also proved a catalyst, as it revealed that the ATM and remittance-transaction giant's three main business segments have each entered 2019 with a burst of momentum.
Below, let's review three comments made by CEO Mike Brown during the company's Feb. 8 earnings conference call that address Euronet's recent success and its plans for sustained market-share growth.
Our network effect will provide for years of growth
[T]he foundation of our business is in these global assets that we have accumulated and integrated. Our physical network now includes 43,711 ATMs, 973,000 POS terminals, 369,000 physical money transfer locations, while our digital assets include 74 million app downloads, Euronet websites that attract more than 265 million digital users per year, and cloud-based transaction technology that allows us to integrate with the world's biggest digital players out there, including PayPal, Alipay, Amazon, Google, iTunes, Netflix, Microsoft, Paytm, and more.
All of these assets have allowed us to process more than 4 billion transactions in more than $115 billion in payment value.
Investors in payments businesses like PayPal, for example, are used to tracking the key metric of active user growth to gauge long-term potential. Euronet's services are split between those that may have active users (such as money-transfer and foreign-exchange services) and those that provide one-off transactions to non-affiliated users. (Examples include ATM transactions and the sale of physical and digital gift cards.)
Thus, to understand Euronet's total growth potential, it's vital for investors to track the growth of its network -- the structure that provides points for potential transactions, as CEO Mike Brown describes in detail above. The core of the company's business rests on its ATM network and money-transfer locations. Both segments have grown transaction points of sale dependably at high-single-digit and low-double-digit rates over the last several years.
However, not unlike PayPal, Euronet has steadily engaged in inking partnerships with leading payments and content companies in order to expand its reach and offerings -- especially in digital assets. Such tie-ups increase the company's non-physical network, which is often associated with higher-margin transactions such as video game sales or streaming content. We'll revisit these opportunities in the last section in this article.
We are investing heavily in our digital capabilities
If you look at our business, you can see that we process an increasing number of digital transactions and [our] new digital integrated payments cloud allows us to process all types of digital payments using technology beyond the standard card data element...We expect that the traditional and digital payments landscape will continue to coexist for quite some time, and we've positioned ourselves to participate in both universes through our unique digital payments cloud architecture.
Euronet has developed a digitally integrated, private cloud payments hub that it's using to tie its disparate transaction businesses together. During the call, CEO Brown provided an example of this integration, explaining that the payments hub allows a money-transfer customer to withdraw received funds from one of Euronet's own ATMs -- effectively doubling Euronet's transaction opportunity in this instance.
At the same time, Brown observed that the digital-payments cloud enables the company to sell gift cards on Amazon websites and to equip banks and retailers to accept third-party payment solutions. Euronet developed the payments hub for its own use. But recently, it’s extended the platform with an open-source layer to allow customers to take advantage of its functionality.
Thus, Euronet has a new avenue to increase its yearly total payments volume (TPV) by offering services such as payments support, real-time transactions settlement, fraud prevention, compliance, and back-office functions, to name a few.
Epay has branched out beyond mobile
As you may remember, several years ago, Epay's business was 100% mobile top up. We had zero non-mobile content. Today, non-mobile or digital content accounts for more than two-thirds of Epay's total gross profit.
Brown refers above to Epay's former primary revenue stream of providing prepaid mobile airtime top-up services. As global wireless customers have shifted away from prepaid mobile airtime and migrated to contracted services with wireless carriers, Euronet has reinvented the Epay segment. In my recent fourth-quarter earnings recap, I discussed a few of the new services Epay is offering, such as the sale of Adidas-branded digital gift cards throughout Europe.
The focus on diversification is paying off. After only growing revenue by 3.6% cumulatively between 2015 and 2017, Epay's revenue expanded by 13% in 2018 (after adjusting for the effects of GAAP accounting standard ASC 606, which Euronet adopted in January 2018).
For shareholders curious as to why Euronet is off to such a fast start in 2019, the revival of Epay can be singled out as a significant reason. The segment has shifted from a constraint on revenue and earnings to a top-line driver, with as much long-term potential as the ATM and money-transfer businesses.
This potential partially derives from Euronet's investments in its digital infrastructure and network that we've discussed above. Looking forward to the next few quarters, shareholders can expect Euronet to announce more branded gift-card, payments, and content deals with familiar retail and technology names. Any benefits will accrue to the Epay segment.