Euronet Worldwide (NASDAQ:EEFT) is enjoying blistering share price appreciation in 2019 as investors reward momentum in each of the company's three primary business lines: Shares have soared 60% year to date. The transaction processing, money transfer, and remittances specialist is scheduled to report second-quarter 2019 earnings on Wednesday before the markets open for trading. Below, let's zoom in on essential information regarding financial targets and growth opportunities that will directly influence investors' reaction to the report.
The numbers: What to expect
Euronet provides a single forward guidance number in the form of management's target for quarterly adjusted earnings per share (EPS). For the second quarter of 2019, the company has advised investors to expect adjusted EPS of $1.69, which will represent an improvement of 28% over the comparable period in 2018.
Investors can put some context around this number by understanding what to expect in top-line growth for the quarter. In the first quarter of 2019, Euronet booked a year-over-year revenue increase of 5%, to $577.5 million. The first quarter is a seasonally low quarter for the company, and it's typically followed by a robust second quarter. Euronet is likely to exceed the first quarter's mid-single-digit annual expansion rate, but it will be up against a tough comparison: Revenue jumped by 16% in the second quarter of 2018, to $622 million. Thus, year-over-year revenue expansion in the current period that hits the high single digits or low double digits will be favorably received by investors.
Key items to watch in segment performance
Euronet operates within three reportable segments: EFT (electronic funds transfer) processing, epay, and money transfer. Of these, EFT processing, which operates ATMs around the globe, is perhaps Euronet's most reliable growth driver.
EFT has improved its top line year in and year out by expanding its ATM count and total transactions processed. The segment ended the first quarter of 2019 with roughly 42,000 ATMs, an increase of 10% against the 38,400 units operated in the prior-year period. Total transactions rose 11% to 692 million. Look for this basic equation of low-double-digit expansion in both unit count and transactions to continue in the second quarter.
The company's epay segment has successfully transitioned from relying on top-up mobile prepaid airtime sales to a more balanced top line that focuses on digital media services. The epay segment sells access to digital content (music, software, games, streaming movies and TV, etc.) at retail outlets, and it also has a flourishing digital gift card business that counts companies like Amazon and Netflix as clients.
Investors will key in on operating income in this division, which is improving as higher-margin digital media sales expand. Given epay's wide footprint in Europe, it's prudent to parse this metric in constant-currency terms. Constant-currency operating income improvement should land between last year's growth rate of 7% and the 15% year-over-year growth achieved in the first quarter of 2019. In essence, the segment should post high-single-digit to low-double-digit operating income expansion in the second quarter.
Euronet's money transfer segment has blossomed into its largest segment over the past few years, primarily through a partnership with Walmart that enables its subsidiary Ria to provide remittance services to the retail behemoth's customers.
Money transfer, like epay, has worked in recent quarters to expand its digital capabilities: Only 7% of global remittances are currently initiated digitally, and the segment aims to aggressively capture market share as digital remittances grow relative to transactions initiated at physical locations.
For this segment, shareholders will seek a continuation of high-teens growth in both the top and bottom lines. In 2018, money transfer recorded 18% year-over-year growth in both revenue and operating income.
Focus on this emerging growth avenue
In both Euronet's earnings press release and management's conference call, the company is likely to provide updates on new partnerships originating from its "digital integrated payments cloud." This cloud-based digital payments platform has two overarching purposes. First, it's the common engine linking the physical assets over which Euronet conducts transactions (nearly 42,000 ATMs, 1 billion point-of-sale [POS] terminals, and 377,000 money transfer locations), and it makes it possible for transactions to be conducted across operating segment capabilities. For example, a customer can initiate a remittance transaction to a friend at a money transfer location, and due to the payments cloud's architecture, the funds can be withdrawn by the friend via one of EFT processing's ATMs.
Second, Euronet has begun to market its integrated payments cloud to companies seeking an off-the-shelf, scalable payments platform with several ancillary services like alternative payments technology and ATM transaction capabilities.
While opening up a formerly proprietary platform to third parties is an incipient endeavor, it has the potential to boost Euronet's transaction counts across all three segments, and it could help accelerate the company's already healthy growth rate. Look for management to announce new payments platform deals with third parties in management's post-earnings conference call discussion on Wednesday.