Banks and financial services companies have had a difficult month. The Federal Reserve outlined its path to raising interest rates, but not until late 2023, which sent longer-term bond yields lower. The broader market dip might be a big opportunity for investors to buy financial stocks that aren't sensitive to interest rates, like Fiserv (FI 0.53%), which generates revenue from payments and services rather than lending.

The company delivers solutions to financial firms, assisting them with real-time payment processing, online customer portals, and even risk and compliance. Consumer expectations are constantly evolving -- they want more of their banking done in real time -- and Fiserv is a critical part of making that a reality. If the company delivers on its earnings projections this year, this dip will have been a real chance to buy

A barista accepting a card payment at a cafe.

Image source: Getty Images

A driver of global finance

Retail and commerce-related services are a major contributor to Fiserv's total revenue, accounting for more than 39% in the first quarter of 2021. The company reports this under the merchant acceptance segment, which includes point of sale (POS) revenue generated from its cloud-based Clover platform. It provides retailers with in-store payment solutions to process customer purchases. 

This segment is the most sensitive to seasonality and economic growth, so in a year when retail is expected to be strong, it could be a big source of growth for the company. 


Q1 2020 Adjusted Revenue (Millions)

Q1 2020 Operating Margin (Adjusted)

Q1 2021 Adjusted Revenue (Millions)

Q1 2021 Operating Margin (Adjusted)

Merchant acceptance





Financial technology





Payments and network





Corporate and other*






The second biggest segment is payments and network, which serves financial institutions by helping them process digital payments, providing fraud protection services, and credit/debit card production. It delivers the biggest operating margins, likely because it is the most "digital" segment, and therefore able to achieve the most scale. By comparison, point of sale services to retailers require the issuance of hardware products to a higher number of smaller customers, which can be more cost-intensive -- hence lower operating margins.

The financial technology segment (or fintech) delivers software solutions to financial institutions so they can better manage loan and deposit accounts and other administrative tasks. It also provides digital banking services like online customer portals -- to assist banks with their transitions online. 

In the first quarter of 2021, the company managed to grow revenue across the three main segments (on an adjusted basis), but also expanded its operating margins across the board -- suggesting Fiserv could be more profitable going forward.

Strong financial performance, but it's complicated

Fiserv reports earnings per share in two forms -- generally accepted accounting principles (GAAP) and adjusted (non-GAAP). Thanks to the company's key acquisition of First Data in 2019, there is a huge difference between them. 





Q1 2021


$5.8 billion

$10.1 billion

$14.8 billion

$3.7 billion

GAAP earnings per share





Adjusted earnings per share






In 2019, Fiserv acquired First Data for a combination of $46.5 billion in stock and cash. The non-GAAP financial results since the acquisition include adjustments for merger and integration costs, and amortization of intangible assets -- significant one-time costs that would otherwise heavily distort earnings per share results. By excluding them, investors get a better idea of the actual operating performance of the company. 

Fiserv has grown revenue by over 155% since 2018, though earnings growth hasn't kept the same pace, up just 28% on an adjusted basis (which excludes costs associated with the acquisition). The company has increased its operating spending considerably over this period, investing 360% more on selling, general, and administrative costs. The first quarter of 2021 was an exception, as that particular line item was down slightly year over year.

If the company continues to invest heavily in growth, the bottom line may suffer, but over the long term it could reap significant benefits if revenue continues to climb. 

Looking ahead

Fiserv has a unique business, which claims to reach 100% of U.S. households through its 10,000 financial institution clients and 6 million global merchants. 

According to Yahoo! Finance, the average 2021 earnings per share estimate among 33 analysts is $5.45. The company has offered a similar outlook for the year, projecting 9% to 12% revenue growth and adjusted earnings per share of $5.35 to $5.50 -- that would be earnings growth of more than 21% compared to 2020. More importantly for investors, $5.50 in earnings means the stock (at Tuesday prices) would be trading at a multiple of less than 20 -- which is cheap for a company that grew revenue at over 40% last year. Hence, the current dip in the share price could be an important opportunity for those who want to own this stock. 

This year is expected to be incredibly strong for retail, with consumers sitting on large amounts of savings from a combination of government stimulus checks and a lack of places to spend because of the 2020 lockdowns. This could be a key driver of growth for the merchants segment at Fiserv, which is the most sensitive to shifts in economic sentiment. Investors should keep an eye on this area of the business for clues as to whether it will meet, or even exceed, its projections in 2021.