With Americans saturated with credit and debit cards, it would seem that the growth prospects of electronic payment platform provider VeriFone (NYSE:PAY) are nil. But in broadening its focus to less-developed markets, the company has been acting more like a growth stock.
VeriFone doesn't just do business in the United States. Many people in developing countries don't have credit or debit cards. As these countries grow, so will their need for new payment methods. That, in turn, shoud increase the demand for VeriFone products, which allow secure electronic payments between banks and merchants.
In the first quarter, VeriFone's revenues increased 21% year over year to $142.2 million. During this time, the company's net income surged 71% to $15 million, or $0.22 per diluted share.
VeriFone's business contains a significant amount of operating leverage. With its infrastructure already built out, increased revenues result in higher margins overall -- and higher profitability. Over the past year, gross margins increased from 40.2% to 44.6%.
In addition, VeriFone's infrastructure is a global machine. In the first quarter, the company had 38% revenue growth from international markets.
To keep this growth going, VeriFone recently shelled out $793 million for Israeli company Lipman Electronic Engineering (NASDAQ:LPMA). Founded in 1974, Lipman is a leader in payment technologies for wireless systems. In emerging markets, wireless is becoming the preferred approach, since many nations lack wireline telecom networks. Lipman generates more than 70% of its revenues from markets outside the U.S., with 25% of revenues from Turkey.
With VeriFone's resources and brand combined with Lipman's wireless technologies, the company should be able to capitalize on markets in China, India, and other emerging countries. For example, MasterCard and Visa are experiencing growth rates greater than 50% in China.
In other words, buying Lipman was VeriFone's big splash into emerging markets. And with these high-growth opportunities on its horizons, VeriFone should be a big beneficiary for years to come.
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Fool contributor Tom Taulli does not own shares mentioned in this article.
