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TWST: What is this space called these days? It seems to be changing.
Mr. Johnson: The transaction processing space is defined by a common fixed cost
operating model, which means that once the technology platform has been built,
there is very little incremental cost for additional transactions. Those
transactions may take the form of electronic payments, or could be queries for
information searches, or a variety of other functions.
I split my space into three cylinders. There is electronic bill presentment and
payment, otherwise known as EBPP. There is credit card processing, which
contains First Data (FDC), Global Payments (GPN), and Alliance Data (ADS). Then
there is information services, such as ChoicePoint (CPS) and Equifax (EFX),
which search and analyze information on behalf of corporations and consumers.
While the broad category is business services, I do categorize my space as
transaction processing, which we further subdivide into the three segments I
described above. TWST: How has the group been treated by the market year to date?
Mr. Johnson: There was some volatility in the middle of the summer, some of it
real (deserved), some of it perceived. Most of the earnings results were
favorable. But the stocks tend to trade for short periods of time in line with
retail expectations, which is contrary to the favorable results that the
companies have been posting recently. The third quarter was a strong financial
quarter across the board, the second quarter was weaker, and the first quarter
was pretty good.
Overall, investors are interested in my space because of the recurring revenue
nature of the business and, as I previously mentioned, there is a fixed cost
infrastructure, which means that operating margins should improve and earnings
should accelerate with the higher transaction volume. We've been seeing higher
transaction volumes, which have been positive, and the end markets that they
serve are relatively easy to understand. Most people know what a credit card is,
and most people know what a monthly bill is that's related to utilities or some
other home-driven expense. These same bills may be paid electronically by the
EBPP providers.
On the information services side, almost everyone is familiar with the credit
scores and other data analytic services. They may not be familiar with the
actual names because my companies are third-party processors and generally will
operate behind the scenes. So I won't see First Data most of the time or Global
Payments' logo at a merchant. I could, but all I know is that my credit cards
are being processed.
Tickers included in this excerpt: ADS, FDC, GPN, PAY
For more information call (212) 952 7433. The
Wall Street Transcript does not endorse any of the comments made by interviewees, and does
not make stock recommendations.
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