Shift4 Company Podcast Episode Released!
We just released an new, in-depth, 2 hour company episode on Shift4 ($FOUR)
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This is a new company episode podcast announcement.
We are announcing the release of our latest company deep dive episode on Shift4.
Shift4 is a payments solution provider that serves over 80% of stadiums, 40% of all hospitality players, and is the #2 most popular payment processer for restaurants. Whereas other FinTechs were burning money to chase growth, Shift4 took an entirely different strategy: they would acquire mission critical nodes in the payment value chain and “compel” customers to switch payment providers. This strategy means that their customer acquisition costs tends to be lower and they can grow quicker. Revenues have grown at a 30% CAGR since 2019.
This is all the while they have remained strongly free cash flow positive, trading around 17x free cash flow and 3x gross profits. Learn all about the business below!
Find it on Apple, Spotify, or wherever else you listen to your podcasts.
Company Background.
While nearly every entrepreneur was chasing VC funding for the latest “.com” company in the late 90s, one prescient 16 year old dropped out of high school to disrupt a complicated and unsexy industry: payments.
Jared Isaacman started United Bank Card in 1999 to streamline the payment acceptance process. Instead of 30 page contracts that took a month to set up, he streamlined the process to take just one day.
The company didn’t take a dollar of VC money, which turned out to be its saving grace when the tech bubble crashed. Despite the lack of external funding, they were aggressive in acquiring customers, pioneering the free hardware giveaway to win customers.
They were almost too early though.
They sat in the awkward position of being the best merchant acquirer, but for an antiquated payment system. In 2012 they made their first attempt to beat back faster growing payment peers like Square and Stripe with new touchscreen hardware and a rebrand to HarborTouch. It wasn’t quite enough though.
The big strategy change came after they accepted private equity money and acquired a business called Shift4. Shift4 operated a “payment gateway”, which was the linchpin of any legacy payment process—and very tough to switch out. Instead of winning payment processing revenues by winning new customers, they could just acquire customers and then push a conversion to payment processing.
This opened up a new strategic playbook for Shift4: acquire key nodes in the payment stack, inherit the merchant relationship, and then use the high switching costs of those systems to migrate merchants onto Shift4’s payment processing.
It by and large worked.
The byproduct of this strategy meant they would increasingly move upmarket, focusing on the largest and most complex customers. Today they have an 80% share in stadiums and a 40% share in hospitality.
But not to forget the lower end of the market, they reinvented their hardware and software ecosystem to create a fully integrated platform called SkyTab. This gave them a new weapon to go after SMBs and the likes of Toast, Square, Clover, and other newer products. They now have a #2 position in restaurant.
With dozens of acquisitions, revenues are growing very fast at over a 30% CAGR since 2019. Today they generate $3.9bn in revenues and are still growing 22%, while run-rating about half a billion in free cash flow.
While they have had continued market share gains, strong profitability, and revenue growth, they also just made their largest acquisition ever. They acquired Global Blue, a VAT refund business, for $2.5bn—about 1/3rd of their market cap at the time. In contrast to other acquisitions, investors fear the cross-sell will be much weaker. Founder Jared Isaacman has also stepped down as Chairman to run NASA. And the payment industry is as competitive as ever.
Is Shift4 going to continue to be able to win business? Was Global Blue a mistake? Is their acquisition model at risk of slowing down? And what assumptions does an investor need to make to get a strong return? Tune in for all of this and more!
Shift4 Show Notes.
In this Company episode of The Synopsis we talk about Shift4, drawing from our 85-page research report to cover everything from their early history, to an overview of the payment landscape, and their unique customer acquisition model, as well as competitive moats.
We hope you enjoy!
(0:00) — Shift4 Intro
(6:04) — Why Shift4?
(11:36) — Payment Processing Example
(18:34) — Shift4 History
(45:40) — Revenue Breakdown
(57:10) — Gateway Economics
(1:00:00) — Business Overview
(1:02:00) — Competition
(1:10:00) — Value Proposition
(1:15:56) — Capital Allocation & ROIC
(1:27:00) — Valuation
(1:32:16) — Risks
(1:38:00) — Upside
(1:40:50) — Shift4 CEO Interview Announcement
Available on all podcast players today!
We also now have company episodes on Airbnb, Axon, Constellation Software, Perimeter Solutions, Floor & Decor, Meta, Copart, Evolution, Porsche AG, Coupang, Etsy, RH, Dream Finders Homes, and CoStar Group. Just look for the episodes with “Company.” at the begining of the title.
For more on Shift4, you can purchase our extensive research report, or become a Speedwell Member to gain access to all of our content.