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MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

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Verifone: Why the market punishes

C. HUYGENS - Monday, February 25, 2013
"Hell hath no fury like an investor scorned," wrote Joan M. Heminway. Or like the lawyer of an investor scorned, some might add.

Monday morning, many a law firm issued press releases announcing investigations of potential claims on behalf of purchasers of the securities of VeriFone Systems, Inc. (NYSE:PAY). The investigations are focusing on whether the company and its executives violated federal securities laws. [Disclosure: VeriFone is one of the 19 firms selected algorithmically for significant upside potential this year by the RepuStars Variety algorithm and made part of the RepuStars Variety Corporate Reputation Composite Equity Index (Ticker: REPUVAR).]

According to the law firm, Bronstein, Gewirtz & Grossman, LLC, "on February 21, 2013, shares of VeriFone fell to $17.93, their lowest in nearly three years. Deutsche Bank, in client note, said that the company had finally admitted it had failed to execute on its plan to move to a more subscriptions-based service model. In addition the brokerage firm said that past acquisitions had masked what was happening at the company and that it had long been wary of VeriFone’s “aggressive accounting recognition.” Deutsche alleged that the recent CFO retirement/resignation and the first-quarter revenue recognition requirements may suggest possible accounting red flags in prior quarters. Andrew Jeffrey, a SunTrust Robinson Humphrey analyst said, “Management credibility has been lost.” He added, “Market share losses are deeper and more persistent than we had previously believed.” Other analysts rejected the Company’s argument that it came from the weak economy when the global economy has had far less of an impact on VeriFone’s competitors such as NCR Corp. or Micros Systems."

There was no warning. No sudden increase in reputational value volatility. Nothing. And as Reputation, Stock Price and You (Apress, 2012) explains in painstaking detail, when the expectations of stakeholders are suddenly and radically realigned, retribution will be extracted. Turning to the measures of reputational value provided by Steel City Re, VeriFone is a constituent of the 215-member Information Technology Services sector.  Compared to its peers, expectations are poorly aligned currently at the 10th percentile, and historically at no better than the 22nd percentile. It reputational ranking, also known as CRR or reputational value premium, is also around the 25th percentile after a precipitous fall. In short, its reputational value quality is near zero.

While what precipitated the fall is not clear, the current metrics show that very few believe anything the company is telling them, the equity investors are fleeing, and the pile on of litigators, bloggers, and perhaps shortly regulators has begun. It is market punishment in the extreme.

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