VeriFone (PAY) Shareholder Meeting

VeriFone's (symbol: PAY) 2008 annual shareholder meeting took place today at the Doubletree Hotel in downtown San Jose.

VeriFone, Inc. is a payment-processing-technology specialist. When you use your credit or debit card, someone has to handle the transfer of information from Point A to Point B in a secure format. VeriFone is trying to position itself as the worldwide financial middleman. However, it has been plagued by accounting scandals and as a result, its stock price is near a 52-week low.

The meeting was a bare-bones event. VeriFone did not have a presentation. The informal portion of the meeting involved only a Q&A session and lasted under 10 minutes. Only water was served from a cooler. Only three non-employees attended. I asked about the financial irregularities. The CEO said VeriFone had replaced the CFO and the general counsel in an effort to reform the company. He said the specific accounting problem was that the company overstated inventory and understated the cost of goods. (This accounting problem would cause the company to report an incorrect higher net profit for most of last year.) Class action lawsuits have been filed against VeriFone, and the 10K did not list any settlements or pending resolutions.

I asked several other questions about the company's business. The CEO's responses are below:

1. VeriFone already has 65% market share in the U.S and Canada, and Hypercom is their primary competitor. The main reason VeriFone does not have more market share is because the market wants an alternative, even if that alternative is not as good as VeriFone.

2. (The 10K states that profit margins are lower in the U.S. and Canada, but VeriFone is seeking to expand more internationally rather than domestically.) The reason VeriFone is focusing on international expansion is because emerging markets are not saturated. Only around 1 to 20% of retailers in Brazil, Turkey and other emerging markets use payment-processing technology, and the opportunities for growth are much better.

3. VeriFone's competitive advantage is that it spends the most on R&D and has the most employees. They are a safe, if not the safest, choice.

As a value play, it's hard to go against VeriFone. At the same time, it's also hard to promote a company that had ethical issues as recently as last year, especially in a post-Sarbanes-Oxley world. I personally think there are better companies in which to invest, but others may want to consider VeriFone after it resolves outstanding litigation.

Disclosure: I own less than 30 shares of Verifone (PAY).