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Ouch. I hate it when stocks I hold lose half of their worth in one day. Thankfully, I don't own VeriFone (NYSE: PAY), but I used to own Israeli firm Lipman Electronic Engineering, back when I was at the hedge fund. It was a value play and it paid me handsomely.I don't think VeriFone would say the same thing.
You see, VeriFone bought Lipman in 2006 and announced yesterday that it believes it overstated its profit for the first three quarters of this year by $30 million. To gauge how big a gaffe this really was, $30 million is equivalent to 80% of their total profit.
Ouch.
VeriFone now will have to restate earnings for the first nine months of 2007. The company blamed accounting errors, saying it did not properly value the products in its inventory, which means the costs the company recorded were too low.
While not outrightly blaming the Lipman acquisition, it's clear that the recent M&A is providing some complication to VeriFone's financial systems. A report from Goldman Sachs yesterday said that there is some business model friction that's challenging PAY's ability to play. That is, until the Lipman acquisition, VeriFone fully outsourced production of its payment terminals used in thousands of retail locations internationally. Lipman does produce its own equipment. It's this hybrid system that's causing VeriFone some major issues right now.
Anyway, while any stock that falls by almost 50% in one day should register on a value investor's watch list, I'm waiting on the sidelines while VeriFone and investors understand better just what's going on.
Zack Miller is Managing Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/04/07.
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Reader Comments (Page 1 of 1)
12-10-2007 @ 11:30AM
greg golding said...
Dear Zack, that $1.79 billion market value lost from Verifone would have purchased a incredible Oracle inventory system. was everyone totally incompetent at Verifone as i have repeatedly described Tasq Technology/First Data Corp. to the SEC and FBI? where were the outside auditors, credit-raiting agencies, stock analysts, SEC and other regulatory agencies? what kind of respectable technology company relies on manual counting? good for constant spot checks. Verifone really has taken lessons from Tasq/FDC. as a former employee, i did repeatedly witness blatant incompetence regarding inventory accountability and accuracy and totally ineffective ability and willingness to enforce workplace rules and basic warehouse principals at Tasq/FDC. one should expect mature conduct from a Fortune 500 company. Tasq Roseville, Ca. facccccccccility contains substantial Verifone inventory. was this specific inventory in Verifone supply chain involved in miscounting? wonder if the SEC would be interested? value of a single unit usually represents threshold of a felony if stolen. much product is shipped interstate. this substantial writedown of assets should be considered gross incompetence and fraud that has resulted in substantial investment losses for shareholders. i have written repeatedly to numerous Local, State and Federal agencies, top business schools and business media and KKR and it's legal counsel informing them of the misconduct at Tasq/FDC. i contend my numerous allegations were covered-up and dismissed by FDC. this pathetic company has repeatedly lied and i do alledge a wholesale conspiracy to cover-up any illegal conduct i feel i can prove conclusively. guilty by association? if Verifone learned anything from FDC, their "inventory issue" should be no surprise. www.jobvent.com thank you, greg