VeriFone Systems Inc.'s taxi business has gone from zero to $60 million in revenue in three years.
The point of sale terminal maker said Wednesday that it expects to generate $60 million in annual revenue from its in-taxi advertising business by the beginning of 2011. The San Jose company entered the in-taxi advertising business in 2007.
The business is generating $10 million to $15 million a quarter this year, VeriFone Chief Executive Douglas G. Bergeron, told analysts during a conference call to discuss results for the company's fiscal second quarter, which ended April 30. VeriFone posted a $20.2 million profit for the three months, an 89% increase from a year earlier.
In the past month VeriFone has tweaked the in-taxi advertising system to let advertisers place content onscreen, based on the location of the taxi.
"For example, Del Frisco's Steakhouse only wants their ad to play on the screen if the cab is within a certain radius of the store," said a VeriFone representative.
"We get this request frequently from both local and national advertisers. This benefits the advertiser greatly because it reduces wasted impressions and only focuses their ad when the rider is in close proximity."
Another feature, expected to be launched in the current fiscal quarter, will enable riders to self-select advertising for a particular merchant, VeriFone said.
VeriFone's taxi media business stood out this year, said Darrin D. Peller, an analyst with Barclays Capital Inc.. especially its taxi advertising, Peller wrote in a research note.
Earlier this year VeriFone added to its taxi advertising sales force with the acquisition of Clear Channel Outdoor Inc., the taxi advertising unit of Clear Channel Communications Inc.
VeriFone's petroleum business also contributed to its quarterly profit. Sales into the petroleum market typically account for about 25% of VeriFone's revenue, Bergeron said.
Tesoro Corp., a San Antonio gas retailer, recently signed a multimillion-dollar contract to install VeriFone's Secure PumpPay systems at its stations, Bergeron said.
"VeriFone has a healthy presence in the petroleum area, which has been very good," said George Sutton, a senior research analyst at the investment firm Craig-Hallum Capital Group LLC.
VeriFone also said that its Veri-Shield Protect encryption technology, is gaining ground. One retailer, which VeriFone would not name, has agreed to deploy the technology at its 6,000 locations, starting with 800 stores next week, Bergeron said.
VeriFone says it has developed a version of VeriShield Protect that uses the EMV Integrated Circuit Card Specifications, and a major U.K.retailer is testing it.
Total revenue for the quarter rose 19.4%, to $240.7 million.
Revenue from sales in the United States and Canada generated $105.9 million in the second quarter, up 27% year over year.
Outside of these two nations, VeriFone benefited from rebounding Latin America sales but saw weakness in the Balkan region.
Bergeron said demand was strong in Brazil, Venezuela, Argentina, Paraguay and Colombia.
The CEO said VeriFone has developed a gas station product for the Brazilian market that is now in tests. The teminal lets consumers swipe their loyalty cards in their cars with a device used by station attendants.
VeriFone's Latin America revenue also grew by double digits in the quarter, by 25.3%, to $50.5 million.
In Europe, VeriFone's sales were strong overall with the exception of the Balkans — including Albania, Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro and Serbia — because of economic instability in that region, Bergeron said.
VeriFone's revenue from Europe rose 4.2%, to $66.5 million.
Sales in Asia also boosted VeriFone's quarterly results, generating $17.7 million in revenue, for a 25.5% year-over-year increase.
Analysts say VeriFone is well positioned.
"The core business, the petroleum business and the taxi media business are performing above plan and should support solid growth this year," Peller said.
"Results were very impressive, with PCI compliance and resumed strength in Latin America driving the upside," Sutton said. "It is encouraging for the whole space that all major players are focused on improving gross margins as the market environment improves. The result [by definition] should be accelerating revenue growth with higher margins — typically a good outcome."