Mizuho: Trouble Ahead for Mobile Payments Firm Western Union?

February 13, 2019         By: Steven Anderson

With so many firms in the mobile payments space, it stands to reason that some will do better than others. Recently, Mizuho dropped word our way about one of those others, Western Union. In fact, the note published by its analyst Thomas McCrohan featured several dire points to it, points that should be making Western Union’s leadership think twice about its current trajectory.

First was the obvious blow that revenues missed consensus figures. This was ameliorated somewhat by word that adjusted earnings per share (EPS) had been met, thanks partially to a tax rate of 6.3 percent. Revenue growth in the core consumer to consumer (C2C) field also slowed, with just one percent growth year-to-year. That was due mainly to second quarter price reductions in the Middle East market. Some here would note that any growth is good news, if only somewhat.

That was a mixed bag on its own, but the future doesn’t necessarily look much brighter. Revenue guidance for the 2019 fiscal year was considered “weak”, and earnings per share growth guidance tops out at one percent, with the bottom range actually in negative numbers, specifically, -5 percent. That reflects minimal operating leverage, the report notes, as well as headwinds in the FX market and an increased tax rate due to issues of the Base Erosion provision of the US Tax Act.

Finally, Mizuho considers Western Union shares range-bound thanks to continued Middle East weakness, greater competitive pressure from similar firms in the market like Zelle, and higher taxes overall.

That adds up to a lot of bad news for Western Union. While it did see growth, and it did hit its EPS targets, just about everything else wasn’t good news for the company. Worse yet, there were plenty of indicators that the future was going to be an utter drag for Western Union, with higher taxes grinding on future earnings and its market share continually eroded by the growing array of competitors in its market space.

Essentially, Western Union needs something innovative, and quick, before it’s reduced to irrelevance in the wider market. Just what that would be is unclear as yet, but it’s something Western Union must have…and soon.