Fiserv Earnings: Strong Growth and Margin Improvement Continue

Fiserv FI produced another strong quarter, with organic growth accelerating a bit sequentially and the company continuing to see strong margin improvement. Revenue grew 8% year over year, or 12% on an organic basis. With Fiserv tracking ahead of expectations, management modestly lifted its 2023 guidance. We will maintain our $135 fair value estimate for the narrow-moat company and see shares as undervalued at the moment.

The acceptance segment remains the main driver of growth, with revenue growth accelerating to 20% year over year on an organic basis. Some of this growth appears to be due to transitory macro factors in Latin America, but underlying growth looks healthy. The Clover business saw growth pick up a bit in the quarter to 26%. We remain impressed with Clover’s performance and continue to see Clover as the best example of how leading players can successfully adapt and coopt changes in the payments industry.

The fintech and payments segments both posted 6% year-over-year growth on an organic basis. For fintech, this represented an improvement from previous quarters, but growth for the full year is likely to be roughly in line with our long-term expectations. We don’t expect much growth for this business but appreciate the strong and stable profitability it produces. The payments business saw growth decelerate this quarter but will likely finish the year ahead of our long-term expectations and is enjoying some regulatory tailwinds at the moment.

The company’s relatively strong growth appears to be positively impacting margins. Adjusted operating margin in the quarter improved to 38.1% from 35.2% last year. For the first nine months, adjusted operating margin is up 250 basis points, and management’s full-year guidance is an improvement of at least 175 basis points. We think the scalable nature of Fiserv’s business should allow for margin improvement over time, but we expect the long-term improvement to be much more modest.