A bit late but always relevant.
Shift4 seems to be suffering from a bit of an identity crisis.
Does it want to build software and compete with competitors like Spoton, Square, and Toast despite spending trivial amounts of money on R&D?
Does it want to buy crypto assets to be a crypto company?
Does it want to acquire international assets to move abroad?
Or use marketing dollars to lose money processing large stadiums?
Or even just buy portfolios of merchants and increase fees?
It seems like all of the above, frankly, and that sounds to us like a recipe for disaster.
If you can’t do one thing well we’re not sure that doing multiple things will end up any better.
First up is Shift4 buying out their dealers. This makes sense: with more direct accounts Shift4 can increase rates faster.
Cuz #value.
Dealers were giving us some commentary.
It seems as though literally everyone just got an offer. It was very insightful to their strategy going forward though. They are sunsetting all legacy POS as of January 1st 2023 and going Skytab POS all the way, no real surprise there.
Jared told us we are still keeping our dealerships but we would have to apply to be dealers of Skytab. It’s clear their intentions are to cover smaller markets with dealers and that larger markets will be direct sales all the way.
For anyone remaining a dealer I think they are just trying to keep them from moving accounts until they can get everyone trained and selling Skytab. Sooner or later they will target those accounts, I’m betting before the end of the year.
Few things.
It wasn’t reasonable or expected for Shift4 to keep supporting multiple, shitty, legacy code bases. Most independent merchants on those system have churned out to true cloud POS systems with seamless integrations and better functionality. We’d estimate that Shfit4 has lost tens of thousands of independent restaurants to upstart cloud native POS companies.
Shift4’s larger enterprise customers that were using one of the legacy POS systems have moved or are moving. We’ve personally been close to several deals that have moved off shift4’s POS assets for all the obvious reasons: their product can’t compete with companies that spend real money on product.
We need to examine their latest investor presentation to understand more.
We thought the best way to provide commentary was to mark up their deck with our notes.
These aren’t even conjecture: Shift4 goes on to specify this a few slides later.
Just how high are their restaurant rates when lodging is paying single basis points (or should be) and Shift4’s blended margin is still 76 bps. They have to be getting absolutely killed.
This slide is borderline criminal.
So let’s assume the average Shift4 merchant is paying 100 bps in processing margin, which frankly feels on the low side given how Shift4 is bragging about things.
Is this 100 bps net of dealer margin?
Shift4’s slide seems to indicate that 100 bps will grow to 212 bps of margin once the dealer is cut out.
This has to be a record level of margin.
Someone call Guinness World Records. Simply amazing if true.
Sneaky smoke and mirrors for R&D increase, which is a huge issue.
How about Shift4 breaks out R&D spend on POS (which is prob $10M vs $100M+ that their competitors spend) vs what they acquired and where it’s going?
You have any idea how much more R&D Shift4 is going to need to support what’s tantamount to 40 products in 40 geographies?
They just don’t have this culture.
More sneaky metrics: how much of this revenue growth is due to acquisition? Toast’s revenue growth is 100% organic.
This is not apples to apples, we suspect.
Shift4 ends its deck complaining that the market has treated it unfairly.
Shift4 metrics are “up” while competitors aren’t nearly as performant.
But we suspect the market does understand that Shift4 is not accurately portraying metrics on a like-to-like basis.
Is there anyone reading this who thinks Shift4 has any edge over Toast?
Or Square?
Or Spoton?
Just hurry up and sell to Global Payments so you no longer have to pretend that your priority isn’t outer space.