Cash still has future, says Euronet, but misses revenue expectations

Euronet, a provider of electronic financial transaction solutions, has reported favourable earnings progression for the fourth quarter of 2022, despite revenue growth that fell short of investors’ expectations.

Euronet, listed on NASDAQ with its headquarters in Kansas City, does much of its business in Euros but reports in dollars. The company’s total group turnover increased 7% to reach $866m, although this figure would have been 16% at constant currencies. Almost all the growth was driven by the continued strong performance of Euronet’s EFT processing division, which operates 50,000 ATMs globally and saw sales increase 29% to $210m. This is the part of Euronet that interests us at Business of Payments. Year on year revenues from the ePay and money transfer divisions, on the other hand, remained flat in dollar terms.

CFO Rick Weller attributed the growth in EFT sales to “improved domestic and international cash withdrawal transactions.. as well as the positive performance from the acquisition of Piraeus Bank’s merchant acquiring business in March 2022.” Management highlighted the success of the ATM deposit network in Poland, which saw $6bn (in zlotys) deposited during 2022 and plans to extend the network to Romania in partnership with Unicredit.

Euronet remains optimistic about the future of cash. The company’s CEO, Mike Brown, stated that “We do not believe that cash is going away, and the value of our cash business creates significant value to our shareholders.” An example is that pre-pay cards issued by its epay division for the likes of Spotify, Xbox, Nintendo, and Paysafe can be topped up on Euronet ATMs in Spain. 

The profitability of ATMs is supported by Euronet’s remarkable ability to maintain substantial commission rates for individuals who withdraw foreign currency while traveling abroad. For instance, I recently encountered an example at a hotel in Malta, which imposed a 13% mark-up on withdrawals made in Sterling.

This means that the prospective return of Chinese travellers to Europe is less exciting for Euronet than for many others since Union Pay, the Chinese debit card, does not permit dynamic currency conversion (DCC). The extension of the Eurozone to include Croatia is also not helpful. Euronet has recently retired 350 ATMs which “were in places that would likely not be profitable given the country’s conversion to the euro.” 

Longer term, there continue to be regulatory threats to DCC. Recently, Alicante Council ordered the removal of 137 Euronet ATM’s because of excessive charges.

Despite rising salary expenses, Euronet was able to keep costs under control, with total operating expenses falling 1% even after reporting 10% growth in salaries and benefits to $142m. This led to an adjusted operating income growth of 17% to $79m and an expansion in the group’s operating margin to 9.1% from 5.2% in the same quarter of 2021. The company’s preferred measure of profitability, adjusted EBITDA, grew 12% to $127m, again due to the improved performance in EFT processing.