Chit Chat Stocks - Fiserv (Ticker: FI) with Jacob Franklin

Episode Date: July 13, 2023

Fiserv Inc. (FI) is a global provider of financial services technology solutions, specializing in digital banking and payments for financial institutions, businesses, and consumers. Listen as Brett and Ryan ask questions about the company, its business model, and valuation. Enjoy the show! ***************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney  Subscribe to our Substack to receive free show notes and charts that go along with every episode: https://chitchatmoney.substack.com/ Interested to see more of Jacob's work? Find him on Seeking Alpha: https://seekingalpha.com/author/jacob-franklin Contact us: [e-mail] Timestamps Fiserv | (2:11) Payment Network | (6:58) Competitive Advantage | (16:57) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Money. On this show, host Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are also general partners at Arch Capital, and Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chit Chat Money by Ryan or Brett or any other podcast guests is not formal advice or a recommendation. Now, please enjoy this episode. All right. Welcome in. Today, we are joined by a recurring guest. I guess we could call it at this point, a friend of the show, Jacob Franklin. He writes for Seeking Alpha. I'll say it right

now. Go ahead, check them out. If you've got any of those free articles on Seeking Alpha, I recommend using them on Jacob's articles. They have a lot of two-week free trials. So use that new email account. But also, I guess you can pitch it yourself, but it's a lot of deep value stuff, a lot of niche stuff that basically no one covers. And you're writing probably the first article that people, maybe this is a topic for another time,

but how do you find these companies? Do you just search for the smallest ones out there that are trading at 0.1 times book value or how does the process go? I do have, I have a number of screens that I do, although they're generally like, pretty broad screens that turn up a lot of stuff and then i will just go through it with a very high filter like read it and you know toss out all the stuff i can't understand

um so i'd say that's how i come up with most of ideas i also have some like i kind of monitor certain sec filings for special situation type stuff uh so occasionally uh all stuff will come up that way, but I would say screens or just everyday experience. I actually think this one, Fiserv we're going to talk about was more of an everyday experience. But other than that, screens, yeah. Now, yeah, you just hinted to it. We're talking about Fiserv. This is a company that people have, if you're an investor, you've probably heard of Fiserv, maybe just seen the name tossed around. It's thrown around in a lot of value investing communities. Or getting confused with all the other three companies that start with the letter F in this

space. Yeah. And it's a big company, but consumers probably don't know it by the Pfizer name. There's a lot of different segments. I guess, why don't we start there? What all does Pfizer own? And what do you think are the important segments to the business? yeah sure um so they have three different segments um which i'll just go through quickly uh so the first one is merchant acceptance uh this is basically accepting credit card payments um they have they're one of the large legacy merchant acquirers um so they have a large market share of especially merchant acceptance in the u.s uh and then this segment also has uh clover and carrot which are their uh newer merchant acceptance

options that are growing really quickly so we can probably spend some more time talking about clover and maybe care specifically later in the interview um but generally clover targeted at small businesses carrots kind of targeted at larger businesses and the legacy stuff kind of skews more towards larger businesses. Um, although it's, it's pretty widely used everywhere. Um, and all of it is skews pretty heavily towards the U S they do have some international stuff, but it's, it's a lot smaller than their competitors. Uh, the next segment is they call FinTech. Uh, but I really think of it, it's like basically bank operating systems. Um, they sell systems to run all different parts of the bank. Uh, so if you're, uh, you know,

a smaller or even like a medium-sized bank like the really large banks like jp morgan generally in-house this stuff but the smaller medium-sized banks or credit unions generally rather than writing all the code it's stuff they need for running a bank compliance all the complicated stuff they have to do they have some sort of provider that provides that software to them this is another one where they have like a large legacy business um but they also have a competitor in the newer stuff which is usually called cloud native uh more like just you know a cloud native sas solution uh the older stuff is kind of more on premise uh so they both have a big legacy offering and then they have a newer cloud native offering

uh and then the last segment is payments which to be honest is kind of just like their all our other stuff is in this segment. This segment has the third largest debit network, debit card network after Visa and MasterCard's network, which is a pretty interesting, unique asset. They do card issuing. They do credit card settlement for merchants and banks. They do card manufacturing. They do card bill management. They do digital bill pay, which they have like a proprietary system, and they also integrate with Zelle. So a lot of banks that offer Zelle use the Fiserv system to integrate with it. And they also are going to have an integration with a new payment method between banks that's being sponsored by the Federal Reserve called FedNow.

They also do prepaid card issuing gift cards. And during COVID, they had a lot of work uh issuing government prepaid cards kind of like ways of giving out stimulus money that kind that come on prepaid cards uh the thing i'd probably highlight here that i think is the most interesting asset is the debit card network uh it's the third largest after like i said visa and chase uh and when you see if you ever look at debit card networks they're usually broken down by like globe what's called global players and domestic networks um the global players are like visa mastercard um and they're by far the largest domestic network um so that's that's kind of a high level summary of the business okay so this is good timing because you mentioned the

payments network and our next question is about that as the follow-up here so okay when i sell my business. I want the best tax and investment advice. I want to help my kids and I want to give back to the community. Ooh, then it's the vacation of a lifetime. I wonder if my head of office has a forever setting. An IG Private Wealth Advisor creates the clarity you need with plans that harmonize your business, your family, and your dreams. Get financial advice that puts you at the center find your advisor at igprivatewealth.com new from nespresso blend wellness into your coffee routine with a coffee plus range infused with functional benefits choose the coffee you love with added b vitamins like coffee plus b12 to help support immune function and coffee plus b6 to keep

your day moving or go with the flow and choose ginseng delight our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on nespresso.com why does the payment networks which i believe is called star and maybe there's some other assets like you mentioned it within there what value are they providing to visa and mastercard why are their customers still sticking with them and is that an important part of the thesis here uh i wouldn't say it's a critical part of this thesis but uh debit cards are a little bit different than credit cards around the time of the great financial crisis. There was some legislation passed and any debit card that's issued has to, has to be able

to support at least two debit card networks. So Visa owns its own debit card network, MasterCard, oh, and non-affiliated network. So Visa can't own two different networks and offer both of those. so they have to offer two options and so even though not all credit like debit cards a lot of them say visa on them you will see some that say star which is one of the debit card networks that pfizer owns but some of the ones even if they don't say star on them will offer visa and star like as the second option because they legally have to offer another option um there are some like kind of semi non-competitive things the credit card network to do uh to encourage the using their debit card network over the star network um basically like part of their terms

of service i believe is that you have to like merchant merchants have to default to the um the visa one and so even though star or a secondary one might be offered as an option unless the merchant goes in and configures choosing the lowest cost network. They're just going to use the Visa network by default. A lot of merchants just kind of stick with the default, but you still do have some meaningful market share there. Generally, the Visa and MasterCard are about 80% of the market share for the debit network. The domestic networks are like the other 20% in the US.

So they do still get some usage. I don't think this is like a critical part of their business, but I think it's got some interesting optionality. There's always talk about like updating the debit card laws or adding some sort of like credit card competition laws that maybe would even the playing field a little bit. And then I think this asset could become more valuable. So it's not like a critical part of the thesis,

but I think it's an interesting asset that could offer some upside. Okay. And it's kind of a hodgepodge of different financial services, it sounds like. And a lot of that, if I'm not mistaken, came from their merger with First Data. I guess, can you explain what that merger or acquisition, whatever they want to call it, what was that deal? What did they get in it? And do you think it was the right decision? Yeah. So kind of the point, if you look at like a payments value chain, Fiserv does almost everything in the payments value chain, except for being a credit card network. So they have different features of all the different parts of the payments value chain, partially acquired through this acquisition. I think it makes sense. And

And I think the key asset they got with the acquisition was Clover. And they had this sales strategy as part of the acquisition, which I think has been really successful. So to take a step back, the payments value chain is very complicated. There's many different players in it. And for especially smaller businesses, it can be quite confusing getting onboarded. um and so starting i'm not sure when exactly maybe 10 years ago uh there's there's been increasing uh for small businesses popularity of a thing called a payfac which is short for

payment facilitator um probably the most famous ones are like square and paypal uh and a payfac pretty it simplifies what's going on for the merchant so you can kind of think of it as like payfac is like a box around the entire payments value chain um so like i'll use square as an example they give out the points of sale to their merchants the merchants accept credit cards and from there all of the stuff that's going on the payments value chain happens behind the scenes and actually in traditional payments uh you have to sign up for a merchant account with a bank and you become the merchant of record. So like, you know, if I was accepting credit cards,

my business would have a merchant account at my local bank and all of the money would go, you know, all of the, once the money was cleared from the credit card transactions would go into my merchant account. Well, in the PayFact model, basically Square is the one with the merchant account and they have like one merchant account with one bank

where all of the money from all of the different square cells gets co-mingled. And then you just have a regular business account at a bank, and the square sends the money from their account to your account. So it's basically like another step. But what that means is all of the complexity is inside the payfac and it makes it simpler for small businesses to get onboarded. It's kind of a threatening thing to banks because it kind of undermines the relationship between banks and these, you know, businesses and that's a really valuable relationship for banks.

Like they, they obviously make money off of managing the merchant account, but they also like it's just a relationship um banking's relationship business you want to keep those relationships with your businesses um and so clover they're going back to clover clover is a next-gen system but it's not a payfac necessarily it can sometimes be considered configured that way so for these banks that have these existing merchant relationships maybe you know their merchant was coming to them and saying like, Hey, my rival got this great new square interface, I have this 20 year old credit card reader that doesn't have like a screen on it, the square.

The square system can do all this cool stuff, my credit card reader doesn't do anything. And so Clover was kind of like, used these banking relationships with merchants as a like sales mechanism because these banks want to keep this relationship with the merchants and they're not, you know, the banks aren't going to spend all the time and technology to deliver their own custom point of sale service. And we're bringing this all the way back to the acquisition. Part of the rationale for the acquisition is Fiserv had this pre-existing relationship with many small and medium banks throughout the US. Because of their fintech segment, they offered

kind of foundational technology so they have very close business relationships with lots of small and medium banks so basically by acquiring first data and clover indirectly they could then sell clover through the banks out to all of the smaller merchants and so it was it's been a really effective distribution mechanism to get clover out and um everywhere so i think that's like from a strategic perspective has worked really well. And then on the kind of, I guess, financial side of it, it also looks pretty smart in retrospect. At the time, First Data, they had a really, I don't want to say toxic, but a really challenging balance sheet. Fiserv had a much lower cost of capital overall. So they basically used, they bought

first data with shares, which at the time were trading pretty expensive. So they used their expensive capital to acquire this thing. They refinanced all the expensive debt to cheaper debt. And so it was really a creative to their earnings basically year one because of that financial leverage. And also I think it made a lot of strategic sense for the reasons I pointed out. okay makes sense and i don't think pfizer gets the buzz or the credit that the big networks or really any of the popular fintech players get like an ad yen a sec you know sexier name i mean they don't they don't even get the valuation right unless i'm mistaken they mostly time they don't get the same valuation however we read this uh there was a line that

Brett found from a Value Investors Club write-up that I thought was really impressive. It says, even with the pandemic and decline in brick and mortar traffic, 2020, and this was a little outdated, should be the 35th straight year of double-digit earnings per share growth. And he said, I see 20% earnings per share CAGR moving forward. Why do you think they've been able to have such good success over the long run okay when i sell my business i want the best tax and investment advice i want to help my kids and i want to give back to the community oh then it's the vacation of a lifetime i wonder if my head of office has a forever setting an ig private wealth advisor creates the clarity you need with plans that harmonize your business your family and your

dreams. Get financial advice that puts you at the center. Find your advisor at IGPrivateWealth.com. New from Nespresso. Blend wellness into your coffee routine with the Coffee Plus range, infused with functional benefits. Choose the coffee you love with added B vitamins, like Coffee Plus B12 to help support immune function and Coffee Plus B6 to keep your day moving. Or go with the flow and choose Ginseng Delight, our new double espresso with ginseng extract whatever lies ahead don't change your morning let your morning change you discover coffee plus on nespresso.com is there any sort of i guess competitive advantage here um so i think they've had the success they've had in like growing earnings per share

um i think it's a combination of two things um good capital allocation uh i mean they've been a long time. They buy back shares, which, I mean, in and of itself, not good capital allocation, but it's definitely going to help you get to that EPS growth. It inflates your EPS number. And then also the acquisitions they've made have been pretty, over time, have helped the business out. And then besides that, they play in the payment space primarily and digitizing banking, which are areas that kind of had, I think, long-term tailwinds for a long time. So those things have grown faster than GDP has grown. I think Pfizer has been a successful player in those areas. And so you kind of get the dual motors of this is a fast-growing area, and they're

taking market share. Combine that with the buybacks, and I think you get the strong EPS growth. um competitive advantages it's a little complicated to talk about just because they do do so much different stuff uh i think what level of competitive advantage they have kind of varies between the different segments but i think like the core kind of fintech banking platform is generally very sticky uh it doesn't grow a lot but banks don't like to change their operating systems very often so i think that's like a pretty high switching cost area the merchant acceptance i think is that is a rapidly evolving area and it's not super clear right now how big of a moat that area is going to end up with um but i think part of my thesis here is like that that part of

of their business is moving towards kind of a more consolidated marketplace and that the relationships they're building with the merchants that are using Clover are really valuable and will be sticky. That totally makes sense. And I think for anyone that's listened to our payments episodes that we've done in recent months, the key for almost all these companies at the end of the day is to grow their overall payments volumes that are flowing through the network. Pfizer is a little, like you said, there's a lot of moving parts here, but at the end of the day, they want more payments flowing through their network. And one competitive threat, at least on the horizon, or that has really arrived, are the new merchant inquirers like

Adyen. You toss in Stripe in there, you toss in Braintree. What are your thoughts on the competitive threats from these new companies or these new merchant acquirers? And has that hurt Pfizer? And do you worry about that over the next five or 10 years? I definitely think it's a point of worry. I mean, these are definitely competitive markets. Like you said, they're a new entrance. And it's not just like all of their different segments have like newer competitors like there there's um card issuing banking uh systems like those have new fintechs entering them also so it's competitive um i think pfizer's long-term track record and is is pretty strong when it comes to competing successfully and i think the thing they

don't get a lot of credit for is because you kind of have like clover and carrot just using merchant acceptance as an example like these are these are fast growing um you know next gen solutions but they're grouped in with this kind of legacy like scaled acquirer and because they're grouped in there i think that people kind of see people kind of group pfizer with some of the other more legacy players um and so i feel like the market has a hard time figuring out like where to value cloak or where to value pfizer because it's kind of in the middle you've mentioned carrot a couple times i'm that's one of the businesses that i was unaware of coming into this what is that exactly uh you mentioned that it's kind of similar to clover correct it's actually so

So it's, um, I would say a competitor to Addian is kind of like a next gen, um, large, larger merchant, uh, acceptance platform. Uh, it's, you know, basically built from the ground up, uh, and it competes on similar things that Addian competes on. It's, it competes on acceptance rate and lower take rates, uh, to try to be more appealing. because those are generally the kind of things that larger merchants care about. It's a lot smaller than Addian.

It was only started, it launched in 2020, but the growth so far looks promising. And so it's not as scaled as Clover, but I think it's another example of them building a potentially exciting next generation solution inside of the Fiserv shell. Okay. It sounds like there's a lot, some of the parts of Pfizer don't sound, like you said,

it's all a part of various parts of the value chain and payments, but a lot of them seem very independent from one another. Do you know, are these run like independently, like each of their own companies or is it kind of, are they trying to blend these businesses together? i know that so i know that clover is like run as a separate entity underneath visor um i don't know if like the the legacy merchant acceptance is run differently than the legacy card issuing or if those are kind of all just like one big organization um but i do know that like for some of the newer stuff like uh clover or some of the other like fintech stuff they acquire

they do let them continue to run as like kind of standalone organizations under the Fiserv umbrella. Okay. I guess the follow-up I have there is who are Fiserv's main customers? Who are they directly going to? Is it typically the banks and the banks kind of distribute Fiserv's other products like they do with clover or is it all sorts uh i think it's traditionally pretty pretty heavy banks they do have other um customers for like i mean the different segments have different customers i think the thing that kind of ties it together is like the banking customer they're tying into like banking networks uh but for some of the stuff like gift card issuing like a lot of times that would be like large merchants for the customers um and clover although i talked about the uh

you know the banking as a way to distribute clover and i think that has been a successful uh distribution mechanism they also now you know sell directly to merchants so it's not like they only interface with banks but i do think like that is a big customer for them as banks yeah it's an interesting relationship how like these banks are talking with the small businesses and all that stuff and yeah it's it's hard to track i've gone over this type of stuff You know, probably a dozen times or more, and I still get confused, but I mean, the track record speaks for itself. Let's transition to something a little bit different. We're kind of going to hit the ownership and management section here.

And the big, I don't want to call it, it's not a wart, but it's just something that's there for the ownership is KKR. They were part of First Data. They've been there for a long time. And I'm just curious, are they still in the picture? Do they have any influence on this business? Are they, you know, going to be selling their stakes soon? Have they indicated anything, any thoughts there, and whether it, you know, is a risk for you or maybe could lead to, you know, potential buying opportunity?

Yeah, they are. I think they are still involved. I believe they fell below the reporting threshold. So I don't think they have to report their ownership anymore. um the the history of it is they they did a leveraged buyout of first data and then that's how first data ended up with all of the like fairly toxic debt that got refinanced um when Pfizer acquired it um they there was overhang for a while and I think this is one of the reasons it didn't perform super well after the merger for a while was there was some overhang because

KKR was selling out their stake. They eventually stopped doing that. I'm not actually super sure on if they have any left or not right now. I know that in their last proxy, they weren't listed as a major shareholder. So I think that's why I said they're below the 5% reporting threshold, but I'm not sure if they own any shares anymore. You mentioned the debt load that they got from that acquisition. I think you talked about it in your write-up as well. What do you think of it? then maybe this can kind of play into the valuation discussion as a whole yeah i mean i i think i mean i think their debt load is very reasonable um it's pretty turned out and uh compared to the cost of debt right now it's it's pretty cheap uh i mean i think as you roll the debt over

like obviously interest rates are higher so their interest expenses are going to go up but that's happening to everyone um this is like a lot of their businesses are very resilient recurring revenue. So I think it's a very reasonable business to have leverage the way they do. I've seen complaints from some shareholders that they think the business is over levered, but it doesn't make a lot of sense to me. They can buy back their equity and get a higher cash flow yield than they would paying off their debt early. So I think their debt load's reasonable is the the short answer. And it's mostly fixed rate, right? Yeah. They have a small amount of floating rate, but it's mostly fixed. Okay. So I guess, can you give us some context maybe around numbers?

What's the valuation look like for Visor right now? I guess, how do you go about valuing the business? Sure. So actually when I first was researching it, I tried to do a similar parts on it. And I think that's a mistake. Uh, at the time I did have some of the parts and it was like the year end 2021. And the lot of stuff I was comping it to was like square. And at the time, if you comped it to square, you were like, wow, the Clover's, you know, like I'm Clover for the entire enterprise value, but then it turns out I probably should have just shorted square, not bought Fiserv. And you still can go through that calculation, but honestly, it's fairly complicated. I don't think it's worth doing. So the way that I think about it right now,

the shares have about a four and a half percent free cashflow yield. And I kind of use that as a starting point and then think about how they can grow their revenue. I think that it's pretty reasonable. They can grow their revenue kind of 6% organically. They also have a long history of basically improving, improving free cashflow margin. So they're, they're very disciplined about, you know, they have a lot of businesses that scale well. I mean, you know, giving out another Clover merchant, onboarding other bank to your banking platform. There's not additional associated costs with that. And so they have a very long history of like increasing their margins. So I think that's kind of how I think about it. You know, four and a half percent free cash flow

yield revenue can grow, I think 6% organically. And then you've got a little bit of margin expansion over time. Yeah, totally makes sense that it kind of leads into another lever here for the earnings growth or the growth in the free cash flow yield, which would be the buybacks, which are all determined by the management team. If we look at, I don't have that share count in front of me. I had it earlier, but the shares outstanding have declined significantly over the years. And I want to talk about the management team because in relation to that, it seems like they are very important to this situation because you have them buying either other

businesses and having to be rational and smart on that and getting good returns on invested capital or buying back their own business. in the share repurchase program that seems like and again correct me if i'm wrong those are the two things they do so what are your thoughts on the management team you know why do you trust them why do you think they can continue this earnings growth outperformance that they put up for multiple decades yeah so i think i mean it sounds simple but uh actually anis analysts on calls ask them about acquiring things all the time and i think one time the the person who who was answering the COO basically said something along the lines of, look, when we look to acquire

something, we compare it to our equity and the cash yield on the equity, which sounds simple, but I think that's exactly what you want out of a serial acquirer. And 90% of management teams don't do it. Yeah. And that was almost the end of his answer, but the rest of his answer was something like, valuations are expensive and we think our shares are cheap. So we're going to buy back our shares, we probably won't be doing acquisitions. And on the other side, like the first data acquisition, they did it at a time where their shares were on the more expensive side. So I think that shows the other, that they're willing to take the other side, which is like, when my equity is expensive, I will use it to make an acquisition, which is like almost the

exact opposite, right? It's opposite of buying back shares. So I think overall their long-term record of making that trade-off decision is really good. And then just on the CEO real quick, if you listen to investors, he can be kind of divisive. He gets paid a lot. His total comp last year was $40 million. And for a long time, I think this was kind of like a narrative of the shares not going everywhere. People were calling for him to be fired because he was getting paid a lot of money and the stock wasn't going up. I'll be interested to see if those keep happening if the share price goes up. But he was actually brought over in the first data acquisition and he has a long history in the kind of payments era. He was Jamie Dimon's right-hand man for a

while basically and was considered kind of one of, there's been a number of people who are considered Jamie Dimon's kind of like hair apparent at JP Morgan. He was considered that for a little while and then was brought over to First Data to kind of fix that when it was really struggling. And then when Pfizer acquired First Data, he became the CEO of Pfizer. He's never sold a share. So he does get, he has a lot of comp, but a lot of it's share based and he retains it and he owned about 400 million dollars in shares which um i mean it's not it's not a large percentage of the overall company but when you know you have a large market cap like this and a new ceo who came in you're not going to have that huge insider ownership and i at least like

that he's retaining the shares that he's getting comped yeah and then to put some context on the the buyback program, I assume there was a big share issuance in 2019 in relation to the first data acquisition. But from 2005 to 2019, shares outstanding dropped 50%. So it's been very accretive to shareholders over that time. I guess last couple of questions here. This one, we kind of got this on Twitter. It's the fun one. I know you can ask this about any stock, but why would you own or why should investors own Fiserv over either FIS, which I think you mentioned is probably the closest comp, GPI, which is Global Payments Network, I believe, and then the big card networks? What makes Fiserv a better investment? Yeah, so FIS and GPN are generally like they're the other kind of legacy scaled acquirers or merchant acquirers.

And I actually asked myself the same question about six months ago when I first was buying the stocks. Actually, Fiserv was like a little cheaper than FIS and GPN. But over the time, GPN and FIS had kind of gone down a lot. And Fiserv looked more like Fiserv had become more expensive. But when I go through what GPN and FIS own, I think that the assets Fiserv has are a lot higher quality. And I like the management's track record. Like FIS basically kind of tried to copy Fiserv and acquired WorldPay, which ended up being a disaster. I think it's kind of the classic thing, the second one who tries to copy someone else usually ends up not doing it right.

And so I think their management, I really didn't think highly of, they kind of recently replaced their management and now they're going to sell world pay. So I do think that's like kind of an interesting special situation where, you know, the new management could maybe undo some of the mistakes of past management and unlock value. But generally, I just think like, I think Fiserv is a better, you know, assets and I'm trying to ride with the kind of better assets and better management that I know and like, rather than just like flipping to what's currently the cheapest thing. And I don't think the current Fiserv valuation is super demanding. In terms of Visa and MasterCard, I mean, obviously, they're quite a bit more expensive, their valuation is more demanding. I also think because of Clover, Pfizer has actually been doing a really good job of gaining market share and payment acceptance in the US. So Visa and MasterCard obviously have that tailwind of more payments volume. But if the next generation kind of merchant acceptance platforms also have a tailwind, they're actually like the next generation options are growing at three times the speed of the legacy scaled options. And so you've kind of got that dual tailwind thing again, where it's like a tailwind of payments and then a tailwind of having one of the successful next generation competitors there.

um so i think that that is a a good uh like you could actually outgrow visa and mastercard because you're taking a larger slice of visa and mastercards uh ever growing pie now i don't think their moats is good but uh you know you can't get everything yeah and what's funny is you look at pfizer we kind of looked at a little bit you know to prep for this interview kind of seeing what they own and at first you kind of just go what's what's special here but then you look at the track record, you look at, I believe the stock's 100 beggar over the long term. And you look at that quote again, 35 straight years of double digit earnings per share growth, which I think probably got extended to 37 or 38. And you go, well, the growth has been durable and the

stock isn't that cheap. So why wouldn't I trust that to continue? And I guess to go into our final question, which that leads into, is the premortem. You've heard it before, Jacob. We ask it every time. Why do you think an investment in Pfizer could end badly? I mean, so I think there's a few things. I think the fintech segment, there's some other public market comps that only sell bank operating systems and the market really likes them. I kind of worry about that space overall. I just think the banks that buy those things are kind of the more small and medium banks. And over time, the number of banks has been going down. So I, I worry that that might end up being like a shrinking pie that people are fighting over. Um, I think that that's

one, one risk. That's just one of the segments, but, uh, you know, if one of your segments does really poorly, that can hurt. Um, I mean, they have a good record of this, uh, but like, you know, bad acquisitions or bad buybacks, obviously you're trusting the management and the first data acquisition they provided a lot of detail into obviously because it was huge but they're making fairly significant acquisitions semi-regularly like i think they made one last year that for about like almost a billion dollars which you know that doesn't kill you if it doesn't work but if you make a few of those that are bad you're kind of just like wasting money and because it's a smaller part of the business and it's like an earlier stage thing as an investor it's harder

to get that much insight into like how well that acquisition is actually doing um and then uh we touched on this earlier but i mean i do think it's a very competitive uh market people have like payments has been a really good place to be a business for the past 20 years and i think people have recognized that there's lots of fintechs that have gotten into it um and so you know it's competitive, they got to keep competing and have good technology. I do think with kind of the pullback in valuations, maybe at some point over the next few years, if things keep, you know, if startups, their valuations keep coming in, there's maybe an opportunity for Fiserv to acquire some of those kind of fallen angels and integrate them into their system.

But I definitely think that's a risk. And then, I mean, this is kind of vague, but obviously, the payments industry as currently constructed is very important to them. If there's some kind of major shakeup in how payments are done, it's hard to see what Fiserv would look like on the other side of that. I like that second risk you mentioned, kind of death by a thousand bad acquisitions. There's been a lot of examples, I think, that you could point to where that's happened. It doesn't seem to have happened for Fiserv, but certainly a risk. I think Zillow is probably one that you could point to as a bunch of bad acquisitions.

And each one you kind of say, well, you know, it's not that big, but if there's a culture of it and there's a big number of them, it's certainly a risk. I think that's all the questions we have, Brett, unless you have any more. He's giving me the shake of the head. So that is going to do it. Jacob, thank you for joining. Where can listeners find more of your work? You've been a little more active on Twitter lately.

So what's the handle? uh yeah it's uh at do your diligence uh and i think you guys already called out uh right for seeking alpha those are those are probably the two places great articles on again like i said stuff like this and deep value stuff i know there's always a few people you were the only one that responded to my tweet that said yeah i'm interested in listen learning about hawaiian airlines some local regional airliner uh so stuff like that you know i know there's always that crowd that loves the deep valley stuff and that's your articles are great way to surface that yeah i just i just wrote an article about the um airline industry i think i think it's pretty

interesting right now so i'm looking forward to that when you guys do that all right ryan hear that ryan me and ryan are debating on whether to to do that so that's one vote that we we should we should cover airlines because well the replies were mixed there's a lot of what i mean there's people like jacob that were very interested and then there are people like it's an airline what's fun about that. I know. I told people I wanted it to have the, yeah, it created more confusion for me than clarity. But yeah, that's for a whole other thing. Ryan, why don't you wrap things up? All right. Well, that is going to do it. We want to remind listeners that Brett and I are not financial advisors. Anything we say or discuss here on Chit Chat Money is not formal advice

or recommendation. We are, however, general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you, Jacob, again, for coming on the show, and we'll see you all next time.