Shift4 Payments (FOUR) - Deep Dive #8, a Broad Overview of the Bull Case
The cleanest dirty shirt of the payments/FinTech space? Featuring: a killer acquisition framework and an executive team that actually knows how to invest capital
REQUIRED READING DISCLOSURE: This is not financial advice. I am not a financial advisor. If you like the idea, conduct extensive research and consult someone who is a financial advisor before making any investment decisions. All investments, including this one, carry the risk of financial loss.
This article comprises my personal beliefs and convictions around any securities mentioned, and is not intended to be used as a recommendation to buy or sell any securities. This article may contain errors or incorrect information - you should verify all information presented here through your own research.
Introduction
Shift4 Payments (FOUR) is a payments provider serving the restaurant, hospitality, sports & entertainment, and e-commerce verticals in the U.S. and across the globe. Since their 2020 IPO the company has made a number of transformative acquisitions that have allowed them to expand their market share and conquer new segments of the payments ecosystem, driving significant growth; over the past 3 years they have grown revenue at a 29% CAGR and operating cash flow at a 34% CAGR, managing to handily outperform most competitors in the payments space as well as the NASDAQ itself. They grew operating income at a staggering 115% last year, after 20+ years in business.
As you can see in the chart above, FOUR shares have suffered a pretty steep decline in 2025 (down 19% YTD), given the recent announcement of the largest acquisition in their history (1/3 of the current market cap) and the departure of their 26-year founder and CEO, as well as the remaining tariff-related macro uncertainty… clearly the market seems a little freaked out about all of this.
In my humble opinion this price could make an opportune time to enter a position (depending on your macro forecast and timeframe, I guess) - I think the market doesn’t realize how quickly FOUR can continue displaying it’s M&A magic and I think any concerns over the acquisition and the departure of their CEO are unfounded, for reasons I’ll get into further on in this report. Macro does worry me some, but more importantly, I still think FOUR shares have a decent shot at outperforming broad indices should we end up with a recession and during the eventual recovery.
Generally, the payments space is low margin and kinda commoditized. See the others on that chart above (LSPD, TOST, PYPL, XYZ) that have performed rather poorly. Payments is very competitive and it is difficult for payments providers to develop a real insulating moat that protects their pricing and keeps their customers from being picked off by others.
Having said that, what makes FOUR so different from others in the payments/fintech space? Of all the payments processing companies shown in the chart above (TOST, XYZ, LSPD, PYPL), why is FOUR the only one that has produced any meaningful shareholder returns over the past 5 years?
The only answer to this question is that FOUR’s executives actually know what they are doing when it comes to investing capital. They’ve developed a tried and tested acquisition strategy, cheaply buying companies with complimentary systems and lots of captive customers to cross-sell their payments network to, with fantastic results; they’ve been able to grow their number of customers and payments volume massively, at as low as 1/5 the cost of customer acquisition for competitors like Toast (TOST).
“We are passionate about identifying critical but often overlooked businesses that have incredible merchants who benefit immensely from a single comprehensive payment platform. We aim to deliver these merchants what they would have otherwise sourced from 5 or 6 different companies, and in turn, deliver more value and convenience.” - FOUR CEO David Lauber, Q4 2024 earnings call
During 2024 they saw payment volume growth circa 51% to $165Bn, and after their most recent acquisition, the company now has access to $1.4 trillion in payments cross-sell opportunity that they are very advantaged to win. There is a load of growth already baked into this company today, even if management were to ‘sit on their hands’ and stop doing M&A transactions altogether.
I see FOUR continuing to outperform the payments space at large and I think there’s a really good chance it outperforms the broader market as well over the coming years. Today, the company is trading at around 18x forward earnings. For that, you’re getting a company with a good chance of doubling it’s free cash flow over the next 3 years given their massive cross-sell opportunity that is baked into the company today, as well as realizations of coming M&A transactions.
From this company I’m expecting a good amount of growth, a pinch of margin expansion, and quite possibly some multiple expansion depending on how the macro shakes out.
Table of Contents
Introduction
Thesis
Risks
What does Shift4 do?
Products, Services, & Customers
Switching Costs
Broad-Level Financials
M&A Strategy
Leadership & Governance
Conclusion
Thesis
I think FOUR shares today are pretty cheap at 14x forward earnings, considering the amount of growth that’s baked into the company today. FOUR could ‘sit on their hands’ and completely stop M&A, and even then the company has over 8x their current payment volume in cross-sell opportunity to existing customers with a payment volume TAM in the multi-trillions.
M&A put this company where it is today, but their organic growth is still quite strong with numerous organic customer wins in Q4, including 18 ski resorts, 19 non-profits, 4 retail customers, 10 entertainment venues, and expansions/further penetration of sports stadium customers. They could stop all M&A activity tomorrow, still grow fantastically, deleverage over a few quarters or a year, and return a good amount of capital to shareholders just by ‘sitting on their hands.’ I find the embedded growth potential with this company pretty attractive - 2024’s organic gross revenue less network fees (GRLNF) growth was >20%.
I really like FOUR’s management team on capital allocation, product strategy, and high ownership. I think they are smart, diligent, very knowledgeable about their own company, and most importantly, quite good at investing capital - see M&A Strategy. This company’s executives have executed very well over the past 5 years and have delivered on every promise they made to investors at their 2020 IPO and more. They are realistic, they are pretty honest, and they are generally very transparent with shareholders around products, operations, and the acquisition strategy. Founder Jared Isaacman has more or less outlined their entire acquisition strategy for investors many times in shareholder letters - he owns over 20% of the company today. For even more color on management, see Leadership & Governance.
FOUR 2025 Investor Day Presentation I know people generally dislike the FinTech space, but this is genuinely a good business if you ask me. The executives are incredibly clever on product and investment. I think this company deserves and will see a higher multiple than today’s 14x forward earnings. The outgoing CEO Jared Isaacman rejected multiple buyout offers last year because the price was too low, and having studied the business, I agree with him in that regard.
Payments is very competitive - some investors would call it commoditized, I disagree to an extent. The commoditization of payments may have been the case for payments providers a decade ago, but today, many major providers including FOUR have a lot of differentiation built in with much stickier product offerings, as well as specific niches that providers like FOUR target and do well at - FOUR’s best verticals today are hotels and sports & entertainment venues, compared TOST which does best in restaurants.
We’re talking niche software and analytics integrations for merchants like hotels, sports stadiums, theme parks, restaurants, plus customer service and support, hardware advantages, and more. We’re talking acquired resellers with decades-long relationships with merchants and local areas. Not to mention, FOUR can and often does raise take rates with some merchant customers, every year in some cases (obviously up to a firm ceiling, but still). It’s not so easy for any customer to go and change up their whole payments system these days given all the services offered and all the involved integrations that need to work flawlessly.
It’s also not like any payments provider can immediately go after FOUR’s customers just by lowering their prices - they’re taking share rapidly in verticals like hotels and stadiums because they simply offer a better, more tailored solution to these merchants.
“There’s a reason why we’re the category leader in sports and entertainment and theme parks, every one of them is using our mobile solution for ordering a burger and a beer to your seat, they’re using us for ticketing, they’re using us for concession stands, VIP suites… are the Baltimore Ravens or the Yankees gonna throw away all that technology to save a few pennies but give a worse experience to patrons?” - FOUR Founder Jared Isaacman
I should mention, I’m not currently long FOUR myself. I might be soon for a trade, we’ll see. I did have a smaller position here earlier in the year, but I sold it to maintain my cash buffer and focus on other opportunities. You can decide if that was the right or the wrong decision, haha. Really I’m writing this report because I think this fintech space is interesting enough to explore, with all it’s unique positives and drawbacks, and I wanted to provide my personal view on the bull case for the company going forward, while mentioning the drawbacks and potential negatives for a company like this (seen below). Payments isn’t the greatest business to be in but I generally think these guys will still do well.
Risks
1) The biggest risk here in my opinion is recession. As FOUR’s revenue is ~90% dependent on payments volume, the company is pretty sensitive to changes in consumer spending. If we end up in a recession soon, FOUR’s revenue growth could slow dramatically or even reverse into negative territory. During unfortunate macroeconomic conditions, people are probably not going to completely stop spending at restaurants, hotels, and sports stadiums, but they will pull that spending back substantially. It really depends on what sort of recession we get, if any. I will say, FOUR has grown all major KPIs at 20%+ annually basically every single year since their 1999 founding, even through the 2008 and 2020 (COVID) downturns. They can handle a good bit of same-store-sales compression just by growing payment volumes (organic and acquired) by a good bit, like the 49% YoY volume growth in Q4. I think a recession will certainly slow down volume growth but they could likely still continue growing.
Also, serial acquirers like FOUR (though technically FOUR’s management disputes the serial acquirer term) can have a sort of ‘natural hedge’ baked in, if equity multiples decline across the board in a downturn, FOUR could invest capital in cheaper companies as a result and create more value out of those dollars for shareholders - assuming they’re sufficiently deleveraged and have the cash + cash flow for it, which is not a given.
“For those who are kind of worried about the restaurant health or the consumer health, we had a global pandemic 4 years ago [when we] were 99% restaurants and hotels and we did pretty damn well through that. We grew payment volume 20% YoY in the third quarter of that pandemic, so you know, a little bit of same store sales compression doesn’t change our view that we gotta find a hell of a lot more customers every year to continue to grow.” Incoming FOUR CEO Taylor Lauber
Something notable about the quote above, FOUR’s business is much bigger and likely more exposed to macro volatility today. Will they be able to grow fast enough to escape consumer spending compression? Really, I don’t know. Maybe now is a bad time to buy if you’re expecting a recession - as always, it’s up to you, the reader. Might be a good idea to keep this article handy to refresh yourself on the company later on, after a spending contraction if we end up getting one.
2) Investors in this company are largely dependent on the M&A strategy. It is absolutely crucial for continued outsized growth as I see things. While the company is not likely to stop M&A anytime soon, if management lapses with their M&A strategy and ends up investing in something they shouldn’t, bad things will probably happen to the stock price. This is a small risk if you ask me, but still present, as it would be with the capital allocation strategy at any company.
3) FOUR’s CEO and founder, Jared Isaacman, is set to leave the company and run NASA after a nomination by president Trump. There should be some risk here but I feel like the stock price reflects that already, and I do think incoming CEO Tayler Lauber is more than qualified to continue leading the company - see Leadership & Governance. The short version is, he’s been with the business for 6 years in it’s current form, he knows the acquisition strategy very well, he knows the company and the broader payments space well, and Jared will remain the largest shareholder of the company going forward (>20% ownership). If he feels safe leaving over a billion of his dollars in Taylor’s hands after 26 years of running this business, I don’t see why other investors ought to be too worried.
4) There is always competition risk with payments. I might think there’s less risk here than with a few others but the risk is still present. If FOUR can’t hang onto its existing customers in its best verticals (sports, hospitality, theme parks) then the stock will more than likely suffer as a result. Maybe other payments providers think they can serve these customers better and try to undercut FOUR’s pricing to take share. I don’t think this is a huge risk, but again, still present.
5) Lack of pricing power (inherent in payments): Gross volume take rates are declining at this company, though net take rates (net of network fees paid to other payments ecosystem operators) are holding steady, at around 0.8% of volume. I don’t honestly care too much about gross rates declining because they’re still able to drive incremental dollars to the bottom line at great rates, but it’s certainly not ideal. As long as net take rates remain constant or decline only slightly, we should be fine given the company’s immense volume growth, but this can be a risk as well. We should hope to avoid seeing net take rates decline too far if they decline from here at all. Maybe one day down the line, gross takes rates will decline to a point that they drive net rates down too — that would be really bad. Fortunately, gross take rates have flattened out their decline this past quarter — if these start trending up in a meaningful way, amazing things could happen for the stock price. They’ve been lowering rates in many cases to take share, but once they’re well cemented within their best verticals, we could see take rate increases or at least, a bottom for gross rates.
For a more apt comparison, competitor TOST charges somewhere around a 2.6% gross take rate + 10-30¢ per transaction. So, FOUR has lower gross take rates but around the same net rates from what I’ve seen estimated online.
6) Up-C corporate structure: FOUR is 22% owned by Rook, an entity solely controlled by the outgoing CEO Jared Isaacman (his >20% ownership stake). When FOUR IPO’d, they did so with an Up-C structure, meaning a public holding company (Shift4 Payments Inc) was created with it’s sole asset being a portion of ownership interests in the actual operating company (Shift4 Payments LLC) - the remaining ownership interests were kept by FOUR’s pre-IPO shareholders (Isaacman) through Rook, a separate entity. Why do companies do this? Tax purposes, naturally. So - on the income statement, we see some accounting income reductions due to minority interest, from Rook’s ownership stake in the public company. There is also a TRA (tax receivable agreemeny) liability charge on the income statement, which essentially means FOUR will pay 85% of its future realized income tax reductions back to its pre-IPO shareholders, over a period of many years as is usually the case with these agreements. The tax reductions are generated by becoming a public company essentially, changing their tax basis. This liability charge is non-cash, so we should simply expect FOUR to realize less tax benefits than some other public companies going forward, but it won’t really affect cash flows besides reductions to net income via, paying equivalently slightly higher taxes. This Up-C structure with a TRA agreement isn’t ideal but it’s fairly common for recent IPOs.
7) Previous shareholder lawsuits - FOUR was sued by two groups of shareholders a few years back, over alleged accounting discrepancies related to the counting/timing of certain cash flows - these suits ended up combining, but the resulting suit was dropped by courts. It’s worth noting these lawsuits came around the same time as a 2023 short report published by Blue Orca that saw shares fall by 12%. I don’t think this should be a risk factor going forward, assuming the company maintains the same accounting practices it does today.
What does Shift4 Do?
The payments space initially seems complicated and opaque, but it’s really not so bad once you get familiar with it and all it’s different actors and moving parts. With that said, what does it mean to be a payments processor?
FOUR operates as an intermediary between customers who purchase goods or services either in-person or digitally, businesses (called merchants) like restaurants who offer those goods, credit card networks like Visa or Mastercard that facilitate transactions, and the banks who actually hold and move money on behalf of both the customers and merchants. The act of swiping your card at a POS terminal is simple as a customer, but there’s quite a bit happening digitally to complete any transaction. So what does this process actually look like?
After a customer swipes, taps, or inserts a card, a chip or card reader within the POS terminal reads the card’s details and sends it along to a piece of POS software, running either within the POS terminal itself (in-person transactions) or in the cloud (online transactions).
The POS software encrypts the card and transaction data and transmits it to the payment gateway, another bit of software that’s usually running in the cloud. The gateway forwards this data to the payments processor (in this case, FOUR), who then routes the transaction through card networks like Visa or Mastercard, who in turn ping the cardholder’s bank (called the issuing bank) for authorization - authorization in this case can mean both fraud prevention and confirming the availability of funds in the customer’s account.
After the transaction is approved by said bank, the POS screen flashes “Approved” and the customer can collect whatever item they purchased and go about their day. All in, this entire approval process usually takes no more than 5 seconds. But getting the transaction approved isn’t where the story ends.
Following this, there’s a settlement period where the merchant collects batches of authorized transactions and submits them (usually at the end of the day) to their bank (called the merchant acquirer). The merchant acquirer works with the payments processor and card network to request the transaction funds from the issuing bank. During this process, fees are taken off the gross transaction amount by various actors including the banks, card networks, and payment processors, before the net transaction proceeds are finally deposited into the merchant’s bank account, usually within 1-3 days.
What do these fees look like; who gets how much, and why?
The largest fees are interchange fees, charged by issuing banks. These can range from 1.5-2% of the transaction amount, the largest share taken by any these facilitators. These issuing banks are allowed the largest share here because they provide and maintain payment cards (credit or debit) and take on the cost of managing consumer credit or debit accounts (think, customer service). They also take on credit risk when consumers use credit cards, as there is always a risk that any consumer might not pay their credit card obligations - a higher share of the fees here insulates them from this risk.
After these fees, there are the card network fees charged by networks like Visa (V) and Mastercard (MA) - these can range from 0.1%-0.3% of the transaction amount. V and MA can take the lower spectrum of the fees charged by the parties here while retaining their very high gross margins (V has 80% gross margins, for example) because it costs them almost nothing to process payments once their infrastructure is already built out. There’s no customer facing hardware to build and ship around the globe, and no customer support costs.
Some fees are also paid to the merchant acquirer (though FOUR does offer merchant acquiring services as well) with the remaining amount kept by the payments processor. FOUR justifies it’s share of fees by providing (and often subsidizing the cost of) POS hardware to it’s merchant customers, operating as a payments processor coordinating the entire transaction between all involved parties, and by providing customer support, transaction analytics, and a lot of industry-specific software to its merchant customers.
Here’s a rough diagram to show how this whole process can look using credit cards:
Let’s take a look at FOUR’s 2024 results to determine how they fit into this network at a basic level:
During 2024, the company processed $165Bn in payment volume - the gross revenue they took from this volume was $3.3Bn, with a 2.3% average quarterly gross take rate. Past that, the company paid network fees to others within the payments ecosystem equal to ~$2Bn, arriving at gross revenue less network fees (GRLNF) of $1.3Bn (this metric grew 44% during 2024). Average quarterly take rate after network fees for 2024 was 0.82% of total volume.
Past this, other cost-of-revenue items like hardware expenses are subtracted, giving us $973mm in payments gross profits, at 30% gross margin. The company also has a smaller amount of SaaS and other revenue (10% of total) coming in at much higher gross margins (assuming near 70-80%, typical for software) and growing much quicker than payments at +90% YoY.
Now you might be wondering, why not just buy V or MA with their 80% gross margins and 50%+ operating margins? You could also do that just as easily, but they are fundamentally different companies at different valuations. Today FOUR is trading at around 14x forward earnings, compared to 28x for Visa. That, and I think Shift4 can continue to grow faster over time thanks to it’s acquisition strategy - Visa grew EBIT 12.4% last year compared to FOUR’s 115% growth. FOUR has outperformed both V and MA since their 2020 IPO and I fully expect the company to continue doing so, at least for a while. One can argue that payment networks like V or MA are sturdier businesses with more competitive insulation, but these are the same companies that have been sued by the DOJ on monopoly grounds with allegations of anti-competitive and exclusionary practices. So, pick your poison I guess — I suspect the competitive moats around networks like V and MA might not be as untouchable as many people say, but that’s just me.
Products, Services, & Customers
FOUR’s main POS offering is the SkyTab platform, shown above. This can be tailored for use with hotels, restaurants, and venues alike. In addition to POS payment processing, FOUR also offers numerous other features to restaurant, hotel, and venue customers including the following:
Business intelligence and analytics through the Lighthouse BI Suite
Tableside ordering and bill payment through QR codes
CRM solutions, including marketing and loyalty programs - all the payments data they collect drives useful analytics software that can tell merchants which customers are buying what, how much they’re buying, when they’re buying it, and how to get them buying more
Online ordering solutions, facilitated by integrations with DoorDash and others -also staff management, floorplan management, and menu management for restaurants
They offer reservation and waitlist systems for restaurants as well as a website builder to help smaller businesses sell more
They offer invoicing services through SkyTab as well
For venues like sports stadiums and theme parks, FOUR offers SkyTab Venue:
FOUR excels at managing and reconciling payments across all aspects of a customer’s operations. They’re processing payments for half the hotels on the Las Vegas Strip, for example, which can include a lot of complexity. A customer might pay to park in a parking garage run by the hotel before paying to check in, paying for dinner at one of the hotel’s restaurants, paying for casino chips, paying for little trinkets at the gift shop, paying for room service, a trip to the spa, and potentially even more. Similarly, a sports stadium might see a customer pay for parking, ticketing, and pay for concessions all in one visit.
In processing payments for all of these things, FOUR can aggregate and track all of these individual card swipes over a customer’s entire journey, which allows hotels and sports venues deeper insight into how much customers are spending and where; this is absolutely crucial for their own analytics and business intelligence. FOUR can also coalesce all these transactions into a single itemized bill, which the hotel or sports venue can present to customers to massively simplify the end-of-stay billing process.
FOUR’s main goal here is simply to handle everything they possibly can on behalf of their merchant customers, bringing every payment interface under one roof, or as management likes to say, “Giving our merchant customers just one throat to choke, as opposed to 6 or 7 [other vendors].”
Something important to consider is, these POS systems should not really be seen as expenses for merchant customers, but instead fantastic and very helpful assets. I have worked in restaurants, so I can say this firsthand - POS systems provide a massive efficiency boost. In his review of Shift4’s SkyTab POS system, Dave Allred “The Real Barman” had the following things to say:
“You can’t think of your POS system as an expense. It is actually a magical tool to help you make more money.”
“Pricing is where everyone gets tight, where you have to spend money, but I’m telling you right now SkyTab will blow you away with how affordable it is and with everything that you’re getting, it did it to me, it blew me away.”
Dave Allred has 30+ years of restaurant and bar experience and is literally familiar with every POS system on the market, check out his YouTube channel - he gave SkyTab for restaurants a 4.8/5 star rating. Technically some of his videos are sponsored by SkyTab, but he seemed like an honest guy despite that, and I saw a fair amount of his videos.
Today, FOUR serves 1/3 of all table-service restaurants, 40% of hotels, and over half of sports stadiums in America. I’ve examined the SkyTab POS system offering pretty thoroughly and I like it well enough. Past that, I feel like we can assume their products are pretty up-to-scratch vs. competitors considering their really impressive market share and significant and continuing organic customer wins in verticals like sports and hospitality.
They have a Shopify competitor, Shift4 shop. Unlike Shopify, it’s free for merchants who make over $1,000/month in revenue, because Shift4 just handles the payments and generates revenue that way - Shopify instead relies on Stripe to process its online payments.
Shift4 offers online payments processing through their Unified Commerce offering - they are literally processing global payments for SpaceX’s Starlink subscriptions through similar online payments technology. They won’t tell you that this ‘strategic customer’ is SpaceX explicitly these days, but there is a great deal of hinting and suggestion. Starlink’s 2024 revenue (a.k.a. payments volume) is estimated at $6.6-6.8Bn, and is projected to continue increasing in 2025 and beyond. The 5-year contract with SpaceX expires in November 2026, but SpaceX will probably renew this, I don’t see a reason for them not to.
They call SpaceX their strategic customer because it gives them good reason to expand internationally into all sorts of geographies - this really does seem like a fantastic partnership.
“[SpaceX is] everything Jared said it would be 3 years ago, when none of us could really believe it… the product is all over the world, in far off places, and when they enter these challenging markets they ask us for help in enabling the payments… they’re giving us reasons to be in countries that we otherwise would’ve never put on the list, and then we’ve got a reason to go back and look at that [country] and say ‘what about the restaurants, what about the hotels, etc.’” Incoming FOUR CEO Taylor Lauber
They also offer a payments platform tailored toward non-profits and the charity/donations space, which has over $400Bn in global annual payments opportunity, among other offerings like online gaming, general e-commerce, crypto donation services, and more.
Let’s call out some product and customer wins from 2024, shall we?
Finished 2024 with 38,000 SkyTab terminals installs during the year, compared to their goal of 30,000
Added 18 ski resorts in Q4 through a partnership with Alterra Mountain Company
Expanded further into the sports and entertainment verticals in Q4, including the additions of ticketing payments processing for multiple existing stadium customers as well as new stadium wins like the Arizona Diamondbacks stadium, 10 ‘House of Blues’ restaurant/venue locations through a partnership with Live Nation, and many more
Renewed payments partnership with Great Wolf Lodge and their 22 U.S. locations, with plans to follow them internationally into the U.K.
In Q3 they partnered with KSL Resorts at 9 of their hotels/resorts, with a further 27+ hospitality wins in Q3 alone
Switching Costs
Now let’s talk about the switching costs we could anticipate FOUR’s customers facing, using a restaurant as an example because that’s what I know. Having worked summer jobs at a few restaurants before, I’ve seen firsthand how necessary POS systems are to keeping things flowing smoothly. I’ve worked pretty extensively with both fixed and handheld POS terminals across server and cashier roles with larger chain restaurants. If any restaurant wants to switch out their POS provider, they’d have to reconcile the following things:
Training wait staff, hosts, cooks, and managers alike on the new system could take days to weeks depending on how often staff rotate shifts and off days - anticipate productivity declines and more than a few hang ups (wrong order entry, payment difficulties) as the transition occurs.
This could even lead to a few hours of complete downtime in a nightmare scenario, which restaurant managers really hate. Restaurants are a low margin businesses (around 5% profit margin generally) and they have fixed overhead costs like rent and insurance that need to be absorbed by being open for business as often as possible. Also, cashiers and servers absolutely hate dealing with busted or glitchy POS equipment - ask me how I know, haha.
This would likely be a pretty bumpy process depending on how large the restaurant is. Restaurants might end up having to pay for both the old and new system simultaneously while the old one is still being phased out. Larger restaurants or chains with more complex operations could face steep upfront hardware costs in the thousands to tens of thousands of dollars, and some even hire dedicated consultants or hardware installation teams to facilitate the transition. All this is time intensive and very costly as you can imagine.
Switching over all your data like payrolls, historical sales, menu specifics, and recipe and prep instructions would likely take even the best of managers a few days at minimum, potentially weeks at larger chains.
Not to mention all the integrations need to match, such as online ordering, QR code ordering, staff management, analytics, and whatever else a payments provider like FOUR might bundle for their customers on the features side.
The hardware needs to work seamlessly, and you’ll probably need a lot of new hardware - from new fixed POS terminals, to new kitchen display screens, maybe even new receipt printers, and all these devices need to talk to each other seamlessly or your productivity will decline. Again, all this hardware could cost thousands of dollars upfront.
Looking at FOUR’s products and pricing, SkyTab almost certainly costs less for restaurants in general than competitors - there would have to be a really good reason to justify a complete switch to another vendor, as the restaurant could be paying more both upfront and per month after a switch, not to mention the enormous hassle and productivity losses involved. So yeah, the switching costs are pretty high I would say. Switching is not undoable, but I would say really annoying and likely quite expensive, thus unlikely to occur.
This example is just for restaurants (not even FOUR’s best verticals), though FOUR’s other customers are not dissimilar, but in fact more complex - many hotels, casinos, and sports stadiums alike have their own restaurants on-premise, in addition to other infrastructure like check-in stations, ticketing stands, gift shops, parking garages, and many other potential revenue centers. The more complex these systems need to be to serve customer operations, the higher the switching costs we can expect - in other words, FOUR’s customer base is pretty decently sticky, I would say.
FOUR is somewhat insulated from these costs when it comes to their own market share expansion - their payments gateway can operate with other POS hardware, it doesn’t necessarily need to be their own, so customers using other hardware who simply want to switch payment processors can do so with Shift4, letting the company handle that payment volume. That, and the company subsidizes much of the upfront hardware cost for new customers, as well as many of the value added services, which many competitors don’t do. Combine that with the company’s winning acquisition-and-cross-sell strategy (see M&A Strategy), and you’ve got a customer acquisition powerhouse, at much cheaper costs than competitors like TOST.
Not to mention… in many merchant contracts, FOUR includes a liquidated damages clause stating that merchants who cancel their contract early must continue to pay FOUR their average monthly fees over the last 12 months for the remaining contract duration - an awful deal for merchants, but a great deal for FOUR. For merchants, these clauses are definitely contestable in contracts, but some still don’t contest this. Other payments companies have been known to do this as well, so… it’s not the worst business practice I guess, and adds some switching costs.
Broad-Level Financials
The payments revenue FOUR makes can’t really be thought of as “recurring.” Technically it is semi-recurring, but it’s driven by consumer spending trends. It’s not ARR, just sort of a take rate royalty on whatever people do spend at restaurants, hotels, and sports stadiums. So it’s like, much of it will recur, but not all. You can’t assume it’s all recurring. It is really heavily dependent on the consumer, given that their software revenue is a very small portion of total revenue (10%).
Anyways, as you can see above, FOUR has managed to grow payments volumes quite substantially thanks to a good chunk of share taking (organic growth) within hotels and sports stadiums, as well as a lot of acquired customers. It’s hard to determine exact inorganic/organic growth rates, but back in Q3 they were on track to see ~25% organic volume growth during 2024 - they ended 2024 with volume growth of 51% YoY. So, roughly 50/50 organic/inorganic growth I’m assuming.
Similar to the volume growth rates shown above, revenue has increased substantially, with an upshift in gross and operating margins as well which is definitely appreciated.
So — how does all this topline growth impact the bottom line? Revenue growth and accounting income are nice, but technically speaking the only thing equity investors care about is the free cash flow picture, seeing consistently increasing free cash flow per share. FOUR is absolutely accomplishing this goal, despite some share dilution since 2020 (roughly 10% annually) to support accretive M&A.
Recent quarterly results (Q1 25):
Payment volume of $45Bn, up 35% YoY, on a 46% 5-year CAGR
Gross revenue of $848mm, up 20% YoY
GRLNF of $368.5mm, up 40% YoY
Gross profit of $241mm, up 37% YoY, at 30% margin, up 4 points YoY
Operating income of $25.4mm, up 18% YoY
Net income of $19.5mm, down from $28.5mm in the year-ago quarter — decline driven by higher net interest expense (quarterly ~$28mm interest payments in Q1 and Q3)
Global Blue acquisition expected to close by early Q3, and targeting 3.3x net leverage ratio by end 2025 — market-implied odds of the deal not closing are miniscule here
Recently announced additional financing for the Global Blue transaction, closing the sale of ~$1.1Bn in 5.5-6.75% senior unsecured notes (half euro denominated, half dollar denominated) due between 2032-2033. Proceeds expected to partially finance GB transaction as well as a refinancing of their 2026 notes
Raised FY25 guidance to Volume +33%, GRLNF to +28%, adj. EBITDA +28%, and maintaining adj. FCF conversion from EBITDA of 50%+
From 2025 Investor Day, they have an ambitious target of exiting 2027 at $1Bn in run-rate FCF. I think there’s a decent chance they can actually pull this off, which would probably be great for the share price as you can imagine.
M&A Strategy
“The return on capital for us matters immensely, and quite frankly it’s the most important metric for us. Whether that dollar is invested in buying a company, hiring an employee, or investing in R&D, is somewhat indifferent if we think it’s going to generate the right results and it’s almost exclusively focused on customer acquisition costs. So while we say it’s a payback on the dollar that we hope to be 18 months or less, it’s generally focused on ‘How is that dollar deployed going to add to our customer count.’” - FOUR Incoming CEO Tayler Lauber
Recall the introduction when I said that payments is low margin and pretty commoditized - I might think FOUR’s business is less commoditized than others, but it’s still at risk. What FOUR has done with their acquisition strategy is simply to acquire a bunch of payments providers, stacking all that volume up in one space, and maintaining net take rates to generate significantly higher revenue and earnings growth than most other payments companies.
FOUR’s M&A strategy, more or less, is to acquire companies with healthy merchant customers, delete unnecessary products or services, and switch the customer base over from paying for software or hardware and just takes some of their payment volume instead. Around 70% of FOUR employees today are from acquired companies and almost every CTO they’ve acquired still works at FOUR as well. I really like the M&A strategy here - M&A made this business what it is today and is a huge part of forward growth.
Switching over acquired customers from whatever other services they were paying for towards FOUR’s payments system is not very hard over a few years… as their incoming CEO put it, “We’re not selling [acquired customers] extra widgets, we’re selling them a service that they have to buy anyway,” that service being payments processing.
As they acquire a new company and it’s products, maybe they’ll salvage some of its technology capabilities or integrate its product into their own, but past that, they replace that company’s POS/payments products with their own. “We’ve said [to acquired businesses], SkyTab is the product. Stop selling legacy products and focus on SkyTab.”
Past this, the broader global acquisition framework is absolutely crucial. Management keeps a list of 70-100 acquirable companies around the world, fully knowing that they might only snag a few of these companies in any given year. They’re firm on what they’re willing to pay for these companies - if the owners don’t want to sell the business at FOUR’s price, they’re more than happy to wait - take the Revel acquisition as an example.
“We had a pretty rigid price expectation for that asset, that we would pay. And we were in early years of their attempts to sell the business, and we stayed firm but also in touch over time and then one day our price seemed to work for them. Why did we sit at it for so many years? We understood the product, we understood the niche within the restaurant vertical it served.” FOUR Incoming CEO Taylor Lauber on Revel acquisition
Their acquisitions are backed by deep understanding of company assets and operations, plus a lot of patience. The recent $2.5Bn EV acquisition of Global Blue, for example, is one they’ve been looking at for years. This was not a spur of the moment decision saying “hey, let’s acquire this company worth 1/3 of our own market cap just for funsies,” they’ve been tracking it for a while. They’re very familiar with its assets, its operations, the synergies that can be generated, how they can compliment its operations and how it can compliment theirs. This transaction, really any transaction they undertake, has been years in the making and has a lot of research and understanding behind it.
This is very qualitative and anecdotal, but I know the Global Blue acquisition was a solid deal because one investor I follow on Twitter (a smart person who I won’t name here) owned Global Blue - he was expecting a 30% IRR over a few years and FOUR scooped up this asset for just a 15% premium. He seemed genuinely shocked that they got such a good deal, but that’s FOUR’s disciplined M&A strategy for you.
Global Blue is one of two companies across the world that provides tax-free shopping services. They’re #1 in tax free shopping solutions and have a customer base of over 75,000 luxury and non-luxury retailers. They also have solutions for dynamic currency conversion, when customers from the US want to travel internationally and purchase things in different currencies with payment cards - this company will compliment FOUR’s international growth strategy. Global Blue will bring around $500mm in acquired revenue immediately, with management expecting revenue synergies of $80mm by 2027. Global Blue’s core markets (luxury and tax free shopping) are growing solidly as well:
From this slide shown in the introduction, we can derive some pretty impressive numbers. Of FOUR’s $2.7Bn in invested capital, they paid 6.4x FCF and their acquired assets carry a 16% FCF yield.
If you’re worried FOUR’s M&A pipeline might run out in the near future, don’t be. There are a very high number of smaller, fragmented, stagnating (and cheap) payments companies across the world who have merchants that could benefit from FOUR’s services. Recall the list of 70-100 payments companies I mentioned earlier.
The best part of the acquisition strategy is that over the long term, FOUR’s cost per acquired customer as been as low as $3K. Compare that with the $5K the company is willing to pay customers to switch as well as TOST’s $15K cost per customer acquisition. Generally the payback period for FOUR’s customer acquisition is around 18 months.
Here are a few more quotes from FOUR’s executives across various interviews that can help you get a better picture of the broader strategy.
“Appetize was the category killer in sports and entertainment 4 years ago, meaning POS software, mobile software etc, for a stadium. The problem is, they were generating a decent amount of revenue through this penetration of a new market, and losing 30-40mm a year doing it. That business was for sale and we just couldn’t get our heads around that math. We ended up choosing a business called VenueNext, a bit more nimble, much smaller, but running as a breakeven business and we agreed philosophically with the direction the company was going. We were very pleasantly surprised that last summer, the owners of the appetize business called us and asked us if we wanted to buy it… for a significant discount to what they paid for it.” - FOUR Executives
“Some people think that there’s this more honorable way to win which is spending hundreds of millions of dollars a year hiring salespeople and doing google ads, winning hand to hand, deal by deal, you know… we announced two acquisitions this quarter… Vectron which has 65,000 restaurants across central Europe and 300 distribution partners that have a completely un-monetized payments opportunity… [and] we picked up almost 20,000 customers from Revel. I mean [between these two companies] we basically have 85,000 customers that we can migrate over to our payments and POS products over the next couple of years.” FOUR Then-CEO Jared Isaacman, CNBC interview on Q2 2024 earnings
Leadership & Governance
I like FOUR’s management team and their capital allocation acumen (acquisition strategy mostly). I think they know the business and the competitive environment really well, they’d have to in order to acquire so many cheap companies that compliment their business so well.
It’s interesting, FOUR’s management are a little out of sample for me, so to speak. They’re a little promotional around the stock in many ways, and generally very confident with their long term targets…
But, you can kind of understand it because they really have accomplished quite a bit, having delivered impressive returns to shareholders over the past 5 years despite their 19% YTD decline. Recall the chart in the Introduction section depicting FOUR shares outperforming payments processing peers like XYZ, TOST, LSPD, payment networks V and MA, and the NASDAQ itself since the IPO, again after a 19% decline so far this year. That is genuinely impressive stuff, is it the worst thing if they want to make their achievements known?
Occasionally you’ll find FOUR’s CEO Jared Isaacman over ‘in the arena’ talking about his company on Twitter. This is rather unusual for CEO’s in general and would probably be a red flag if FOUR wasn’t genuinely kinda killing it with their KPIs.
Anyways, it doesn’t matter too much anymore, as Jared has been picked to lead NASA by president Trump. If confirmed as the new administrator of NASA, Jared intends to remain the largest shareholder of FOUR with over 20% ownership, which lends a lot of credibility to the new management team in place.
So, who is the new CEO in place? Incoming CEO Taylor Lauber, FOUR’s current President, has been with the company in it’s current form for 6 years after helping Jared found the company in 1999, being there with Jared in his parent’s basement back when FOUR was just an equipment reseller called United Bank Card. Most of the quotes above in the M&A section are from Taylor, sourced from a random podcast recorded 10 months ago (well before there was news of Jared leaving), that got like 750 total views. He spoke on the strategy alone the entire time. I think he has the acquisition strategy down to a tee.
Taylor likes to joke about Jared being his new ‘activist shareholder’, with the context that Jared is very goal-driven and detail oriented around the company’s success. Leaving 20% of the company you founded (literally billions of dollars on the table) in someone else’s hands is a strong signal of confidence if you ask me.
Interestingly, FOUR is now an acquisition target in itself. They received multiple buyout offers in 2024 that CEO Isaacman rejected based on price, which I agree with. He said he wouldn’t be opposed to a buyout though, if the price is right.
At the company’s 2025 Investor Day event (which was four hours long) they hammered it in that none of the analysts should walk away from the event with questions. Literally like, “Please do not leave with questions, we have tech demos here for every product we’ll talk about on stage, we have our operating experts stationed around the room to answer any question you might have, ask us whatever you want.”
Conclusion
I like FOUR well enough as a company, I like the executives, I’m impressed with what they’ve accomplished so far, and I think they can continue to deliver on their growth targets going forward. I would not be surprised to see FOUR shares continue to outperform peers in the payments and fintech space, frankly I think that’s pretty likely going forward and that’s what I’m betting, in publishing this report. Anyways, I’ll sign off here — I’ll be writing you all again very soon!
Updates:
Corrected EBIT growth figure in the introduction from 215% to 115% - typo, but sorry I didn’t catch that in revisions
Corrected one instance mentioning the YTD decline was 27% instead of 19% - I began working on this article when shares were down 19% YTD, and waited around a month to publish it