Ticker: FOUR
Market capitalization: $6.1B
Enterprise value: $7.3B
Price: $74 (2/6/24)

What the Company Does

Shift4 provides payment processing solutions and business intelligence software with a focus on the hospitality and entertainment sector, processing over $200B in payments annually for more than 200,000 customers. Shift4 also owns TheGivingBlock, which is the leading facilitator of charitable giving in cryptocurrency. The average cryptocurrency donation is over 30x the size of the average fiat donation, and crypto is the fastest-growing donation method. Shift4 has historically operated in the United States but is now attempting to expand internationally, with an initial focus in Europe.

Why We Own It

Shift4 provides sticky, and likely growing, cash flows at a compelling valuation with an impressive, highly aligned management team in a large addressable market. CEO Jared Isaacman founded the company in his teens and has continued to grow it relentlessly in a capital-efficient way ever since. Over the first fifteen years of the company’s life, Shift4 grew organically with neither outside capital nor acquisitions, and it has increased revenue by a double-digit percentage for 24 consecutive years, including through downturns. Today, the stock trades near its lowest-ever multiples on sales and free cash flow, despite significant prospects for continued growth and potentially rapid profit scaling thanks to operating leverage on prior investments. In addition to the possibility of profit scaling on fixed-cost leverage, the company has four avenues for continued expansion – 1) Growth of their hospitality-centric SkyTab service, 2) International, 3) Upgrading gateway “processing-only” clients to more full-suite software, and 4) New verticals.

How Management Allocates Capital

Management currently has two priorities for free cash flow – 1) M&A, and 2) Share repurchases. The market appears concerned that management will overspend on potential revenue synergies, a risk we believe is mitigated by a public commitment to remain disciplined on prices paid, as well as the aforementioned capital-efficient track record of growth and the CEO’s significant equity stake in the company’s economics (almost 29%).