To The Moon

$Global Payments(GPN)$

There’s a timeless lesson in investing that echoes the wisdom of great investors like Charlie Munger: "It's not enough to know how to fish—you must know where the fish are." The metaphor isn’t just poetic. It’s strategic. It reminds us that even the most skilled investor can fail if they’re looking in the wrong place. But find the right “fishing hole,” and the odds begin to tilt in your favor.

In the investing world, I’ve found some of the best “fishing spots” to be in financial toll booth businesses—companies with highly recurring revenue streams, high switching costs, and strong pricing power. They may not always grow explosively, but they have the kind of structural advantages that allow them to endure—and often quietly compound shareholder wealth over decades.

I’ve seen this first-hand with companies like Adyen, a payments powerhouse I called out well before it doubled, and Fiserv, another financial infrastructure firm I owned during a strong run. These companies exemplify the idea of participating in the flow of money rather than trying to guess where the next pile of it will land.

Now, there’s a lesser-loved name that has piqued my interest—Global Payments Inc. (NYSE: GPN). Over the past five years, GPN’s stock has lost more than half its value, despite steady free cash flow and a series of strategic moves. It’s one of those setups that makes value investors perk up: the fundamentals remain largely intact, yet sentiment has collapsed. But the question remains—is this a misunderstood value opportunity, or a value trap in disguise?

Let’s dive deep into the numbers, the narrative, and the nuances of this complex story.

Fundamental Overview

The Core Business: A Tale of Two Segments

Global Payments historically operated two primary business units:

1. Merchant Solutions – Their largest business, offering payment processing infrastructure for merchants. This includes in-store, online, and omnichannel transactions. The company earns fees each time a customer swipes a card or checks out online using GPN’s systems.

2. Issuer Solutions – This business supports financial institutions in issuing and managing credit and debit cards. It’s more of a backend software infrastructure model—mission-critical but not consumer-facing.

These two segments powered Global Payments into the Fortune 500, turning it into a $20+ billion market cap company with more than $1 trillion in annual payment volume.

However, that story is changing.

Strategic Shakeup: Selling the Issuer, Doubling Down on Merchants

In early 2024, Global Payments’ management announced a strategic pivot: they would divest their Issuer Solutions segment to Fidelity National Information Services (FIS), and at the same time, acquire the remaining 55% stake in Worldpay, a merchant payments processor also owned by FIS and a private equity firm.

This deal is significant not only in size, but in intent. It’s a full-throated commitment to becoming a pure-play merchant acquirer—with expanded capabilities across e-commerce, point-of-sale, and global omnichannel platforms.

Here’s a breakdown of the deal mechanics:

• Global Payments sells Issuer Solutions to FIS in a cash deal, simplifying its business and raising capital.

• It uses cash and stock to acquire the remaining stake in Worldpay, with stock issued at a ~20% premium to current market levels ($97 vs. $79/share).

• A private equity firm involved in the deal will retain roughly 15% ownership in the combined company.

This is an ambitious consolidation of focus: sell the back-end issuer infrastructure business, and buy into Worldpay’s global-scale merchant network. The intent is to double down on what management believes is the future of payments—customer-facing merchant solutions with strong margins, sticky relationships, and scalable platforms.

Post-Deal Financial Picture: Bigger, Riskier, Richer?

If everything goes according to plan, this transformation will be substantial.

Pre vs. Post-Transaction Estimates:

Management projects cost synergies of $600 million, and revenue synergies of $200 million, though I remain skeptical of revenue synergy estimates until they’re proven post-integration.

The deal is expected to close in mid-2026, with 2027 representing the first full year of financials for the combined entity. The integration risk is real—but so is the upside.

However, there’s a catch: leverage will rise substantially, with net debt expected to hit 3.5x–4.0x EBITDA post-close. That’s not unmanageable, but in a rising-rate world, it’s a risk worth noting.

Earnings Overview

Global Payments reported total revenue of $2.43 billion for the first quarter of 2025, reflecting a modest 1.2% year-over-year increase. However, when adjusting for the impacts of foreign exchange movements and business divestitures, underlying revenue growth was closer to 6%—a more accurate reflection of the company’s operational momentum.

The company’s adjusted operating margin came in at 44.2%, representing a slight but notable improvement compared to 43.5% in the same quarter last year. This uptick suggests some early benefits from cost efficiency measures and stable margin discipline amid a challenging macro environment.

Adjusted earnings per share (EPS) reached $2.73, marking a solid 10% increase year-over-year. This figure also came in ahead of Wall Street estimates, reflecting better-than-expected profitability and margin performance.

For the full year 2025, Global Payments also maintained its revenue forecast of $9.75 to $9.90 billion, which implies an expected top-line growth rate of 6–7%. Meanwhile, adjusted EPS is projected to fall between $11.55 and $11.75, reinforcing the company’s consistent earnings trajectory despite ongoing structural changes.

Segment Performance

1. Merchant Solutions (Core Business)

• Revenue: $1.81 billion 🔸 Roughly flat YoY (+1%), but up ~6% when adjusting for FX and divestitures

• Organic constant currency growth: ~5.5%

• Margins: Strong and consistent, despite macro headwinds

Takeaway: While GPN’s largest segment is still profitable, it’s losing market share to faster-growing, niche players like Toast, Shift4, and low-cost e-commerce-first platforms like Adyen and Stripe. The segment’s modest growth remains a concern given broader industry trends.

2. Issuer Solutions (Discontinued Operations)

• Revenue: $515 million

• Operating margin: High-30s range

Note: This segment is being divested to Fidelity National Information Services (FIS). As such, its earnings contribution will soon be removed from ongoing operations, which is critical for investors recalibrating GPN’s forward earnings power.

3. Business & Consumer Solutions

• A relatively smaller segment focused on specific consumer finance and commercial payment services.

• Growth was stable but not material to overall company performance.

Free Cash Flow

Free cash flow for the quarter totaled $725 million, a healthy figure that supports management’s confidence in the company’s cash-generating capabilities. As such, the leadership team reaffirmed its full-year free cash flow guidance, which remains in the range of $3.1 to $3.3 billion.

• Cash & Equivalents: ~$1.5 billion

• Debt: Total debt stood around $10.3 billion, with net leverage just under 3x EBITDA (pre-acquisition)

Management reiterated that post-acquisition leverage could rise to ~3.5–4x, but aims to delever rapidly back to ~2.5x through free cash flow and cost synergies.

They continue to return capital via share repurchases and dividends, though most near-term capital will be allocated to financing the Worldpay acquisition.

Investor Concerns & Risks

• Flat organic growth in the core Merchant segment is troubling in a rising-tide industry.

• Loss of market share to disruptors (Stripe, Toast, Adyen) continues to be a long-term threat.

• Execution risk on the Worldpay acquisition, particularly with:

  Integration complexity

  Debt burden

  Revenue vs. cost synergy realization

While the valuation is undemanding—trading at ~6–8x FCF—the competitive pressure and reliance on an M&A-driven growth narrative make this a "show-me" story for many investors.

Valuation: An Intriguing Asymmetry

Now here’s where things get particularly interesting for value investors.

At ~$79 per share, the company trades at a market cap of ~$23 billion (adjusted for the new share issuance). That’s just 6–10x free cash flow, depending on whether you’re using trailing or pro forma numbers. For a business with recurring revenue and room for margin expansion, that’s extremely cheap.

Let’s model two simplified scenarios.

Bear/Base Case:

• Free cash flow: $3.5 billion

• Valuation: 8x FCF

• Only 25% of cash flow returned to shareholders

• Minimal revenue growth

Implied return: ~8% annualized. Conservative, but respectable.

Bull Case:

• Free cash flow: $4.2 billion

• Valuation expands to 12x FCF

• 50% of FCF returned to shareholders

• Revenue grows at 6–8% CAGR

Implied return: 100–200% upside over 3–5 years.

This is the kind of asymmetry that investors like Michael Burry are known for: distressed or ignored businesses trading at low single-digit multiples of cash flow, with upside driven by either operational normalization or multiple rerating. Burry often buys companies at 5–6x cash flow with high debt—this fits that mold.

The Missing Ingredient: Obvious Growth

But here’s the caveat—the growth story is unclear.

In its most recent quarter, Global Payments’ Merchant Solutions revenue was flat, with slight declines when excluding foreign exchange and divestitures. That’s deeply concerning in a category that’s supposed to be growing 4–6%+ industrywide.

The problem? GPN is losing market share to more innovative, focused competitors:

• Toast (TOST): Specializing in restaurants and growing 30%+.

• Shift4 (FOUR): Gaining share in hospitality, gyms, and arenas.

• Clover (FISV): Fast-growing SMB-focused POS platform.

• Stripe and Adyen: Dominating e-commerce and large enterprise processing.

These players are winning through lower pricing, better APIs, tighter integrations, and vertical-specific software ecosystems. Many are software-first, with payments built in—a model that enhances customer lock-in.

GPN, by contrast, feels like a generalist in a specialist’s world. Their value proposition isn’t obvious to merchants, especially in the face of sleek, low-cost platforms like Adyen or vertical-integrated providers like Toast.

So Is It a Buy?

It depends entirely on what kind of investor you are.

• If you’re a deep value investor looking for multiple expansion and don’t mind short-term volatility or integration risk, Global Payments is compelling. It offers a meaningful free cash flow yield, credible management, and potential for rerating.

• If you’re a growth-focused compounder hunter, this is probably a pass. There’s no clear evidence that GPN or Worldpay can regain share, and the competitive landscape is increasingly hostile.

Personally, I lean toward the latter camp. I prefer businesses that compound free cash flow and grow with a structural edge. Global Payments might turn the ship around—but I need to see more evidence of a competitive advantage before making it part of my core portfolio.

Final Thoughts: Know Your Investment Style

Global Payments is a fascinating case study: a financial infrastructure company undergoing major changes, trading at distressed valuations, and throwing off billions in cash. But it's also a company with growth questions, integration risk, and rising competition from both niche players and API-first disruptors.

If you're comfortable fishing in murky waters, there may be substantial reward for your risk. But if you're the type of investor who prefers long visibility, clear growth drivers, and structural tailwinds, there are cleaner ponds elsewhere.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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