By Emily Bary
Investors voiced enthusiasm Friday for a payments business highly levered to an economic rebound.
Shares of Shift4 Payments Inc. /zigman2/quotes/218797153/composite FOUR +6.38% gained 46% in their first day of trading after the company priced its initial public offering at $23, above its expected range of $19 to $21. The first trade was issued for $33.10 Friday morning and shares closed at $33.54.
The company raised $345 million through its offering.
Shift4, which processes payments for the hospitality industry, initially planned to hold its investor road show in early March but had to pause those plans as the COVID-19 outbreak spread throughout the U.S. and forced many businesses to temporarily close or scale back their operations.
The company handles payments for hotels, resorts, restaurants, and other leisure-related businesses that were thought to be among the most vulnerable as cities imposed lockdown restrictions due to COVID-19 and as travel demand dried up.
Chief Executive Jared Isaacman told MarketWatch that the company had a “pretty good view” of the beginning of the economic recovery based on its payment data, helping to inform its decision to move forward with the offering.
“We weren’t surprised at all when we saw the jobs report,” he said of Friday’s numbers, which showed a surprise increase in payrolls. “That coincides with what we saw in our data for the better part of two months now.”
Shift4 has found a niche by serving businesses in the leisure market that have unique payment-processing needs. Many of its customers use multiple types of commerce software for their various arms, and Shift4 connects payment-processing services to this software. Isaacman gave the example of the Pebble Beach golf resorts, which use different software types for their hotels, golf courses, spas, and retail shops but need to ensure that guests are left with only one charge at the end of their stays.
The company also powers online reservations for Hilton Worldwide Holdings Inc. /zigman2/quotes/202780307/composite HLT +0.11% and many businesses along the Las Vegas Strip. Shift4 also works with smaller restaurants and helped some adjust to the new realities of curbside pickup. No one customer made up more than 1% of Shift4’s end-to-end payment volume in the last fiscal year or quarter, according to the company’s prospectus.
It saw “consistent payment volume growth” in April with an acceleration in May, per Isaacman.
Shift4 sees growth opportunities in speciality retail where businesses have “lots of different software suites that are talking together.” At United Parcel Service Inc. /zigman2/quotes/201245396/composite UPS -0.05% , one of the company’s customers, “even the copier machines are linked to Shift4 from a payment-processing perspective,” Isaacman said.
The company generated $731.4 million in total revenue for the fiscal year that ended in December, up from $560.6 million a year earlier. Losses widened to $58.1 million from $49.9 million a year prior.
Shift4 generates the bulk of its revenue from fees paid by merchants, namely including a processing fee that represents a percentage of volume. The company also generates subscription revenue from licenced subscriptions to its software and other technology offers.
“Our revenue is recurring in nature because of the mission-critical and embedded nature of the solutions we provide, the high switching costs associated with these solutions and the multi-year contracts we have with our customers,” the company said in its prospectus.
The Allentown, Pa.-based company was founded in 1999 and Isaacman said it was the first company given the chance to ring the bell at the New York Stock Exchange after the physical trading floor had been temporarily shut down due to the pandemic.
The IPO came as the Renaissance IPO ETF /zigman2/quotes/207665280/composite IPO +1.44% has added 24% over the past month and as the S&P 500 has increased 11%.