Despite initially appearing to surpass Wall Street’s expectations in its latest quarterly report, Fidelity National Information Services (FIS) stock experienced a significant drop. As of late morning trading, shares of Fidelity National Information Services Stock (NYSE: FIS) were down by nearly 15%. This raises a critical question for investors: Why is Fidelity National Information Services stock plummeting even after an earnings and sales beat?
Decoding the Disconnect: Q4 Performance vs. GAAP Reality
While headlines celebrated the adjusted earnings per share of $1.71 against an expected $1.70, and sales slightly exceeding the $3.7 billion forecast, a deeper look into the financials reveals a less optimistic picture for Fidelity National Information Services stock. The company’s fourth-quarter sales growth was a modest 1%, a noticeable deceleration compared to the 5% growth for the entire year.
However, the real shocker lies within the GAAP (Generally Accepted Accounting Principles) earnings. Contrary to the positive adjusted figures, Fidelity National Information Services reported a staggering negative $29.28 per share in GAAP earnings for Q4. This drastic downturn erased previous profits, resulting in a substantial $27.68 per share loss for the year.
This dramatic GAAP loss is attributed to a massive $17.6 billion “non-cash goodwill impairment charge” related to the company’s acquisition of Worldpay in 2019. Acknowledging the underperformance of this venture, Fidelity National Information Services announced its strategic decision to exit the “Merchant Solutions” business, formerly Worldpay, to mitigate further losses. This planned spinoff is a key factor influencing the current investor sentiment surrounding fidelity national information services stock.
Worldpay Spinoff and Bleak Outlook Dampen Investor Confidence
The spinoff of the Merchant Solutions business, while intended to streamline Fidelity National Information Services’ operations and refocus on its core strengths in financial technology for institutions and capital markets, is not expected to be a quick fix. The company anticipates the spinoff process to take up to 12 months, and in the interim, investors are bracing for a continued negative impact on financial results.
Forward-looking guidance further fueled the negative reaction towards fidelity national information services stock. For the first quarter of 2023, Fidelity National Information Services projects sales of approximately $3.4 billion, falling short of analysts’ expectations of nearly $3.6 billion. Similarly, adjusted earnings per share for Q1 are anticipated to be in the range of $1.17 to $1.23, significantly below the Street’s consensus forecast of $1.42 per share.
The full-year 2023 outlook is equally concerning. Fidelity National Information Services anticipates full-year sales as low as $14.2 billion, compared to analysts’ estimates exceeding $15 billion. Projected full-year earnings are capped at $6 per share, again below the consensus of $6.57 per share. This revised and weakened guidance for 2023 is a primary driver behind the negative investor sentiment and the subsequent drop in fidelity national information services stock.
Investor Perspective: Short-Term Pain vs. Long-Term Gain?
In essence, while Fidelity National Information Services technically “beat” adjusted earnings expectations in Q4 2022, the underlying reality of a substantial GAAP loss, coupled with a disappointing outlook for 2023 due to the Worldpay spinoff, has significantly overshadowed any positive takeaways.
Despite management’s assurances regarding the long-term benefits of the spinoff and the strategic refocus on core financial technology solutions, investors are currently prioritizing the near-term disruption and the projected weaker financial performance. The significant loss incurred and the downbeat guidance are understandably triggering a sell-off of fidelity national information services stock as investors reassess their positions and outlook for the company’s future. The market’s reaction underscores the importance of considering GAAP earnings and future guidance, not just adjusted figures, when evaluating the true health and prospects of companies like Fidelity National Information Services.
