Fiserv's PDD Moment

And Why We Believe It Presents Attractive Risk-Reward

I intended to discuss our updated thesis on Fiserv in our Q4 letter. However, given the recent volatility of the stock, and given we have, in the past week, more than tripled our position to make it one of our single largest bets, I believe it may be appropriate to discuss it sooner rather than later. I will have to think of other things to write for our Q4 letter.

Bet Against the Market

When the market significantly moves against us, historically and statistically, we tend to bail. The market, as a representation of collective intelligence, is incredibly efficient, and we respect it for its efficiency and potency. For instance, when the market told us we were wrong on Meituan and Tianli Education, after immersing ourselves in the fact-finding mode for a long while, we admitted our mistakes and moved on. Mistakes are part of the investing game, and we try not to dwell on them for too long.

Every once in a while, we believe we know substantially more than the market, and more importantly, we understand the psychological and institutional constraints of our counterparties — we seize such opportunities and accumulate a large position, expressing our variant perception. Since inception, most of our heavy bets have paid off in spades, including Tencent, PDD, regional banks, TD Synnex, among others.

If you look at this chart and extrapolate, Fiserv will be a “donut” in another couple of weeks. We are not chartists, but to be honest with you, we have to muster all the courage we can find to go against the market and size up our position after its cataclysmic collapse last Wednesday, Oct 29th, 2025. When the stock collapses in such a historically monumental fashion, it is all too humane to get scared — we just try to stay a little more rational than the market, just a little more.

Business Description

Fiserv, through First Data, is one of the largest merchant acquirers on a global basis. In addition of serving the function of a gateway, it reaches SMB (small & medium sized businesses) through Clover, and enterprise clients through Commerce Hub, striving to serve as the operating system of such businesses. The legacy Fiserv is also an bank core processor, operating in a duopoly market with Jack Henry, serving smaller financial institutions such as community banks and credit unions. Core processing is one of the stickiest business models we have seen, and to change a core is like conducting a open-heart surgery when the patient is walking down the street. Bundled with core processing are credit and debit processing along with other digital solutions. These sticky relationships between Fiserv and financial institutions serve as a uniquely powerful conduit for Fiserv to distribute integrated POS solutions such as Clover to SMBs (the so called agency model).

In sum, Fiserv enjoys double-sided network effect, extremely sticky client relationship, 80%+ recurring revenue, and gushes free cash, which has historically been used to repurchase shares and return capital back to shareholders.

Competitive Dynamics

Although Fiserv may look like a dauntingly complex business to analyze, we think it’s actually a straightforward story. If you think Fiserv is a messy story, you can rely on legacy players such as Global Payments and Fidelity National Information Systems as “proxies” to assess the competitive dynamics. Given Fidelity just saw ~5% organic growth on banking solutions while Global Payments also saw LSD-MSD organic growth on the merchants side, suffice to say that the sky is not collapsing (yet) and a company capable of generating 4-5% topline organic growth with high business qualities such as forbiddingly high switching costs and strong network effects should not trade at 7-8x PE. Of course, this conclusion itself evolves and is worthy of being monitored — this is our job.

Given Fiserv has mostly been a Clover story in the last few years, I will break out Clover for some more discussion.

Clover: The bears tend to taunt Toast and Square’s integrated product solutions, while trashing Clover for merging third-party solutions onto its platform, which can lead to incohesive customer experiences. For instance, loyalty program accumulation may not have omnichannel capabilities, while payroll may miscalculate employee working hours.

I have surveyed more than 100 restaurants and retailers in NJ and NY, and after conversing with them, I have developed a clearer understanding of the competitive landscape.

Firstly, the space is extremely fragmented, and consolidation beyond niches is very, very difficult. For instance, Toast is favored mostly by dining restaurants. Toast has spent a decade to develop the best SaaS deck in the POS space, ranging from payroll to loyalty programs, from kitchen management to ordering systems, from inventory monitoring to working hours timing. The revenue per device at a dining restaurant is 5x that of a QSR (quick-service restaurant), and Toast faces the “innovator’s dilemma” since their dining restaurants are just so much more profitable than mom-and-pops and QSRs. In other words, a player genetically grown up in one niche is difficult to be dominant in another because end customer demands vary tremendously from dining to QSR, from retailer to storage operators.

Secondly, for mom-and-pops, many of them told me they chose Clover because its ease of use and the selling agent’s services. Like I mentioned before, more than 70% of Clover’s sales are through agents (agency sales), either independent vendors or financial institutions. When a Mexican family wants to open a restaurant, the father goes to the local community bank to open a business account. The local bank, which has established trusts with the father, will subsequently offer Clover, which is an essential part of a small business’ operations. Clover is known for low monthly fees (only $50/month), ease of installation, and simplicity in operations. Several owners explicitly told me they shied away from Toast because it was too technically sophisticated.

Lastly, 70% of POS on the counter are still legacy systems. Clover has ~10% market share while Toast has ~13%, and there are still substantial room for both to grow and gradually replace the legacy systems — such changes simply do not happen overnight. For instance, I asked some Chinese food-court restaurant operators why she is still using a system with partially shattered screen and outdated tech stack, she smiled shyly and told me: “Maybe I should change it, but it can still be used”. After more than 100 interviews, I have learned that these business operators simply regard the POS as one piece of their business operations. They are not the savviest business men like a Warren Buffett, they do not compare across all these different terminals along with their respective pricing and various offerings, and they oftentimes opted for simplicity of use while rely on channels that they are most familiar with.

All that I am trying to say is, Clover is not going to disappear overnight, and given how smaller restaurants and retailers work, I believe a 10% growth rate for the foreseeable future is not too much to ask at all as far as Clover is concerned. As a matter of fact, when talking with an executive at Fidelity National Information, he told me that part of the reason that Worldpay did not prosper is that “we did not have a powerful 2B product like Clover”.

The Fiserv “Zoology”

Despite owning some of the crown jewels of the payment space, and despite harnessing some of the most wonderful business models, Fiserv was extremely poorly managed. Both the top executive team and the board experienced massive changes, and I will focus on the executive team for the sake of discussion.

Our first batch of Fiserv was purchased at an average price of close to $130/share and our investment has been more than halved. We blame ourselves for not conducting the most extensive investigation of the former executive team of Fiserv. Instead, we relied on the praises of Frank Bisignano from excellent executives that we admire such as Jamie Dimon, as well as top notch, world renown value investor such as William Nygren, Mike Nicolas, and David Poppe. Although we conducted extensive value-added research including on-site interviews, expert calls, and multiple conversations across the spectrum with established entrepreneurs in the payment and banking space, our lack of diligence on the management team buried a bomb underneath us, which ultimately exploded.

Researching the former management team of Fiserv feels like, forgive my French, watching a bad porn. Apart from what Fiservants nick-named Frank the “Tank” who has become the commissioner of the Social Security Administration of the US (God Bless…) and Takis Georgakopoulos who is a legit payment expert, the entire executive team has been shaken up. Frank the “Tank” had a CEO approval rate of 33%, one of the lowest we have ever seen. Robert Hau, who has possibly deliberately cooked up Fiserv’s book through misleading growth figures, is gone. Robert is also purportedly instrumental in devising a particularly unpopular RTO (return-to-office) 5 days/week policy. Jennifer LaClair, who has no expertise whatsoever in the merchant space given her professional career at the Fed and financial institutions like Ally and PNC somehow ended up heading the merchant solutions group. Although not named in the press release, she is gone. Frank Kosuda, who owned and operated a light-bulb company the public record of which is very difficult to identify, somehow ended up becoming the Chief Sales Officer of this fintech company. Mr. Kosuda, although not named in the press release, is gone. John Gibbons, nicknamed the “Gibblets”, is demoted from the Head of Financial Institution Group position, and now serves as a “senior advisor” to assist Dhivya Suryadevara in her transitioning journey. However, employees at Fiserv reported that the “Gibblets” is still flying in a corporate jet, meeting clients everywhere, telling them he was trying to get Andrew (Gelb) and Michael (Lyons)’s ears. Unfortunately, the Gibblets roaming around until next February is something we will have to endure — it also showcases the stickiness and importance of personal relationship at the Financial Institutions Group.

Under the reign of Frank the “Tank”, Fiserv not only implemented a 5-day/week RTO policy, but also installed Sapience monitoring software on every employee’s laptop, required badge in/out with 9 hours/day work requirement, and insisted on “short-term revenue initiatives” which includes expensive termination fees and data storage fees for Clover clients as well as aggressive referral initiatives the purpose of which is to hit annual cadence of double digit EPS growth, a trend that has persisted for 40 years. As Wall Street investors cheered the company on, we also saw one of the greatest exoduses of insiders.

The Contrarian Bet

I believe Fiserv’s current set up is reminiscent of PDD’s massive stock price collapse last year. We chronicled our analysis of that situation and why we decided to substantially increase our % ownership in an earlier article. We lay out our investment thesis in Fiserv below, and we will make comparisons of these two sell-offs when appropriate:

1. The central premise of our thesis is Fiserv’s business model is not broken, and its competitive position has not fundamentally deteriorated. We have discussed our belief in the core banking’s stickiness and Clover’s room for growth. If you believe Fiserv, after this debacle, has withered like a commodity chemical company, then you should stay away from the stock by all means. In other words, we believe Fiserv has a solid platform upon which a turnaround can be executed.

2. If a turnaround can be executed on an unimpaired platform, one still need the right team and the right leadership. The current management team is substantially refreshed, and we are considerably more comfortable and confident in the new faces. Paul Todd, the new CFO, has a successful career at TSYS; Dhivya Suryadevara, the new co-president who will head the FIG (Financial Institution Group), comes from United Health and has served as the CFO of Stripe from 2020 to 2023; most importantly, Michael Lyons, the current CEO, has worked at both PNC and Maverick, which means he understand both the client side as well as the capital allocation side of the equation.

3. Background of the leadership is important, but remember Frank the “Tank” also had an illustrious resume. Action is louder than words, and culture eats strategy for breakfast. Thus far, we have heard positive feedback based on our conversations with existing employees at Fiserv — Michael seems to be a lot more transparent and candid. Michael has already taken off Sapience software on all laptops (except for contracted labor where monitoring of hours is essential), and has taken the first step of permitting 10 days per year of WFH (work from home). He also stopped requiring badging in/out. Diametrically different from the “Tank”, he is willing to sit down with employees, and listen — oftentimes, one of the most important things an employee needs, is respect. Therefore, in contrast to the “Tank”, Michael has an employee approval rate of 71%. We also applaud the “One Fiserv” strategy, and we are encouraged that short term revenue incentives have been relinquished, while excessive fees layered on end customers are being reversed.

   Note the striking similarity here with PDD — 1H 2024, PDD was recording an operating margin higher than that of Tencent. It charged hefty penalties on merchants, which ultimately resulted in protests at its HQ. PDD was “juicing” its earnings until it exceeded the point of breakdown of its ecosystem, and then it had to reset. The market panicked just as PDD is trying to make its ecosystem more inclusive and sustainable — this was our differentiated view, and we have been handsomely awarded. Likewise, Fiserv, through reversing one-time charges, excessive fees, and myopic short-term incentives, coupled with substantially hiking its capital expenditure (now 8-9% of its revenue) to better its product offerings, is also making tangible improvements to its ecosystem. This extends the life-time value of its customers, shapes enduring relationships, and arguably enhances the quality and sustainability of its earnings and free cashflow. As a result, the future free cashflow generated under such a mutually beneficial relationship should arguably enjoy a higher, not lower multiple.

4. Mike just dropped an “atomic bomb” on us shareholders — will he drop another one the next quarter?

   This requires a little vicarious thinking. If you were made the CEO of a publicly traded company, and you just discovered that there are a number of financial irregularities, along with several unsustainable, short-term initiatives left to you by your predecessor, are you going to hold some of those back until the next quarter? I believe the majority of rational decision makers will try to expose as much as possible of the bad news, because this is the last quarter that “belongs to” your predecessor. If you keep delivering bad news in ensuing quarters, the poor performance belongs to you, and you better prepare to face the wrath of angry shareholders, torches and pitchforks. Therefore, Mike, like all humans, has every bit of incentive to make this quarter as ugly as possible, and whatever improvement that will be made, the laurel and praises will be his. In Chinese, we call it “take a big bath” (洗大澡).

5. As we have stated repeatedly in the past, we love liquidity shocks — we like situations where our counterparties sell assets regardless of the prices. In the past 6 trading days, close to 50% of the shares of Fiserv have exchanged hands. The stock is down 75% from its all time high. Many investors we have talked to have completely lost faith in Fiserv, just like those who lost complete confidence in PDD a year ago. These investors fail to see the burgeoning hope in an ocean of despair, and I believe a good number of them have elected to exit the position due to “tax loss harvesting” towards the end of the calendar year.

6. Last but not least, we believe the current valuation presents us with a highly asymmetric bet with limited downside and substantial upside. The consensus earnings of the stock is roughly inline with our estimate of $8/share 2026 cash EPS, translating into a 7.7x PE based on today’s close. If you told me a truly high-quality compounder like Fiserv would one day trade down to less than 8x PE, I would open my mouth in disbelief, but here we are — the best opportunities are almost always presented to us in the sentiment of utter desperation. We believe as the business is turned around, and ecosystem becomes more sustainable, the business can easily fetch a 12-15x PE given its ability of growing its organic revenue at 4-5% and its cash EPS at 10%+, leading to a fair 2027 share price of $108-135, or 75.6% to 119.5% of upside in two years.

   On the other hand, the management team has indicated its intention of selling non-core assets to deleverage its balance sheet. Again, Mike Lyons comes from a Maverick background, and I bet he understands the art of arbitraging between a 7x EV/EBITDA corporate entity and 10-11x EV/EBITDA divestitures. As a matter of fact, should Fiserv as a whole transacts at a TSYS or Worldpay pre-synergy multiple, the stock price immediately trades up to $130/share.

Conclusion

We believe Fiserv is a high quality business that happens to go through temporary headwinds. The fundamentals are not permanently impaired, while the new management team has thus far demonstrated the potential for a successful turnaround. Although future growth will not be as fast as the last several years, the growth will turn out to be more sustainable. The cheap valuation of the security as a result of extreme pessimism and possibly tax-related selling leads to asymmetric odds similar to that of PDD last September. As the market calms down and the turnaround takes hold, the valuation of the business will revert noticeably higher, leading to significant capital gains for the patient investors.

---

Subscribe to Jingshu’s Substack