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Insights Tag: SaaS Services

PAX’s H1 2023 Revenue Down 15% YoY as E-payment Terminal Business Hurt by Unfavourable Macroeconomics

  • Revenue contribution from LACIS, EMEA and APAC regions drop YoY in H1 2023.
  • Revenue contribution from APAC region should improve in H2 2023 with India and SEA’s strengthening performances.
  • PAX expects a double-digit percentage decline in 2023 revenue.

PAX Global Technology’s H1 2023 revenue fell 14.7% YoY to $456 million, as the company’s electronic payment terminal business was constrained by slowing global economic growth and high-interest rates. Meanwhile, revenue from its payment terminal-related services segment surged 35.6% YoY during the period, mainly due to the growth in revenue generated from the Software as a Service (SaaS) solutions, maintenance, and installation services.

PAX revenue by segment

During PAX’s earnings call, CEO Jack Lu discussed a few key topics including the adoption of Android smart solutions, macroeconomic challenges and forward-going management strategies.

Macroeconomic Situation and Payment Trend

CEO Jack Lu: “Despite short-term macroeconomic challenges, the proliferation of electronic payments continues to be a significant and ongoing global trend. The continued advancement of payment technology, along with growing consumer appetite for convenient and secure payment options, as well as the cashless initiatives promoted by governments worldwide, have continued to open up new opportunities for PAX solutions.”

Our analyst take: “PAX’s strong portfolio across different sectors, combined with its POS terminal management platform, offers a one-stop solution for businesses. PAX is helping businesses scale their operations by providing seamless payment options. The company has strategically set up a dedicated division called Zolon to expand business Internet of Things (BIoT). PAX’s service segment revenue is expected to receive a further boost from its BIoT solutions, including SaaS (e.g. MAXSTORE) and commercial POS solutions (e.g. Elys). The enterprise IoT solution will mainly target cloud-based services for businesses to secure recurring revenues.”

Management Strategy

CEO Jack Lu: “Looking ahead, the global payment industry continues to embrace a prosperous future. PAX will continue to explore more potential business opportunities by acquiring banks, PSPs and distribution partners, offering future-oriented payment solutions for merchants and consumers across the globe.”

Our analyst take: “The payment industry has undergone fundamental changes in recent years, with a surge in the global acceptance of electronic payment options among consumers and merchants. Governments and financial institutions worldwide now place greater emphasis on their electronic payment acceptance infrastructure and are aiming to implement a more efficient and transparent financial ecosystem. The huge value and potential of the payment terminal market will be further unlocked going forward. PAX’s ongoing strategy is aligned to capture this huge market opportunity and we believe its expanding global presence and increasing investment in R&D will help it drive innovation and increase market share.”

PAX revenue by region

H1 2023 Result Summary:

  • PAX reported gross profit margin of 44% in H1 2023, up 400 bps YoY, driven by lower costs stemming from a weaker yuan and a change in its geographical sales mix. PAX’s SaaS ecosystem rose 84% YoY in H1 2023 and contributed positively to the company’s overall revenue growth. The company had more than 10 million connected terminals being managed on its MAXSTORE platform during the period.
  • In H1 2023, PAX registered a decline in revenue from the Latin America and Commonwealth of Independent States (LACIS), Europe, Middle East and Africa (EMEA) and Asia-Pacific (APAC) Only the United States and Canada (USCA) region saw a record-breaking growth of 20% YoY during the period.
  • The LACIS region posted an 18% YoY decline in H1 2023 revenue to reach $175 million, constrained by the conservative business sentiment in Brazil stemming from challenging economic
  • The EMEA region recorded $148 million in revenue, down 19% YoY in H1 2023, mostly due to economic uncertainties, especially in Europe and the Gulf Cooperation Council (GCC), resulting in a temporary slowdown in market demand. However, PAX is confident that its strong brand recognition and products, as well as a reputable network of channel partners, will continue to positively influence growth in the region.
  • The APAC region saw a 24% YoY decline in revenue to $57 million, hurt by the longer-than-expected sales cycle in India, which offset the growth of other markets in the region. However, going forward, several APAC countries are expected to contribute increased sales revenues as PAX’s brand recognition improves and new products hit the market.
  • During H1 2023, PAX secured a steady increase in shipment volumes from the SEA region as countries like Indonesia and Singapore ramped up the adoption of PAX Android smart products as they move to modernize their electronic payment systems. Riding on this wave, along with India’s strengthening contribution, the APAC region should perform well in H2 2023.
  • The USCA region registered a record-breaking growth of 20% YoY in H1 2023 with $76 million in revenue, mostly driven by increasing market demand for diverse payment options and value-added services. PAX Smart Android solutions have maintained strong sales momentum and positive market reception of the newly launched Elys Solution.
  • In July 2023, PAX was elected to the Board of Advisors of the PCI Security Standards Council (PCI SSC), making it the first and only Chinese company to join the board – this proves how good its products are. PAX should leverage the PCI SSC news to keep gaining market share in the US and Europe.
  • PAX’s expertise in Android SmartPOS technology has enabled it to lead the Android SmartPOS solutions space. However, it faces strong competition in other use cases and form factors from international players like Ingenico and Verifone and homegrown Chinese players like Newland, Tianyu and Castles.
  • With an unwavering dedication to the payment terminal sector for the past two decades, PAX has built extensive expertise, capital prowess and a diversified global footprint supported by a strong portfolio across different sectors catering to different needs of merchants and businesses. This has helped PAX become risk resilient and adaptable to volatile environments.
  • PAX has a bleak outlook for 2023, given the macroeconomic obstacles, decelerating global economic growth, and elevated interest rates. The company has anticipated a double-digit percentage decrease in revenue for the year. Similarly, competitors like Newland, Tianyu and Castles are also grappling with these macroeconomic challenges for their payment terminal businesses.

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Monetizing 5G Will Be The Challenge For Incumbent Vendors in 2022

Nordic duo Ericsson and Nokia both had a good 2021. With strong cash generation from its core networks business, Ericsson had one of the best years in its history. Meanwhile Nokia provided proof that its turnaround is on track, with a solid improvement in margins and a return to profitability – although it needs to increase its RAN market share in 2022. With most of the largest operators having deployed their 5G networks, the challenge for all vendors now is to develop technologies and solutions to enable their CSP customers to monetize them.

Enterprise Revenue Opportunities

As 5G SA deployments gather pace, CSPs are turning to vendors for new enterprise-focused services. Both Ericsson and Nokia are investing heavily in the hope that these service-based businesses will generate new revenues streams to offset the inevitable decline in mobile network infrastructure spending in a few years’ time.

Leveraging their connectivity heritage, both have developed a comprehensive range of mission-critical network options coupled with multi-cloud solutions and a range of digital enablers, including industrial devices.  This should enable their CSP or enterprise customers to introduce a variety of new services ranging from NaaS type offerings, such as network slicing, private networks and IoT connectivity platforms to SaaS-based software services, edge based platforms and solutions. Ericsson even seems to be targeting the autonomous vehicle market with its Ericsson Routes app! In addition, both vendors have developed an extensive network of ecosystem partners – a differentiator and a critical requirement for success.

Exhibit 1 compares revenues at Ericsson’s Emerging Business unit with Nokia’s reported enterprise revenues over the past four years.

Exhibit 1:  Ericsson Emerging Business and Nokia Enterprise revenues

Another revenue opportunity will be network APIs. 5G is touted as a platform that will enable CSPs to offer a range of new services that leverage the key attributes of 5G. However, mobile networks today are essentially closed networks. If 5G is to deliver on its potential, then CSPs must open-up their networks and adopt open interfaces.

Ericsson’s Vonage Acquisition

All vendors see a market opportunity to offer APIs. However, Ericsson may have gained an advantage over rivals with its recent purchase of US-based Vonage, providing it can convince Vonage’s 1+ million developer community to engage in 5G and guarantees that Vonage will be a truly open platform.  Clearly, the hope is that the much-enlarged developer ecosystem will be able to leverage 5G’s inherent network features, such as low-latency, quality-on-demand, network slicing, etc. and that developer/enterprise innovation will drive usage of CSPs networks across various industry verticals resulting an ROI for CSPs.

Despite the inevitable fears of lock-in, Counterpoint Research believes that a vendor-led platform stands a better chance of succeeding than any operator-led platform. With its dominant market share (outside China) and global relationships with CSPs, Ericsson’s API platform could offer an attractive alternative option to the big three public cloud players, which would become more attractive if other vendors could be persuaded to come aboard.

Nokia’s SaaS Launches

5G SA core deployments will also be the catalyst behind the transition towards more software-based revenues for vendors. With more CSPs adopting a cloud-native approach, this will result in an increasing demand for SaaS-based delivery. In fact, the enterprise market offers attractive SaaS revenue opportunities that can be scaled and leveraged to strengthen a vendor’s 5G SA core business.

Widely seen as the most cloud-friendly of the five incumbent vendors, Nokia recently announced a barrage of SaaS offerings covering data trading, analytics, network anomaly detection and iSIM connectivity with further applications covering 5G core, digital operations, monetization and private networks expected to follow in 2022. As SaaS generates recurring revenue streams, this should result in higher margins. However, this will depend on volumes, which will take time to grow. Revenue growth will therefore be evolutionary over several years rather than exponential.

Starting From a Low Base

As Exhibit 1 shows, Ericsson and Nokia’s enterprise revenues varied between $750 million and just over $1.8 billion between 2018 and 2021. Although not intended as a back-to-back comparison – and not strictly accurate as some revenue is split across multiple business units – it does serve to illustrate the scale and largely stagnating growth of enterprise revenues during the period.

Nevertheless, Counterpoint Research believes that both vendors are well-placed to benefit from new enterprise opportunities for a variety of reasons, not least their long-standing, trusted relationships with the majority of the world’s CSPs. However, they are starting from a low base. The challenge over the next few years will be to capitalize on the opportunities – with CSPs and directly with enterprises themselves – in the face of stiff competition from an increasing number of players, both established and new entrants.

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