Fiserv Q2 Review: Clover Growth Concerns Eased, Upgrade to Buy

Fiserv's Q2 earnings report shows Clover business growth fears appear overdone, despite shares down 25% from their peak. Clover generated strong growth, leading to a surge in shares, but the stock has since declined. As a finance expert with experience at Bloomberg, this summary highlights the principal points of the article and focuses on the growth of Fiserv's Clover business.

Fiserv, Inc. (NYSE: FI) reported its second-quarter earnings on July 2, 2025, with a mixed reception from the market. Despite a flat year-over-year performance, the company's Clover business generated strong growth, which initially led to a surge in shares. However, the stock has since declined by over 25% from its peak, raising concerns about the sustainability of Clover's growth. The Q2 report showed that while earnings and revenue grew, the company's organic revenue was slightly behind estimates, and growth fears intensified.

Fiserv's Clover business, a fintech operating system handling payment processing, payroll, and other business needs, has been a key driver of the company's growth. In Q2, Clover revenue grew by 30%, and value-added-services (VAS) penetration reached 24%. However, the company's ability to sell ancillary services has enabled Clover revenue to outpace its revenue growth, which could narrow if VAS adoption slows. The slowdown in VAS penetration and a sequential pick-up in Clover growth not materializing has raised concerns about the company's growth trajectory.

The company's other unit, financial solutions, performed in line with expectations, with revenue growing by 6% in organic terms. The credit card environment has become increasingly promotional, leading to solid growth in issuing revenue. Zelle transactions also grew by 19%, contributing to digital payments growth. However, Zelle's revenue contribution to Fiserv is relatively small compared to Clover.

Fiserv remains highly cash generative, with $1.2 billion of free cash flow generated in Q2. The company expects organic growth of 10% from a range of 10-12% previously and reiterated its $3.5 billion 2025 Clover revenue guidance. The company's share count is down ~5.5% from last year, thanks to buybacks. However, the company's growth outlook has been revised downwards, with organic growth slowing and margins expanding at a slower pace.

The market's reaction to the report has been poor, with shares plunging 15% in early trading. The company's growth concerns have intensified, leading to a downgrade from a Hold to a Buy rating by some analysts. While the company's growth thesis is increasingly damaged, the company's strong capital returns and potential growth overseas could provide a catalyst for recovery.

References:
[1] https://seekingalpha.com/article/4803476-fiserv-q2-review-clover-growth-fears-now-appear-overdone-upgrade