Visa, Inc. (V) is the world’s largest payments network, offering advanced technology to authorize, clear, and settle transactions for customers, businesses, and institutions across more than 200 countries. With proceeds of $17.9 billion in 2008, it was the largest IPO the U.S. until 2014 (Alibaba became the largest). The company has delivered strong business results over the years. As Visa advances on its goal “to be a single connection point for every transaction, everywhere, both on the its network and beyond,” here’s a look at what makes a case for Visa:
1. Dominant player. In the U.S., Visa, Mastercard, American Express, and Discover cards generated $6.698 trillion in purchase volume in 2019, up 8.5% over 2018. Visa dominated 60% of the volume, followed by Mastercard at 26%. It is estimated that the general-purpose payment cards with global brands are projected to generate 853.90 billion purchase transactions by 2028, according to The Nilson Report.
At a global level (based on cards in circulation), UnionPay accounted for 45% of all payment cards, followed by Visa with a 20% share. However, if the Chinese markets are excluded, then UnionPay only accounts for 1% of the world’s cards, thereby making Visa the largest global player in terms of cards in circulation as well as in terms of global purchase transactions for goods and services with a 50% share.
2. Financial technology. According to EY Global FinTech Adoption Index, 75% of the global internet-enabled consumers used a fintech service for money transfer and payments in 2019. This is a huge jump from just 18% in 2015. To enter into new businesses and add complementary enhancements to its existing business, Visa announced the acquisition of Plaid for $5.3 billion in early 2020. Plaid enables consumers to conveniently share their financial information with thousands of apps and services, such as Acorns, Betterment, Chime, Transferwise, and Venmo. Currently, “one in four people with a U.S. bank account have used Plaid to connect to more than 2,600 fintech developers across more than 11,000 financial institutions.”
3. Cross-border payments. It is estimated that nearly $80 trillion of money is sent via a wire transfer or bank account globally. However, the process is complex and expensive. To strengthen the global payments medium, Visa acquired Earthport which is largest independent Account Clearing House (ACH) network in the world. The acquisition of Earthport would enable Visa to reach 99% of the world’s banked population in 88 countries (including top 50).
Earthport takes Visa beyond the card to global payments via bank accounts. In another push to tap global payments, Visa entered into an agreement with Western Union in mid-2019 to implement Visa Direct, Visa’s real-time push payments platform, in an effort to bring speed and transparency to the process of sending money around the world.
4. Strong partnerships. Visa continues to expand and strengthen its product basket as well as partnerships. Visa Token Service which works by replacing a consumer’s card-related sensitive information with a unique identifier (token) enabling secure transactions (without card or person) has been endorsed by Apple Pay, Google Pay, Netflix, Samsung Pay, Fitbit Pay and Garmin pay.
In addition, other wearable devices, connected cars and home appliances are being enabled to pay using Visa Token. The U.S. proximity mobile payment transactions is expected to reach $161.41 billion by 2021 according to estimates by eMarketer. Thus, without exposing the consumer’s account to fraud, tokenization enables frictionless, card-free payments.
5. Share buybacks and dividends. Visa has been giving out a small but gradually rising dividend to its investors since its IPO in 2008. It started with a quarterly dividend payout of $0.0263 per share, and reached $0.30 per share as of January 2020. The company has also been indulging in share repurchase programs over the years. In January 2020, the board of directors authorized a new $9.5 billion Class A common stock share repurchase program. In FY2019, $10.9 billion was spent on dividend payout and share buybacks.
6. Sound financials. The company’s revenue has been rising at a steady pace over the years. It posted annual revenue of $15.08 billion, $18.35 billion, $20.61 billion and $22.98 billion in FY2016, FY2017, FY2018 and FY2019, respectively. Its net income was $5.99 billion (’16), $6.69 billion (’17), $10.31 billion (’18) and $12.08 billion (’19). Visa has maintained a very healthy operating margin; it was 67% in FY2019.
Not immune to COVID-19. All that said, Visa will be impacted by the current pandemic the world is facing. In an SEC filing, Visa has said that it expects second fiscal quarter net revenue growth to be approximately 2.5–3.5 percentage points lower than the outlook shared in January.
However, given that the situation remains fluid, the impact might be ‘more and prolonged’ amid weak consumer spending, travel halts and slowdown in businesses. Given that Visa does not have any lending related risks, this is an opportunity to gradually buy a stock that has played a significant role in the transition from paper to plastic, and is at the forefront as the world moves towards digital.
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