Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings estimates to take the latest business trends into account. When earnings estimates for a company go up, the fair value for its stock goes up as well. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, resulting in its price moving upward. Because of this, empirical studies indicate a strong correlation between trends in earnings estimate revisions and short-term stock price movements. Visa, Mastercard, American Express, and Discover are responsible for handling the majority of the world’s card payments.
- Those payments rose by 38% when we include intra-Europe payments, but since there are no currency differences there due to the usage of the Euro, Intra-Europe cross-border volumes are not as relevant.
- Just like I said in my Mastercard article, these worries have so far ended with the realization that each one of those “competitors” became a customer and a growth driver.
- To be clear, this was from 2022, but you get the idea that there is still a sizable runway for Visa in a developed economy like ours.
- The company does not issue cards; they are the technology provider that processes transaction information between merchants, acquiring banks and issuing banks.
Finally, Visa’s processed transactions – the total number of transactions processed by the business — surged 17% higher year over year. We see that overall payments volume rose at a compelling high-teens rate, but cross-border volume grew even faster. Those payments rose by 38% when we include intra-Europe payments, but since there are no currency differences there due to the usage of the Euro, Intra-Europe cross-border volumes are not as relevant. When we focus on areas outside of Europe, growth was even better, at almost 50%.
High swipe fees in Poland
According to the Federal Reserve’s 2020 Diary of Consumer Payment Choice survey, 42% of Americans preferred to pay bills with a debit card, while 29% used a credit card, meaning that 71% had at least one or the other. Many people have a number of them, seeking to take advantage of all the rewards, cash back opportunities, and promotional benefits that issuers offer. For the first quarter, analysts, on average, estimate Visa will report earnings per share of $2.34 on revenues of $8.54 billion. In the case of Visa, the consensus sales estimate of $8.67 billion for the current quarter points to a year-over-year change of +8.6%. The $35.73 billion and $39.22 billion estimates for the current and next fiscal years indicate changes of +9.4% and +9.8%, respectively.
Visa also charges for licensing, providing technology and customer support services. In 1984, most Visa cards around the world began to feature a hologram of a dove on its face, generally under the last four digits of the Visa number. This was implemented as a security feature – true holograms would appear three-dimensional and the image would change as the card was turned. At the same time, the Visa logo, which had previously covered the whole card face, was reduced in size to a strip on the card’s right incorporating the hologram. Today, cards may be co-branded with various merchants, airlines, etc., and marketed as “reward cards”. Visa reported its Q earnings on July 28, 2020 and delivered a small earnings beat as its earnings fell slightly less than expected.
Visa needs to be able to handle the intense competition that it’s constantly facing. This is true of any business in any industry, but perhaps it’s even more pronounced due to how much innovation and change are happening in payments at any given moment. The company has taken on a debt of about $16 billion to fund its acquisition of Visa Europe.
Visa and Mastercard Are Under Attack. They Will Do Just Fine.
Visa facilitates global commerce and money movement across more than 200 countries and territories among a global set of consumers, merchants, financial institutions, and government entities. The company has nearly 15,000 clients that provide 4.1 billion credentials with credit, debit, and prepaid cards. Visa’s quarterly payments volume has increased YOY every quarter for the past three years, a sign of stability for investors. Despite that, the quarterly YOY growth rate of payments has slowed in recent quarters. Payments growth has decelerated from 11.6% in Q3 FY 2018 to 8.7% in Q3 FY 2019.
However, the latest threat to Visa is e-wallets and fintech companies like PayPal, Klarna and Affirm that offer online payment acquisition, point of sale payments using mobile apps and QR codes and buy-now-pay-later solutions. The most recent Visa dividend payout was $0.32 on the 13th of August 2021. forex tp Based on the day’s closing price of $231.79, that makes the Visa dividend yield 0.55% for the full year. Ever since the company was listed on the NYSE, it has paid out a total of $12.15 per share to shareholders. So, as of this writing, the stock trades at a price-to-earnings ratio of 31.7.
On the other hand, if the stock’s current valuation is forcing you to hesitate, then maybe it’s best to practice patience and wait for a better entry price. Visa has been a winning investment throughout the years, and it’s difficult to see that great track record ending anytime soon. Some of the rise over the last 2 years is justified by the roughly 25% growth seen in Visa’s revenue from FY 2017 to FY 2019, which translated into an 80% growth in Net Income figure. The unusually high growth in net income could be attributed to the effective tax rate of around 43% in FY 2017 due to the one time impact of the U.S Tax Act, which reduced the margin figure. However, the effective tax rates normalized in the subsequent years, improving the margin figure from 36.5% in 2017 to 52.6% in 2019. The company is sticking with its full-year forecast, which calls for low-double-digit revenue growth on an adjusted constant-dollar basis.
Visa’s (V) stock has risen 11% over the past 12 months as a result of strong growth in volumes and the addition of new clients in 2Q17. The company is gaining ground through more partnerships and co-branded cards, but the market is expected to be more competitive on the pricing front as companies cut costs. We don’t view these other networks necessarily competitors, they are open to us. They send transactions to us, we may offer value-added services to them. As travel picks up again, following a period of pressured demand from the pandemic, Visa is benefiting.
Visa Inc. Cl A stock rises Thursday, still underperforms market
Overall, we can say that Visa is not a cheap stock in absolute terms. But based on the overall quality of the company and its compelling growth, the current valuation should be justified. Visa also trades at a discount compared to how the company was valued in the past, at around 10%-15% when we look at the average between the P/E discount and the EV/EBITDA discount. Visa could thus have double-digit upside potential in the near term, on top of its more pronounced longer-term upside potential from business growth and shareholder returns.
A business with low bankruptcy risk
The growth in mobile and e-commerce will support the cash-to-card penetration, as these transactions are more prone to electronic payments. The following table highlights the dominant position of Visa that has a network much bigger than Mastercard, the second largest player in the US (UnionPay is larger but focuses only on the Chinese market). Having a dominant position for a payment network is much more important than for most businesses.
However, the cross-border transaction volumes are likely to suffer for some more time, as international travel restrictions are still in place. The travel bans are linked to the Covid-19 case count, which is likely to normalize as more and more people receive the vaccination. Overall, we expect Visa’s revenues to remain around $23.4 billion in FY2021 – 7% above the 2020 figure. Additionally, Visa’s P/E multiple changed from just below 34x in 2018 to close to 41x in 2020.
Visa is the largest global electronic payment solutions company in the world, which provides a wide range of products and services to support the credit, debit, and related card solutions for institutions in over 200 countries. The company generates revenue by charging fees on transactions and payments volume. Due to the Covid-19 pandemic https://bigbostrade.com/ and the economic uncertainty consumer spending has dropped, negatively affecting the transaction volumes for the payments processing industry. Further, the lockdown restrictions coupled with the travel bans wreaked havoc on the international transaction volumes in the second quarter– the segment contributes 27% of the Visa’s top line.
About V Stock
In Q2, despite inflationary impacts on wages, etc., Visa’s overall expenses rose by 11% — which is way less than the 25% revenue gain. With Visa’s business growth outlook being strong for the remainder of the year as well, we could see more of the same in the coming quarters. Visa and Mastercard had been delivering excellent results for quite some time. But during the pandemic, when e-commerce took off and when many not-yet-profitable companies saw their shares soar, a new narrative gained traction. Credit card companies supposedly were losing against so-called disruptive tech companies, which includes a wide range of fintech players including PayPal, Block (SQ), and many buy-now-pay-later companies.
A valid argument can be made that Visa’s competitive position is essentially unassailable. The company benefits from powerful network effects that underpin its economic moat. As of Sept. 30, there were 4.3 billion Visa cards in circulation across the globe and some 130 million merchant locations that accept them as a method of payment.