Visa Inc. is a global payments technology company providing electronic payment solutions to its clients worldwide. It is one of the largest retail electronic funds transfer networks used globally. Visa provides transaction processing services through its global processing platform, VisaNet, payment products, and other value-added services to its clients. In addition, the company has adopted new digital payment and security technologies, such as contactless and tokenization.
Visa has a presence in more than 200 countries and territories worldwide. More than 188 billion global transactions are processed through VisaNet each year. VisaNet is Visa Inc.’s reliable and secure processing system, which has supported the company’s growth across the world. A majority of credit and debit cardholders in the U.S. prefer Visa and there are 3.4 billion Visa cards in use today. Nearly 13 out of the world’s top 20 cobrand cards are Visa cards. There are over 100 million Visa contactless cards in the U.S. and more than 80 out of Visa’s top 100 merchants in the U.S. have enabled customers to tap to pay at checkout. Most of its clients are consumers, businesses, banks, and governments.
- Opportunity Score: 61
- Ticker: NYSE:V
- Sector: Financial Services
- Industry: Credit Services
- Market Cap: 421.34B
- P/E: 37.65
- Dividend Yield: 0.61%
- Payout Ratio (Earnings): 22.81%
- S&P Dividend Aristocrat: NO
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 10/10
- Dividend Income Fit: 5/10
Revenue Growth & Market Exposure
With over six decades of experience in this field, Visa has successfully built an extensive footprint extending to every corner of the world. Visa’s revenues comprise of revenues from service (33% of gross revenues in 2019), data processing (35%), international transactions (26%), and other (5%). The company has developed strategic relationships with clients and partners globally and continues to enter into new partnerships and agreements to maintain its leading position in the digital marketplace. Visa extended its long-standing relationships with J.P. Morgan Chase, Bank of America, and BBVA, among others. These partnerships are fundamental to Visa’s business model, and the renewals and new deals will help to drive future growth. Today, Apple Pay, Google Pay, Netflix, and Samsung Pay use Visa Token Service.
Visa operates one of the most sophisticated payment processing systems in the world and connects people worldwide through its innovative payment solutions. The company has become a trusted payment partner and has built a large base of loyal customers worldwide. When it comes to digital payments, it is not very comfortable for people to easily share their personal information, especially in developing economies where people are still getting accustomed to the digital payment trend. Visa develops and continually invests in technology to enhance the consumer experience and security, and smart products.
As a leading solutions provider in digital payments, the company has a large portfolio of innovative products and solutions. In order to create a faster and more convenient experience for its clients, Visa introduced contactless, scan-to-pay, and Secure Remote Commerce (SRC). The contactless payment system is gathering significant traction in the U.S. market and Visa stands a good chance to benefit from this trend. Visa is also growing through acquisitions. Visa Europe, the key payments bank in Europe, is one of its largest acquisitions leading to the creation of a single large global company. Major economies around the world are going cashless, and Visa through its omnipresence is well-positioned to lead this digital transformation.
Visa’s Q3 2020 net income declined by 23% YoY. The company suffered as a result of the pandemic. It is, however, witnessing improvement in its payments volume and processed transactions but cross-border volume remained subdued. The company’s biggest fallout was a decline in card spending due to zero travel as a result of the pandemic. Visa also saw strong growth in strategically important areas like eCommerce, tap to pay, new flows, and other value-added services. eCommerce excluding travel spend remained consistently elevated, as consumers continued to shift their spend online. The company also continues to build its capabilities and relationships to fuel future growth in B2B markets. Visa announced a global partnership with PayPal, including its Venmo, Braintree, Xoom, iZettle, and Hyperwallet brands where PayPal will offer fast Visa Direct-enabled domestic and cross-border payments. The company also witnessed better G2C transactions, wherein the US Treasury distributed nearly 4 million economic impact payments via Visa prepaid cards.
Visa has a history of paying dividends regularly to its shareholders. The company last raised its dividends by 20% and has a modest yield of 0.6%. Visa is a dividend achiever and has compounded its dividend annually at more than 25% CAGR over the last decade. The EPS has also compounded at more than 21% CAGR during the same time. Visa’s payout ratio is also very low at 22% indicating significant room for future expansion. The company also offers an attractive share buyback policy. Given the continued growth in global e-commerce trade, Visa should continue growing its top line comfortably. Visa returned $1.6 billion of capital to shareholders in the form of share repurchases and dividends in the most latest quarter. The company ended the quarter with cash equivalents and investment securities worth $17.2 billion.
Visa’s relentless focus on strengthening its core assets, network, brand, and security should improve its operating efficiency and margins, and maintain its customer trust. The Visa network continues to grow manifold with more than 3.4 billion card users and 61 million eligible merchant locations. It is poised to even grow stronger and larger as futuristic technologies such as IoT enabled cars, homes, and workplaces become mainstream in the near future.
Visa is in a good position to drive its future growth by strengthening its core business solutions, credit, debit, and prepaid products, as well as its global ATM network. A robust business model, a global distribution network, strong client partnerships, and a powerful brand are Visa Inc.’s strong competitive strengths. Visa’s tap-to-pay and contactless cards are likely to accelerate post-COVID as people start moving out. The company is well-positioned to benefit from the rising e-commerce transactions as people will now prefer cashless transactions. There is a secular shift away from cash to digital forms worldwide. Increasing consumerism and deeper penetration of smart connected devices act as strong tailwinds for the company. Even with a significant COVID-19 impact, Visa expects to generate a healthy level of free cash flow this year and its dividend policy remains unchanged.
Visa Inc. competes with emerging as well as existing competitors such as MasterCard, American Express, Discover Financial Services, JCB and UnionPay. It competes against all forms of payment including paper-based payments, primarily cash and checks, as well as electronic payments. Visa faces intense competition from global and local networks, alternate payment providers, payment processors, and other electronic payments network. Security, convenience, speed, and reliability are Visa’s strong competitive advantages.
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|NYSE:V||V||Visa||Financial Services||Credit Services||0.61||198.01||421.34||37.65||37.65||5.26||0.0061||0.2281||4||1.20||0.2190||10||5||Tollbooth - Unregulated||YES||YES||NO||NO||USA||1||0.61|
|NYSE:MA||MA||Master Card||Financial Services||Credit Services||0.57||329.61||329.96||45.61||45.61||7.23||0.0049||0.2213||4||1.60||0.2278||9||4||Tollbooth - Unregulated||NO||NO||NO||NO||USA||1||0.49|
|NYSE:AXP||AXP||American Express||Financial Services||Credit Services||0.64||100.98||81.31||20.91||20.91||4.83||0.0170||0.3561||4||1.72||0.1028||8||5||Tollbooth - Unregulated||NO||NO||NO||NO||USA||1||1.70|
|NYSE:WU||WU||The Western Union Company||Financial Services||Credit Services||0.72||21.97||9.03||15.16||15.16||1.45||0.0410||0.6207||4||0.90||0.1182||7||6||Tollbooth - Unregulated||NO||NO||NO||NO||USA||1||4.10|
Visa’s results should get better as spending improves and countries begin to relax domestic restrictions. Given the fear of infection, people have become sensitive to touching surfaces, including cash and check, and Visa’s tap-to-pay surely helps achieve this purpose. Domestic volumes have bounced back in most countries, but the rate of recovery is slow. Visa hasn’t provided any guidance for the next quarter given the uncertainties around the pandemic. Given its large geographic reach and an impeccable reputation, Visa stands a good chance to benefit from the rapidly growing e-commerce industry and increasing trends of digitization worldwide.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.