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Why Visa Commands Premium Valuations in the Payment Industry

There’s no denying that Visa is a wonderful business, but investors should also take a closer look at the valuation to determine if the stock is a buy. Right now, shares trade at a trailing price-to-earnings (P/E) ratio of 30.4. That’s below Visa’s trailing five-year average P/E renault trade multiple of 35.6, and it’s meaningfully below Mastercard’s P/E of 37. As travel picks up again, following a period of pressured demand from the pandemic, Visa is benefiting. Cross-border payment volume was up 24% year over year, faster growth than overall payments volume.

The payment network took a big hit during the early stages of the pandemic, when consumer spending plunged. But it’s rebounding along with the economy, and that’s where its strength lies. As the largest credit card network in the world, it makes money whenever you swipe your card, making this blue-chip company a surefire bet for long-term growth. Mastercard is projected to grow more quickly than American Express, but not by much, and the P/E ratio is higher.

Visa’s trailing annual dividend yield of just under 0.7% is higher than its 13-year median yield slightly above 0.6%, which indicates that the stock could be an attractive buy for growth-oriented investors. And while shareholders wait for the market to award Visa with a higher valuation multiple, they can collect a safe and fast-growing 0.8% dividend yield. In the UK the law was changed in January 2018 to prevent retailers from adding a surcharge to a transaction as per ‘The Consumer Rights (Payment Surcharges) Regulations 2012′. Historically, when it comes to Visa and Mastercard, we’ve seen worries about competition come and go, with the likes of PayPal (PYPL), Apple Pay (AAPL), or the popularization of Buy-Now-Pay-Later. 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. We’ve also seen the occasional headlines about regulators interfering with the companies’ success in all kinds of ways, like forcing them to break up their operations into separate segments or lower their fees.

  1. The stock split dilutes the number of outstanding shares, causing the stock price to decrease, offset by having additional shares.
  2. Considering that Visa is highly profitable and generates a ton of free cash flow, I am using a P/E ratio to value the firm and other credit card companies.
  3. For comparison, Mastercard (MA) is projected to achieve earnings growth rates of 17% this year and 18% in the next three years.
  4. I recently wrote an article about Mastercard (MA), explaining why I think both payment giants are great businesses, with plenty of room for upside.

In 2013, Visa launched Visa Checkout, an online payment system that removes the need to share card details with retailers. The Visa Checkout service allows users to enter all their personal details and card information, then use a single username and password to make purchases from online retailers. On November 27, 2013, went live in the UK, France, Spain and Poland, with Nationwide Building Society being the first financial institution in Britain to support it,[137] although Nationwide subsequently withdrew this service in 2016. For the fiscal year 2022, Visa reported earnings of US$14.96 billion, with an annual revenue of US$29.31 billion, an increase of 21.6% over the previous fiscal cycle. These kinds of transactions are all still a small portion of the company’s business, yet they account for a huge portion of worldwide volumes.

Visa Inc. Past Events

This reflects a forward P/E of 33, in line with Visa’s 5-year average. Business plummeted during the height of pandemic restrictions, but the recovery is moving along. Revenue for the company’s fiscal third quarter, covering the period ended June 30, increased 27% from the same period in 2020, but  10% over pre-pandemic 2019 levels. If you’re like millions of people, you’ve already used your Visa (V 0.73%) card today.

It has numerous add-on services like data security and analytics, business payment management solutions, and cloud-based integrations for upstart fintechs. One of the ways Visa is protecting its top spot in credit card processing is acquiring and making deals with fintech partners. Its proposed acquisition of Plaid, a private company that connects financial apps with institutions, was scrapped after it was given a no-go by regulators. But it’s made many smaller acquisitions to grow its business and especially to stay relevant as digital payments become more important.

One of the best ways to invest in Visa shares is to create a stock trading account with international broker ZFX. 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. Visa is the largest card payment network and shadows China UnionPay and Mastercard. China UnionPay is a state-owned enterprise with a monopoly on the Chinese market. On the 18th of March 2015, Visa performed a 4-for-1 stock split, meaning that if you had 2 Visa shares before the split, you’d get 8 more, giving you a total of 10. The stock split dilutes the number of outstanding shares, causing the stock price to decrease, offset by having additional shares.

Visa and Mastercard are the only network payment processors involved in all three areas of the payments market. Working exclusively as network processors, these two companies have a unique edge, but they operate differently. 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.

Visa and Red Bull Formula One Teams Announce Global Partnership

There remain some persistent calls for slowing economic growth, with some economists remaining stubborn in their call for a recession, in 2024. It’s predicting stable growth in its global payment volume that could lead to high-single-digit to low-teens percentage growth in revenue. Visa has 100 million merchant locations and more than 4 billion outstanding cards all plugged into its payments platform. Because there are so many customers using Visa cards, merchants have no choice but to accept them. And because paying with Visa is so ubiquitous across the world, it’s hard to find someone who doesn’t have one of these cards in his or her wallet. How would anyone be able to build a competing platform like this from scratch?

That’s because the stock’s operating results showed considerable momentum at the end of last fiscal year heading into this fiscal year. For instance, Visa’s payments volumes, total cross-border volumes, and processed transactions were all higher in its fiscal fourth quarter than they were for the full-year. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on, top-rated podcasts, and non-profit The Motley Fool Foundation. Visa submitted a strong outlook for the full-year which calls for low double-digit (but double-digit nonetheless) growth of its net revenues which supported by continual momentum in cross-border transactions.

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The outlook implies resilient demand for Visa’s core payment services and supports current consensus expectations with regard to Visa’s expected top line growth. As I mentioned above, Visa has a strong opportunity to grow in international markets and with cross-border transactions which is where I continue to expect continual momentum throughout FY 2024. If the U.S. economy holds up well this year, I can even see Visa raise its top line outlook. Visa is an international payment network operating card schemes that enable banks, credit institutions and electronic money institutions to issue debit, credit and prepaid cards to customers. The company does not issue cards; they are the technology provider that processes transaction information between merchants, acquiring banks and issuing banks.

And this level of growth has been consistent since Visa’s IPO in 2008. Since going public, Visa has generated positive annual EPS growth during 14 out of its 15 fiscal years. What’s even more impressive is that Visa has produced double digit annual EPS growth during 13 out of its 15 years as a public company.

Rewarding investors

Most recently, it acquired Currencycloud, an app that simplifies foreign exchange to make cross-border payments easier. In Q3, it also announced that it would acquire Tink, a Swedish-based open banking platform. The strong US dollar could impact Visa’s revenue growth by 3% in fiscal 2016. Currently, the company is trading at a price-to-earnings ratio of 30x. Considering the high growth and low exchange volatility expected in the upcoming quarters, the stock could offer attractive returns to investors in the long term.

But unlike Mastercard at its current price, I believe that Visa shares are attractively priced. If you want to speculate on the stock price of Visa with day trading strategies, you can trade Visa on the ZFX MetaTrader 4 platform, used by millions of traders and thousands of brokers worldwide. Are you trying to decide whether you should invest in Visa or perhaps speculate on the price with a long or short position?

Visa also charges for licensing, providing technology and customer support services. 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. In 2020, Mastercard generated total net revenue of $15.3 billion, with a payment volume of $6.3 trillion. Mastercard’s core products include consumer credit, consumer debit, prepaid cards, and a commercial product business.

The company has nearly 15,000 clients that provide 4.1 billion credentials with credit, debit, and prepaid cards. Since 2017, Visa earns 52.0%-55.0% of its revenues outside the U.S. However, as the world goes increasingly digital, Visa has been expanding its services to accommodate other financial networks too — its “network of networks” strategy. Whether it’s traditional card-based digital payments or newer cloud computing-based ones, Visa aims to facilitate them as a type of railway of global money movement.

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