As a global digital payment leader, Visa Inc. V has an expansive network in over 200 countries. Poised to benefit from the growing trend towards cashless and digital banking, the company’s growth is further boosted by recent strategic partnerships and tech innovations like blockchain. While it faces potential regulatory issues and new competition, Visa’s solid financials and business model make it a promising investment despite these risks.
The digital payments sector is set to grow at a 20.8% CAGR from 2023 to 2030, and Visa holds 61.6% of the U.S. and 40% of the global credit card market – demonstrating its market leadership. Its broad network is difficult for competitors to match. Combined with its strong reputation, this primes Visa to benefit from future industry growth.
Fintech and blockchain technology
Acknowledging blockchain’s potential, Visa has strategically incorporated it into its operations. The launch of Visa B2B Connect, a blockchain platform akin to SWIFT, processes cross-border payments and underscores Visa’s innovative stance in the financial sector. Visa has also expanded its Fintech Partner Connect program, which links Visa card-issuing banks with fintech firms, facilitating digital expansion without substantial R&D costs for these companies. These partnerships have enhanced services and improved customer experiences for banks while driving revenue for Visa through higher transaction volume.
Visa has experienced steady revenue growth, averaging around 7% CAGR over the past five years. Future estimates indicate an anticipated acceleration to about 11% in the coming years, likely spurred by the economic recovery. Visa showcased an impressive ROIC of 25.7% in 2022, significantly outpacing the S&P 500’s average ROIC of 10.2%, which underscores the company’s effective growth strategy. Moreover, with a quick ratio surpassing 1, Visa can comfortably meet its current liabilities, positioning it well for potential economic downturns.
When compared to its main rival, Mastercard MA , Visa appears to be more reasonably priced. Its current P/E ratio is 30.5, much lower than Mastercard’s 37.05. Similarly, its EV/EBITDA ratio is 23.7, which is also significantly lower than Mastercard’s 27.58. Most importantly, Visa is trading at a 12% lower value than its 5-year median P/E of 34.19. If it reverts back to this mean value over time, there’s substantial room for growth.
While Visa holds promising growth prospects, it faces regulatory and competitive risks. Recently, there have been DOJ antitrust allegations that may affect its bottom line through compliance costs. The emergence of disruptive fintech companies like Affirm that offer attractive alternatives like BNPL (Buy Now, Pay Later) services, could impact Visa’s credit card business. Still, Visa is responding with its own BNPL offerings, which benefit from its large merchant network. Additionally, Visa’s dependency on consumer spending could pose risks during economic downturns. However, the continued digitization trend and shift from cash to digital payments is a secular tailwind that can sustain Visa during any macroeconomic condition.
Visa, with its well-established global network, strategic fintech partnerships, and developments in blockchain technology signal a strong future growth trajectory. Despite facing potential regulatory and competitive challenges, Visa’s robust financial performance and well-structured business model, and market leadership make it a “Buy”.