Visa: The Best Company in the Dow Jones 30?

Visa is an American company specialized in credit and debit card payments; It makes money applying fees to the financial transactions it processes with its payments network, VisaNet.

The company’s revenue is divided almost equally among its three major segments.

The payments company is well diversified from a geographical standpoint. Its largest market is the U.S. (37%), followed by the Asia Pacific (22%) and Europe (20%).

Visa’s history

Visa was launched as an internal project for customers in Fresno by Bank of America in 1958. It was initially called “BankAmericard” but was rebranded as “Visa” in 1976. The purpose of the project was to launch a universal credit card in a period when there was a different credit card for each merchant. (1) In 1966, Bank of America began to face an important competitor, Mastercard. Jumping to recent years, Visa was listed in 2008, raising almost $18 billion. Despite taking place during a huge financial crisis, its IPO was a success thanks to Visa’s low exposure to the recession and Mastercard’s successful 2006 IPO. The latter company’s stock price had quadrupled in the intervening two years. (2) In 2015, Visa bought Visa Europe.

Visa’s financials

Visa’s revenue has gone up since its IPO. The company is well positioned to benefit from the increasing use of digital payments, driven by growth in e-commerce and international travel.

The revenue growth rate declined from 2010 to 2016, but the trend seems to have reversed in the last two years.

EBIT and net income have been following revenue growth. The company is now able to post more than $10 billion in net income. This has been possible also thanks to Donald Trump’s tax cut, which increased Visa’s earnings per share (EPS) by 10% in 2018.

Visa’s stock performance

Since its IPO, Visa’s stock price has increased 12-fold. This growth has not gone unnoticed. In fact, in 2013 the firm was included in the most exclusive stock index in the world: the Dow Jones Industrial Average.

The payments giant has outperformed its natural benchmark, the Dow Jones 30, in the last three years.

When we compare Visa’s stock performance to its peers, we notice that the whole industry has surged in the past few years. The California-based company has outperformed American Express but underperformed Mastercard, which has more than doubled its market value since 2015.

Visa: investing strategies for 2019

From a fundamental standpoint, Visa is one of the best companies, if not the best, among the Dow Jones 30. The credit card giant is able to combine a very high operating margin with continuous revenue growth in multiple geographical areas.

The most difficult challenge looming over the company is the development and spread of mobile payments. Zuckerberg, Facebook’s founding CEO, has anticipated that by testing payments with WhatsApp in India. (3) Moreover, in 2016, Facebook acquired a license for payment services in Europe. (4)

Despite this, management expect a revenue growth in the low double digits for 2019. The company dividend yield has always been quite low, but this has recently been compensated for by an important shares buyback program.

Trivia

Joseph P. Williams, a Bank of America employee, launched BankAmericard (the old Visa) by mass mailing 2 million credit cards to potential customers across California in the late 1950s. The result was an $8.8 million loss for the company, due to a new crime: credit card fraud. (5)

What do you think about Visa’s future? Let me know in the comment section below.

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Bibliografia

1. https://en.wikipedia.org/wiki/Visa_Inc. [Online]

2. https://www.reuters.com/article/us-visa-ipo/visa-raises-17-9-billion-in-record-ipo-idUSWEN458920080319. [Online]

3. https://economictimes.indiatimes.com/industry/banking/finance/banking/npci-meity-still-not-in-same-whatsapp-group/articleshow/64772196.cms. [Online]

4. https://techcrunch.com/2016/12/07/facebook-just-secured-an-e-money-license-in-ireland-paving-way-for-messenger-payments-in-europe/. [Online]

5. https://en.wikipedia.org/wiki/Visa_Inc.#cite_note-19. [Online]

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