Profit from Visa - the Biggest IPO in U.S. History

Two years after the MasterCard (MA) IPO went public, shares catapulted from $43 to more than $200.

But with greater market share and reach than MasterCard, Visa (V) and its coming record-breaking IPO may be too good to pass up.

In a market virtually frozen by credit and bank woes, and tumultuous economic uncertainty, Visa could put an end to pent-up salivating investor demand for any company not suffering from credit issues.

What's exciting is that if the Visa IPO prices at the low end of the estimated range, it'd blow the doors off the $10.6 billion AT&T Wireless (T) IPO of 2000.

At the top of the estimated range, the IPO could raise up to $18.76 billion. That's almost as big as the AT&T IPO offering and the Kraft Food (K) $8.7 billion IPO of 2001 combined.

It's what has the big banks excited, too, like JP Morgan (JMP) (which holds about a 23% stake), Citigroup (C) and Bank of America (BAC). Proceeds from the IPO could easily bring them much-needed capital to strengthen balance sheets and help with capital.

Visa: Limited Exposure to Spiraling Credit Crisis

Unlike industry Capital Ones (COF) and Discover Cards (DFS), Visa is a card processor, not a lender. That means it takes money from the banks that issue cards and doesn't extend credit. Smart move... It doesn't have to worry about cardholder debt. That concern lies with the banks that issue the cards.

That means that Visa won't have much exposure to the spiraling credit crisis, unlike others like Capital One and Discover that are watching share values plummet.

They're the ones that have to be concerned that as of November 2007, credit card debt "soared at an 11.3 percent annual rate in November following an 8.5 percent rate of increase in October" and is still on the rise.

They're the ones where share values are being beaten stilly because of charge-offs, payment delays, and higher delinquencies. Why do you think Discover Financial Services' stock plunged from a $35 IPO price to $15? It's a card lender, and concerns itself directly with cardholder debt.

But that's not the case for MasterCard and Visa. They, like we mentioned, are card issuers - not credit issuers. And because of that, they'll benefit as waves of struggling consumers turn to plastic to pay for rising food, and gas costs - all of which increase the fees that Visa would receive.

For Visa to IPO here, they want a piece of the action that sent MasterCard up fivefold since its IPO two years ago. And it should do quite well... for investors, too.

Consider this. In the U.S. alone, Visa is the biggest credit card company by market share, and has great presence in other countries, where people are "just starting to use plastic instead of cash," according to the Associated Press.

Even more impressive, "the 44 billion transactions totaling about $3.2 trillion that Visa processed in 2006 nearly doubled the number of transactions by MasterCard, its biggest competitor." Visa can even boast about having the world's largest retail electronic payments network.

And with homeowners struggling to stay above water, Visa, like MasterCard, shouldn't have a problem. They're benefiting as revolving credit has risen more than 11%, as of November 2007, as compared to the 6.1% of 2006 and the 3.1% of 2005.

And, they're benefiting as credit card debt ballooned to $790 billion, rising at a "rate four times higher than earlier in the decade," says the Center for American Progress.

In my opinion, you really can't lose betting on Visa success. If MasterCard could rally from $43 to more than $200, just imagine what Visa may be able to pull off.

Watch for the Visa IPO. It may pay a dividend, too.

Disclosure: none

Comments

[calvino:]

So in your opinion one can't lose here. Found money. And I thought that consumers might contract their spending in the face of the worst consumer sentiment reports in twenty years. That won't stop Visa though, they are bigger then their customers, bigger than the markets themselves. Or bringing an IPO into this market could be seen as a sign of the banks cashing in while there is still any cash left.

2008 Mar 02 07:38 PM

[gokou3:]

You have no discussion of V's valuation. How can you conclude "you can't lose"? Btw, you must not have read the IPO prospectus: it says explicitly it will pay a dividend, not maybe.

2008 Mar 03 01:12 AM

[retrace:]

I for one am interested in Visa and have been awaiting it's debut.
There financial filings can be found on the Hoovers site.

Joseph Saunders was named executive chairman to oversee its transition to a public company. Saunders has a great track record, he headed the turnaround of card portfolios at the former FleetBoston Financial and Providian, and is/has left his post as president of credit-card services at WaMu.

I held Providian stock from the low two's and watched intently as Sauders turn the company that many had said would/could not survive into a 20.00 dollar stock at which time it was sold at near that pps. He knows the card business.

But with that being said there are certainly more important factors to consider, as both calvino and gokou3 eluded to.

One of the big concerns I have is the timing of the IPO with the financial markets as they are.

I have followed and bought several IPO's and many retrace their initial rise in pps within the first few weeks, before resuming upward movement "if" they are going to.
Therefore, at least for me there is time to see what the overall market sentiment is before making a decision.

Master card initially hit the street at 40+- and went to 48+ in nine days, but a month after the initial it could be bought for 43+.
Google also did similar, hitting the street around 100, rising to 108+- than retracing and thirteen days after the initial it could be bought for 99+-.

IMO, patience gives one time to see how the street accepts an IPO, and hey if you miss it there will always be more.
Don't let emotions cloud judgment, were not here to love them, just to make money from them.
JMO

2008 Mar 03 04:14 AM

[Mechanical:]

This was a pretty well-written article compared to a lot of other ones I've seen. I don't know why there seems to be a shortage of good coverage on the Visa IPO. A lot of the articles found here on SeekingAlpha were of much lower quality than I'm used to.

My feelings on the Visa IPO opportunity is similar to Retrace's. I want to sit on the sidelines for a couple weeks and watch what happens. I expect it'll pop-up 10-20%, then consolidate, before moving upward again.

2008 Mar 04 10:12 AM

[retrace:]

Visa's online road show can be found here
www.ipohome.com/common...

click on
View the company's online roadshow

2008 Mar 06 12:35 AM

[isherlock:]

"In my opinion, you really can't lose betting on Visa success. If MasterCard could rally from $43 to more than $200, just imagine what Visa may be able to pull off."

i should re-visit these words everytime when i want a laugh...

2008 Mar 19 02:52 AM

[retrace:]

Still watching,
below is a chart of MA (mastercard), as can be seen it was a couple of months in before it started to move. MA also IPOed under far more favorable market conditions.

"shares were priced at $44 each for the initial offering to those selected investors. But even if you had been able to buy the shares at the midpoint of the initial range, $39.50, that implies a price-to-earnings ratio of 18.8 on annualized fourth-quarter earnings, according to Francis Gaskins, editor of IPOdesktop, who recently revised his valuation the week of March 3. That's slightly below the 20.5 P-E of MasterCard (MA) as of early March.

If the stock stays well above $39.50 and the P-E exceeds MasterCard's, you may find that you're paying a rich price.

During Visa's first day of trading, shares were trading just under $60. That is 27.3 times higher than the company's most recent quarterly earnings of 55 cents a share, annualized to $2.20. That's higher than the 23.5 times Mastercard was trading on its most recent annualized quarterly earnings."

above excerpt taken from usatoday article,
www.usatoday.com/money...

MA chart,
stockcharts.com/h-sc/u...

V chart,
stockcharts.com/h-sc/u...

2008 Mar 29 09:02 AM