Visa Reality Check

While everybody points out how well the Visa (V) deal is doing, they seem to be missing one point — and it’s a point my colleague, David Weidner, appears to have been alone in having pointed out in a recent piece: The trend is not currently Visa’s friend. (At least not based on its most recent SEC filings.)

Bob Pisani and I went back-and-forth on this while on CNBC’s Power Lunch today. His point was that Visa officials are saying that more people are using plastic for ease, not because they’re going deeper into hock, which is good for a company like Visa, which makes money by processing transactions.

While that may be true, especially once this economy gets squared away, the point David made is also true: According to the “statistical data” in Visa’s filings, growth in year-over-year payment volume for the 12 months ended last June is down, and not by a small amount: 13% vs. 18%.

A better view can be seen by looking at Visa U.S.A, which generates the lion’s share of revenue. Payment volume in fiscal 2007 grew by 9.6% compared with 17% the year earlier and 18.2% the year before that. The trend is similar for the growth in transactions.

In other words, even though Visa doesn’t have credit exposure, it still has exposure to the economy, which it also warns about in its filing. (I know, standard boilerplate, but still…)

Just something to keep in mind, especially given the timing of the deal, which was great for the banks which sold into the offering.

Time will tell whether it was just as good for everybody else. (Cliche, yes, but it’s true.)

Onward…

Comments

[tj115]

I bought 200 shares of Visa and I am planning on holding on to them for a long time. It is almost definitely a stock that has no where else to go but up. I beleive that VISA will be the next $200.00 stock... over time? Sure.

[steveballmer]

I bought at $55 and sold at $60 two hours later, nice bit if change too!

[texasgolfer]

as we continue to use no only for credit but debit as well the transactions will grow. visa should be able to control their pricing better without the banks taking their cut(s) and credit cards with customer debt will be slower to recover their margins due to credit losses etc. hey, if it only goes up to $100 in 3 years, that is better than a T Note rate. I think this is a great stock for a roth account for tax benefits.

[ballsschweaty]

Herb was bearish on Whole Foods for a long time and finally threw in the towel after it quadrupled. Once he finally issued his Mea Culpa, the stock plunged.

Herb is the best contrarian signal I've ever seen.

[vboring]

who pays with cash anymore?

honestly, people will put a $2 coffee on a card. so, what market is left to capture?

if there are no transactions left to move from cash to cards, then visa's transactions are anchored to consumer spending and there is little room left to grow.

[ballsschweaty]

Checks still represent over 40% of all tender payments. International is a massive opportunity.

Visa will bubble up to $170 and then crash. Naysayers will finally jump on the long side at about $168.

[nyka]

Based on the comments adjoining this blurb, I'm going to call my broker tomorrow morning and have him sell my 100 shares of Bear Stearns and buy as many shares of Visa as I can with the proceeds.

[Piyush]

Herb,
There are two points you overlook when making your case

a) The growth of plastic around the world, sans US where Visa is a major player has been overlooked. Be it Debit or Credit or Gift Cards, growth in plastic is here to stay and Visa will be one of the beneficiaries of this phenomenon. MasterCard is working overtime to capture the Debit market where it has been a historically marginal player esp. in the US and has been true in all emerging & established economies but Visa still has it beat by a long shot.
b) The payment system is moving to electronic/plastic/ble... (Chips in Cards, Cards tied to Phones) are set to grow dramatically in the next few years - outside of US, again a large market which makes Visa & MasterCard very attractive buys.
I agree the above two points are interrelated but there is a subtle difference - inspite of cost of network creation going down dramatically in the last 1.5 decades, no one is building any new ones and governments arent pushing Visa/MC to share theirs like Bandwidth of Telephony carriers anytime soon - all this means Visa & MA are good buys for atleast next 5 years with solid growth prospects.
Add to that, a certain level of decoupling of emerging economies from US economy, providing counter cyclical cover for Visa/MC over time.

Piyush

[fxtrader07]

let me weigh in with a comment from "old europe" as there seems to be lots of wild optimiostic growth expectations out ther by some people. all that talk of visa expanding in a grand style internationally because of plastic replacing cash is seriously flawed. why? because in the European Union, for instance, there is a well established electronic cash system that does not involve credit cards. you simply don't need them. and yes, i do have a visa card but paying with my ec card is safer(!) and easier. many shops do not accept credit cards because it simpüly means additional costs to them without any benefit. ec-systems are installed everywhere - from govt. agencies, to gas staions, food stores, supermarkets, heck even your parking clock can be paid that way already.
Of course, Asia may allow for some decent growth, but the point to notice here is that VISA is going to capture a small fraction of the "plastic" market only. And, given recent trends in the world#s financial markets and of governments obsessed to control each and everything (in the name of fighting the evil terror guys, of course) that shift to non-cash payments may actually slow down to quite an extent. As for the internet, other specialised systems such as paypal may not allow for much progress of visa, mastercard and co., either

[VWinner]

Hey = herb was just a couple of years off- whole foods is finally weakening. Just add two years to his projections and you can't go wrong........