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Visa: Money For Nothing

Dec. 03, 2018 7:28 AM ETVisa Inc. (V)MA, AXP12 Comments
Jieming See profile picture
Jieming See


  • Global payments are becoming increasingly cashless and convenient. As a market leader, Visa is well placed to benefit due to its transaction-driven business model.
  • Unlike closed loop operators, open network operators like Visa do not bear credit risk and have better potential for growth as they work in partnerships (not competition) with the banks.
  • Among the open network operators, Visa has much better operating cash flows and an even stronger share buyback program than Mastercard.
  • Applying mid-cycle price earnings multiple of 32 and forecasting 2019 earnings per share of $5.17, I estimate Visa’s fair value to be $165.47 a share.

That's the way to do it. (Source: Pixabay)

If there is one ubiquitous topic dominating the discussion boards on investment websites nowadays, it is the growing topic of Fintech. From cryptocurrencies to QR codes, the rise of Fintech has come in various forms and has put the spotlight on what has been until now an underappreciated area of finance, namely that of the payments processing businesses. Nowadays companies from various industries (e.g., e-commerce retailer like Alibaba (BABA) and consumer electronics maker Apple (AAPL)) are all starting their own proprietary payments platforms to tap into this lucrative market. As the global trend towards cashless processing continues, companies are starting to see the opportunities in the lucrative cashless or electronic payments business.

While new technologies are emerging in the space of cashless payments, the payments processing business itself is not new. In the current form of credit and debit cards, payments technology companies like Visa (NYSE:V) and Mastercard (MA) have been dominating this business for years now with their electronic networks and partnerships with merchants and banks globally. In fact, you can even call them the first truly global "Fintech" pioneers. In my view, a company like Visa offers an even better investment opportunity than other payment companies for three main reasons. Firstly, its open network business model allows for much faster growth, and secondly, its fee-based model is transaction-driven and does not expose Visa to any credit risk. Lastly it has a strong track record of positive operating cash flows, and this has funded a share buyback program that had almost doubled in size over the last three years.

Overview of the payments industry

While Visa is known by many consumers as a "credit/debit card company," this phrase could not be more of an understatement of how the company conducts its business as

This article was written by

Jieming See profile picture
Jieming graduated from the National University of Singapore Business School in 2008. In his spare time, he follow news and analysis on the monetary and fiscal development in major economies like US, Japan and China. By following and understanding global macro-economic developments, Jieming develops his own views on news and events in these economies and writes about them.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in V over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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