This article was prepared by Jenny.T in collaboration with JR Research.
Visa Inc (NYSE:V) has launched multiple cryptocurrency initiatives in recent years as the company seeks to remain relevant in the changing payment industry. The company viewed cryptocurrency as a massive expansion from the fiat currency as more consumers recognized the value of the decentralized system. In addition, Visa also seeks to enhance its cross-border payment solutions as more fintech delivers more transparency and value to consumers. In December 2021, Visa acquired Currencycloud, a B2B cross-border payments solution with "real-time notifications on foreign exchange transactions, multi-currency wallets, and virtual account management."
We discuss whether investors should add Visa stock now.
From October 2020 to September 2021, Visa processed $3.5B of digital currency transactions. In addition, Visa reported that in H1'21 alone, its global consumers had spent more than $1B of cryptocurrency on products and services through cryptocurrency-linked cards. A survey by Visa reported that 94% of those surveyed are aware of the cryptocurrency market, with almost a third currently trading. To expand its cryptocurrency services, Visa also partnered with Coinbase and Circle to allow Visa consumers to utilize their crypto wallets at more than 80M merchants. Moving forward, the company expects cryptocurrency to disrupt the existing payment industry worth $18T.
The cryptocurrency market experienced extreme growth by the end of 2021, surpassing $3T of value in November, representing an increase of 375% since the start of the year. In addition, Bitcoin hit its all-time high of $68.7K on 10 November 2021, while Ether hit $4.4K on 11 November 2021. We expect the cryptocurrency market to perform well as a long-term digital asset with increased institutional adoption and federal government regulation. As a result, it made sense for Visa to perform a crucial bridging role between "banks, crypto trading, and custody platforms," as more consumers embrace the decentralized currency. Moving forward, we expect to see Visa flourish alongside the cryptocurrency market's macro growth trends.
In December 2021, Visa reported that it had acquired Currencycloud, a B2B cross-border payments solution, in a £700M deal. The company expects to further enhance its existing cross-border payments through the acquisition, on top of its current strategic partnership since 2019. Currencycloud currently supports 500 banking and technology clients in 180 countries, with over $5B in monthly cross-border transactions. Globally, around $1.9T of payment revenues are reported in 2020, with the number expected to rise to $2.5T by 2025, at a CAGR of 5.64%. It shows that global businesses are growing exponentially and that legacy payment platforms like Visa needs to innovate to stay competitive.
According to Visa, traditional cross-border payments offer limited visibility regarding transaction costs and foreign exchange rates, since the transaction is routed across multiple banks. In addition, The World Bank reported that in Q1'21, the transaction fees at banks average 10.66% for cross-border payments, while the global average cost was at 6.38%. However, in comparison, Currencycloud is able to procure a wholesale currency exchange rate according to its consumers' needs, while providing transparency and simplifying the payment process. In addition, Currencycloud is able to offer foreign exchange lock-in rates for up to a year, which helps consumers maintain consistent transaction costs. As a result, Visa and its consumers stand to gain from the enhanced cross-border payments as global B2B businesses and eCommerce becomes more mainstream. Colleen Ostrowski, Visa’s Global Treasurer, said:
The acquisition of Currencycloud is another example of Visa executing on our network of networks strategy to facilitate global money movement. Consumers and businesses increasingly expect transparency, speed and simplicity when making or receiving international payments. With our acquisition of Currencycloud, we can support our clients and partners to further reduce the pain points of cross-border payments and develop great user experiences for their customers. ( Seeking Alpha )
Over the past five years, Visa has steadily grown its revenues at a CAGR of 6.49%. In FY2021, the company reported $24.1B of revenue, representing an increase of 4.9% from FY2019 levels. It indicates that Visa has recovered from the effects of the COVID-19 pandemic, where lockdowns have impacted its revenue in FY2020. By FQ2'21, Visa had reported revenues in line with historical data, which coincided with the ramp-up in vaccination rates, and the reopening cadence also gained speed in subsequent quarters. As a result, in FQ4'21, Visa reported revenues of $6.56B, representing an increase of 7% QoQ and 6.8% from FQ4'19 levels.
In addition, Visa easily doubled its net income from $6.7B in 2017 to $12.31B in 2021. The company's EPS also doubled from $2.80 in 2017 to $5.63 in 2021, representing a massive CAGR of 63% over the past four years. The company achieved this feat by increasing its net income margin from 36.5% in 2017 to 51.1% in 2021, representing a massive increase of 40%. As a result, we can see that Visa has performed exceedingly well despite the pandemic.
Though Amazon previously reported that it would stop accepting Visa credit cards in the UK, consensus estimates are not overly concerned. Amazon UK revenues only account for approximately 0.10% of Visa's total volumes. In addition, most retailers came to new fee arrangements with Visa after similar incidents. On 17 January 2022, Amazon reversed its decision and will be working on a solution with Visa so that its consumers may continue to shop using Visa's credit card.
On 15 December 2021, Visa also authorized an additional $12B share repurchase program. Combined with its partially utilized authorization of $4.7B in September 2021, it will bring about a total fund availability of $13.2B for Visa's future share repurchases. Assuming full utilization, we are looking at an approximate 61.68M shares at $214.67 as of 14 January 2021. Investors typically welcome share repurchases as it cancels the company's previous dilution and boosts the value of their current portfolio.
In FY2022, Visa is expected to report revenues of $28.21B, representing a potential increase of 17% YoY. Over the next three years, Visa is also expected to report consistent revenue growth at a CAGR of 11.93%, which is a great improvement compared with its historical CAGR of 9.16% from FY2016 to FY2019.
Visa stock is currently trading at a P/E (NTM) of 30.64x, slightly lower than its 3Y mean of 33.03x. It is also significantly lower than its competitor, Mastercard, at 37.46x. In addition, Visa is expected to continue growing its adj. EPS steadily over the next three years as shown in its forward P/E trend. Therefore, one can argue that Visa stock looks fair-valued and attractive for a highly profitable company. Moving forward, we also expect Visa to report excellent revenue from the booming cryptocurrency market and enhanced cross-border payments.
We rate Visa Stock at Buy, given Visa's valuation and prospects moving forward.
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This article was written by
I'm Jere Wang, the lead writer and founder of JR Research and Ultimate Growth Investing Marketplace service. Our team is committed to bringing more clarity to investors in their investment decisions.
Our marketplace service focuses on a price-action-based approach to growth and technology stocks, supported by fundamental analysis. In addition, our general SA site discusses stocks from various sectors and industries.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.