Visa Charges Ahead in Fintech

09/25/2020 5:00 am EST


Carl Delfeld

Chief Analyst, Cabot Global Stocks Explorer

Visa (V) has been buying new innovative, disruptive fintech companies such as "Plaid", observes Carl Delfeld, editor of Cabot Global Stocks Explorer.

In some ways, Visa could be seen as fintech venture fund. Other recent acquisitions include Earthport, Verifi, Payworks, and Bell ID. All this has enabled Visa to deepen and broaden its suite of products.

  • Visa Direct is the prominent digital product that provides access to Visa’s transaction processing platform, VisaNet.
  • Visa Checkout is a dedicated digital product that ensures secure online payments.
  • Visa Token Service and Secure Remote are other digital products that secure personal account information by utilizing various encryption solutions.
  • CyberSource is a merchant payment acceptance solution that provides an omnichannel (online, mobile, and in-person) payment acceptance service.

There are several other reasons that I like Visa. One is that they do not lend any money or take any credit risk. Think of them as the plumbing in between financial institutions and consumers. The second reason is that their markets are almost infinitely scalable and with scale comes pricing power and profitability.

Between 2008 and 2018, Visa expanded its share of credit card-based network purchase volume in the U.S. from 42% to 53%. Yet more than half (55%) of its net revenue generated in the most recent fiscal year came from international markets.

Despite being a massive company in a stable product category, Visa is still putting up double-digit top line growth numbers with revenue up 11.5% in fiscal 2019 to $23 billion. And in each of the past seven years, Visa’s operating margin has been above 60% (!), leaving plenty of cash flow to fund new products and services.

The pandemic has had an impact, of course, as its latest quarter showed net revenue of $4.8 billion declining by 17% year over year. But that’s a short-term effect, and even with the disruptions, the company posted a solid profit of $2.4 billion.

Technically, Visa also looks great with the stock in a nice uptrend. The clincher for me is that Visa is a bridge between the online and offline, digital and cash. Globally, more than 80% of all transactions are still being conducted in cash.

This means regions like Southeast Asia, Africa, and the Middle East can offer double-digit long-term growth potential. This is just the sort of stock that young and upcoming investors should tuck into their portfolios and forget about. I rate the stock as a buy.

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Visa Charges Ahead in Fintech
09/25/2020 5:00 am EST

Visa (V) has been buying new innovative, disruptive fintech companies such as "Plaid", observes Carl...