VISA INC – (V): BACK TO PRE-COVID LEVELS. NEW INVESTMENT OPPORTUNITIES AWAIT IN DIGITAL FINANCIAL SERVICES
Visa Inc, the world’s largest payment network has achieved constant growth over the years. Its model that associate with banks to grant its clients access to payment solutions in return for small fees and small percentage of each transaction.
$21.8bn was what Visa brought in revenue in FY20 down 5% year-over-year (y/y), as the word’s economy tumbled into a covid induced recession driving payments and cash volume : which impacted consumer spending.
Still, in comparison to other industries / businesses that rely heavily on high product costs and overhead to generate profit, V, each year, bringing 50% of net income, the highest vs its main peers : Mastercard – MA (42%) and Paypal – PYPL (19%).
The digital transformation of traditional businesses has put V into developing new ways of digital payment solutions, in search for sharper growth. Plaid, digital payment solution app, was scheduled to be purchased and closed for $5.3Bn in Jan 2021, but has been abandoned as the DOJ anti-trust lawsuit out of it would limit competition in the industry.
After a challenging 2020, Visa Inc is set to recover, as its business returned nearly to pre-pandemic levels after its Q2-2021, beating analysts expectations.
V HEALTHY BUSINESS DRIVERS
In the continuity of previous quarters, Q3-2021, also delivered strong business growth. V brought $6.1bn this quarter, up 27% vs y/y led by key business drivers: 1) Growth in payment volume (+34% y/y); 2) Lower cost border transactions as the intensification of covid vaccination programs eased up on travel restrictions; 3) The total transactions processed by Visa (+39% y/y) pushed by domestic transactions and a steep increase in consumer spending levels (strong e-commerce transactions linked to the pandemic).
STRONG LEVEL OF PROFITABILITY
From this $6.1 Bn in turnover, it posted EPS of $1.49, 10% growth over the past 3 months. Overall, V keeps maintaining 2 digit growth in the past 10 years, with strong profitability (2020 ROE : 30.7%) and low level of debts. As such, generating high level of net income (42% in net margin Q3-2021) and using the majority for investment and financing purposes : acquisitions and shares buybacks.
EYES ON FINTECH AND CRYPTOS
After its failed attempt to acquire Plaid due to DOJ lawsuit, V has signed an agreement to acquire Tink, a Swedish open banking platform, for $1.8bn, with the objective of growing its digital financial service business. Its network of 3,400 banks and financial instutions was one the main strength highlighted in finalizing the deal.
As such, it makes sense for V, with this large network of banks and financial institutions, to invest and cooperating with other cryptocurrencies platform to accept both credit / debit card, and crypto payments. The potential is huge.
Ytd, the stock gain 7.04%. The share price (24/08/2021) closed at $234.24 per share.
Growth expectations: 1.5%-2% per year.
FY2021 Revenue forecast range: $22.2 bn – $22.5 bn
Share price forecast: $245.22 per share