VISA - Stocks

Instrument description

People around the world are all too familiar with the importance of credit and debit cards. Credit cards allow a person to person borrow from the card issuer, probably a bank, and the money can be used to purchase something or withdraw cash. The bank issues a statement, and the person has to pay the balances by a specific date.

Credit cards are an essential indicator of the financial health of a person, and a good credit profile is necessary when buying a new home, a car, paying tuition fee, and even getting a cell phone plan. The debit cards, on the other hand, allow a person to withdraw money or spend money they have deposited in their bank account. Both the debit and credit cards are made effective by prominent payment processors such as Visa and MasterCard.

Visa Inc. is an American international company that excels in financial products and services. Visa is a global company, recognized all over the world and an essential player in electronic funds transfer through its Visa enabled credit cards, debit cards, and other prepaid cards. Visa does not issue the cards or set rate for the consumers; instead, the company provides payment processes solutions to banks who then offer their credit and debit cards to the customers.

Initially, a Visa card was predominantly known as a credit card, but the company expanded its offerings to debit, prepaid, and even gift cards. The Visa symbol is evident on the cards, but the cards are issued due to the partnership of Visa with the said bank. The Visa cards are available to a wide range of audiences that includes ordinary customers, businesses, corporate clients, and business merchants.

Over the years, Visa has increased its payment processing network, and Visa enabled cards are accepted in more than 200 countries of the world. Each financial institution or bank sets its own policies and guidelines with Visa. The Visa cards come in a 16 digit account number, a microchip, and a magnetic strip.

In 2015, Nilson Report, which evaluates the credit card segment reported that Visa’s payment network (VisaNet) processed 100 billion transactions in the entire 2014, which was valued at $6.8 trillion. Visa was initially launched in 1958 as a competitor of Master Charge, now known as Master Card.

Visa is based in Foster City, California, and has almost 19,500 employees. Nearly all the transactions through Visa-branded cards are operated through the VisaNet network in one of six data centers located in Virginia, Colorado, Ashburn, Highlands Ranch, London, and Singapore. All the data centers can handle 100 billion computations every second and almost 30,000 transactions simultaneously. The data centers are highly secured against any natural disasters or crime.

In 2015, Visa surpassed China UnionPay and became the world’s second-largest car payment processing organization based on the total number of issued cards and the annual value of payments transacted. There are over 2.5 billion cardholders, and Visa helps them perform transaction every day. In 2018, Visa was featured in the 100 Best Corporate Citizen List, and Visa also ranked 161 by Global Fortune 500 in 2017.

History of Visa

Visa traces back its roots to BankAmericard, which was a credit card program launched by Bank of America, in September 1958, in Fresno, California. The BankAmericard was the first card that had the feature of ‘revolving credit,’ and it had a limit of $300. Visa Company was formed by Dee Hock and incorporated in Delaware in 1970. Visa initially had headquarters in San Francisco, California.

Visa launched its first electronic authorization system in 1973, which followed with an electronic clearing and settlement system. In 1974, the International Bankcard Company (IBANCO) was formed to monitor the BankAmericard program all across the world. In 1975, the first debit card was launched. In 1976, BankAmericard was renamed to Visa.

The term ‘Visa’ was put forward by founder Dee Hock, who thought the name was simple and would easily be recognized all over the world. In 1979, the first Visa Travelers Checks were issued in four currencies. In 1983, Visa introduced ATM ‘Automated Teller Machine,’ which enabled the provision of cash 24 hours a day. In 1986, Visa launched multiple currency clearing and settlement in over 21 currencies. In 1989, Visa acquired Interlink, and the electronic signature option is added.

In 1993, Visa implemented neural network technology to prevent card scams and frauds. In 1996, Visa launched a financial literacy program that is helped people in over 20 countries to manage their money. In 1997, Visa's total payments reached $1 trillion, which was a milestone for the company. In 2000, Visa reported having issued 1 billion cards. In 2006, the total payments of Visa reached $4.4 trillion.

In 1997, Visa Company was restructured to form Visa Inc. In 2008, Visa introduced the Visa mobile platform that not only helped in online payments but allowed users to get other value-added features. Also, in 2008, Visa becomes the largest Initial Public Offering (IPO) Company in US history by raising $19.7 billion, and Visa shares begin to trade on the New York Stock Exchange (NYSE). The IPO was $44 on March 19, 2008.

Visa was added to the Dow Jones Industrial Average on September 23, 2013, as one of the most valuable blue stock companies. Since 2013, Visa’s stock value has performed exceptionally well with only minor dips over the years.

Current Business and Investment of Visa

Visa is a leading global financial company that allows customers, businesses, merchants, strategic partners, and government institutions to use electronic funds transfer. Visa allows easy and hassles free transaction across 200 countries of the world. The success of Visa lies in its highly developed and advanced processing network called ‘VisaNet’ that is maintained with its subsidiaries that include Visa USA, Visa International, Visa Worldwide, Visa Canada, CyberSource, and Inovant.

Visa operates in the financial payment services segment. Visa tremendously supports the e-commerce sector and enables users to perform online transactions efficiently. Visa’s transaction processing network overlooks the authentication, clearing, and settlement of payments and transactions and allows the banks and other financial institutions to offer value-added service to the customers.

Visa manages a diversified portfolio of financial products that includes processing infrastructure, digital products, transaction processing services, merchant products, payment security options, and risk products. The retail electronic payment network of Visa depends on the total number of transactions, the volume of payments, and the number of cards in circulation.

Risk and Potential in Visa Environment

Visa reported revenue of $23 billion, with an 11% increase in 2019 due to its core business along with additional platforms and other value-added services. The net income of Visa in 2019 was $12.1 billion, with 17% YoY (Year on Year) change. The operating income of Visa in 2019 was $14.674 billion, and total assets were $72,574 billion. The Earnings per Share (EPS) of Visa was $5.32, with a 20% YoY change. SWOT analysis is a vital tool that allows business companies to evaluate their business performance and implement strategies for future growth and success. SWOT analysis of Visa is given by

• Strengths

Visa is a global brand name and one of the leading names in the banking and finance sector. Visa provides premium products and services and ensures seamless digital transactions all over the world. The company has a wide distribution network and a global reach in more than 200 countries. Visa’s processing network ‘VisaNet’ processes 62 billion transactions. Visa has been a major sponsor in many important sporting events. Visa takes pride in portraying full secured data centers. The company enjoys a healthy and strong cash flow stream.

• Weaknesses

Visa faces a high risk of fraud and scams and getting involved in legal matters. Visa focuses only on few products and services, and the company does not spend as extravagantly on Research and Development (R&D) as other big global organizations. Visa is heavily dependent on contractual agreements and relationships with highly valued clients.

• Opportunities

Visa has a wide opportunity to diversify its services mostly in digital currency and enter in developing economies. The future is digital transformation, and the company must take initiatives to become a leader in offering the best digital transaction solutions.

• Threats

Visa faces a tough challenge from rival brand ‘MasterCard.’ As Visa does operations all over the world, the economic downturns, political instability, and strict economic policies also impact the financial health of Visa. Visa faces threats due to cybercrimes and security breaches where user data could be hacked and misused.

Stock Analysis of Visa

Visa Inc. Class-A shares are listed and actively trade on the New York Stock Exchange (NYSE) with the ticker symbols ‘V.’ The company is listed under the ‘Finance’ Sector, and the industry is ‘Finance/Rental/Leasing.’ Visa is also a member of other indices such as the Dow Jones Industrial Average (DJIA), the S&P-100 Index, and the S&P-500 Index.

The all-time high share price of Visa was $215.71 on August 28, 2020, and the average price in the last 52 weeks is $185.82.

Visa’s stock value and earnings have always been riding high, but due to the closure of businesses and markets all over the world duet to the Coronavirus pandemic, the consumer spending was less. But now things are starting to return to normalcy, and businesses have resumed, which has increased the retail spending. Visa’s share price has surged in recent weeks and touched an all-time high value of $215.71 on August 28, 2020.

Visa released its third-quarter financial report that ended on June 30, 2020. Visa reported revenue of 4.8 billion with a 17% decline, profits of $2.4 billion, and EPS of $1.06 with a decrease of 17%. During the lockdown, people made full use of e-commerce, which benefited Visa, whose revenue from digital commerce was three times better than that of the physical transactions.

Analysts predict that for the fourth quarter of 2020, Visa’s EPS would decrease 25% to end at $1.10 per share, and sales may fall 18% to $5.04 billion. Wall Street expects Visa’s EPS to fall 8% in 2020 but swiftly rises again to $5.79 in 2023. The future success of Visa lies in the expansion of 5G network and digital payments which has grown considerably amid the Covid-19 outbreak.

Visa has always shown why it is the most valuable blue-chip stock, the Coronavirus pandemic influenced its financial health, but the company has ability to come back strong, as shown by its recent stock performance. The information above is for education purposes only and cannot be considered as investment advice. Past performance is not reliable indicator of future results.